MIP35: Peg Stability Module - Compound Mixed Exposure - With Farming

Well for one, This is the “PSM” which cannot be touted by Foundation Teams (this will change when they free themselves), and two, or dos, how could anybody in the community NOT love MKR being burned when all we need to do is:

  1. convert the usdc to dai via the psm.
  2. convert token bonus to dai via uniswap.
  3. convert dai to MKR via uniswap and burn the MKR.

Since I am not technical, I must say, it looks like a win-win!
Hence, why the RFC period here has been quiet so far, IMO.

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How that can be linked to PSM? The overall logic is different. Even the code based is now totally different.

Is it just the name that blocked the all process?
For my disclaim I probably missed part of the story about it.

I have 5 MIPs opened with different name and that didn’t change anything.

I have a hard time even understanding what this is saying TBH. You take usdc and then turn it into dai which you then turn into more dai? and you then repay some dai somewhere.

Further I would really love to get an accountant to look at this to make sure that the underlying idea is sound / legal.

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Hi Andy,

Thanks for the replay, I will try to reexplain it, we have two farming join:
one is cUsdc and the other is cDai.

the first join take usdc return dai.
the second join take dai and return dai.

Here the module, plug them in series so usdc -> dai then dai -> dai.
so the end user will have a usdc -> dai conversion.
But on our end you will have 1 cUsdc and 1 cDai in each vault.

There is no magic our main limitation here is the Dai supply as the convertor is used the supply will increase and the dai price will fail twice as fast as a normal psm.
The main issue with the PSM is that it levels the dai at one price 1.01or 0.99 this one will actually push the peg down or up.

I don’t think, there is no accounting issue here. Actually I don’t think I understand what you mean by accountant to look at the legal behind it.

What i mean by accounting issues really boils down to whether or not there is an issue with lending an encumbered asset. Would that be considered legal for a traditional company?

DAI isn’t just some 1 dollar currency to the protocol. Its an obligation to provide 1 dollars worth of collateral back at emergency shutdown. IMO that is why @SebVentures calls it a liability in this post.

So like seb says in order to buy anything the protocol “expands it balance sheet” and purchases the asset in question be that a loan or usdc or whatever, but what this basically means it is doing is that it is minting a new liability that it uses to purchase the asset in question.

In a sense, these new liabilities (i.e new DAI) basically gives the bearer a lien on the asset that was bought. This is because that dai is redeemable for $1 worth of collateral at ES (see this post explaining ES). That being the case, would it be legal for maker (assuming it existed in the traditional fiance world) to give a purchased asset (which has a lien associated with it) to compound and then receive some cToken that is supposed to be redeemable for the face value of the initial collateral + interest.

I know i can’t just give my house to someone and receive some IOU from them for a bigger house without paying back my lender first.

My guess (im not a lawyer or an accountant) is that isn’t legal unless you first have equity in the underlying asset. Meaning you first need to pay down the DAI liability to some extent before you are able to give any USDC to compound for investment purposes.

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the join() will convert to cToken and increase its leverage to match the CF.
the exit() will decrease its leverage and redeem the value in usd/dai from the cToken.

Concretely the vault contains in theory at any time more than 100% of underlying collateral (USDC/DAI) equivalent cToken with leverage. so 100% of exit() call can withdraw the position at anytime. - Emergency Shutdown -

I believe the liability is on the cToken, and the assert value is the underlying assert minus the leverage position taken.

During the “harvest()” call
If we are under 100.1% of the join value in usdc, we sell COMP inside the join to top up the underlying collateral with the product of the sell.
If we are over we send excess to the delegator.

The 100.1% is here to cover the eventuality of a negative interest with no COMP - it gives us probably around 2 weeks to take action ( with 0.1% over collateralization).

However, there is a risk that cToken can’t provide the full amount promised during the redeem - sort of real world company bankruptcy where you get only 1/2 of your money -. This risk is probably the same with any others collateral. I believe the overall risk is the same as the cropJoin one which has been evaluated already for cUsdc risk evaluation .

Yeah so what i am really trying to question here is the legality of converting the USDC to cUSDC in the join. Not sure that would be allowed in real world finance, and if it isn’t i think we need to wrangle with the idea that it would be a limitation that we should impose on ourself as well.

Further in the event that of a compound insolvency issue. Where does the buck stop? Who is on the hook for the protocols DAI liabilities?

CropJoin does exactly the same.

Real world finance do exactly the same at a level up, last example is : gameStop.
You deposit money in your account they lend it to the central bank.
You deposit share in your account they lend it to hedge found.
You take a credit for your house they package it and sell it as an exotic product.

Also here the Dai overall liability is not on this vault it is on the all system.

All line inside this vault is own by us at the difference of cropJoin.
Maker is the only owner of this assert, therefore we don’t have liability to return it.

Not a specific asset, but $1 of assets. Someone can borrow from a vault (using the loan on the vault as collateral) buy some USDC from a third party and at some point clear the debt and the vault. The third-party having DAI still has a claim on Maker even if the originating vault doesn’t exist anymore.

Sure but i think this explanation still skirts the question at hand. Can maker (the party with the DAI liability) transfer ownership of the asset (the loan in the quote here / the USDC used to mint dai in this MIP) to some other entity such as compound without first paying down that liability.

I get that the claim on the asset (i.e Collateral) is fungible. I just don’t really know where to draw the line about transferring ownership of these assets, and I think in the real world a transfer of ownership would require us to pay down the liability first.

I am not sure I understand.
Because, what the difference with having 25% of dai vault backed with usdc which is also not usd and we had also transferred the ownership of the assert. We didn’t pay down the liability first.

Because the protocol bought the USDC loan with its liabilities. That the asset is the USDC loan. It is not able to transfer the ownership of that loan without first having someone pay down the liabilities. Either the vault owner pays back the DAI liabilities directly or the liquidation keepers do.

In this case you are buying USDC with your liabilities and then you transfer the ownership of your asset over to compound which is the sticking point for me, and I don’t think this would be allowed if you were trying to do this in the real world.

Now obviously the legal landscape here is fledgling and we aren’t bound by the same lending laws that exist in the real world, but that could change any day. So all im trying to bring up here is A: would this be allowed in a real world lending environment and B: if it isn’t do we really want to allow for it to happen with dai C: if we do then why?

Ok you can see it on the other way around.
You actually loan the dai to the contract not maker.

The liquidation can be activated as we are over collateralised. I assumed that the vault is 0% because from a risk point of view we are better off with dai instead of ctoken. Don’t confuse things the liquidation issue is a protocol issue not this vault issue.

The cUsdc have a liability to usdc and usdc to usd. I agree it is a level up.

I really don’t see any legal issue on it, if you look at share, company can issue share and lend them. Found can issue share and hegde their found against it by selling or buying it.

Regarding the legal, first we need to find the legal attached it. Which country for example. I also believe that doesn’t really matter at this point as a concurrent state currency is highly prohibited in most countries.

Sure but in my opinion we should be getting a CPA, lawyer, or some other authoritative entity to make that determination.

As I said I believe we first need to determinate on which legislation we are standing on. The overall system is in my opinion more an issue.

I would be very interested to see what a layer say.
For example in France issuing your own money is punishable by a sentence of death the same way as a tentative of state coup if I remember correctly.

Is it legal in Colombia?

Also PSM is deployed and has probably same issue. It is probably a global topic not really linked to MIP35 I believe.

Quite sure we no longer do that. It’s still forbidden to lend money if you are not a bank. And issuing money quite likely as well (while there are a lot of local currencies which are allowed if they don’t seek to be successful). That kind of stops the debate anyway.

I still don’t understand what the issue is. In the financial market, I can borrow a share, sell it, use the proceed to borrow another one, sell it, and so on until my broker stops me. We have seen with GME that the short interest can be above 100%.

That is bc when you borrow a share there is no lien on that share, so you can do whatever you want to with it. When Maker issues dai to buy an asset there is a lien on that asset through the DAI that was issued to buy it so getting rid of the asset to let compound invest it for you leaves you exposed.

Obviously IMO this isn’t the best idea. Personally I think maker should be looking for ways to get USDC off the books not try to pass it along to compound as an investment.

These damn Americans and their “laws” amirite?