MIP39c2-SP16: Adding Maker Portfolio Core Unit - MPCU-001

I should rephrase. The corporate trustee charges that. Thank you for catching that.

These will be designed so that they require no more oversight from us except if we are in a cash crunch and choose to liquidate. I am not proposing the MPCU be the trustee. We will outsource that to a company that does that full time.

Sir, interesting article on the man who knows shadow banking inside and out:

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While I can’t get through the gate at the moment (password stored on a different device, apparently), I can almost certainly tell you why “investors have started storing billions of dollars at the Federal Reserve each night.”

Generally, banks under the purview of the Federal Reserve are required to hold 3% capital for all assets. This typically includes assets at the Federal Reserve, but during the COVID pandemic’s darkest days, the Federal Reserve relaxed that rule. Now the rule is back, so the risk-free rate of return is no longer free money to a bank. This has prompted many banks to shift customers’ deposits into money market funds. Unlike a bank deposit, there are less stringent capital rules for a money market fund, even if the same bank oversees it. Those money market funds need a place to get a return – any positive return is still a return and risk free returns are still risk free, no matter how small – and so are increasingly finding their way into the central bank’s accounts in a world where interest rates are so low for short-term alternatives.

TL;DR is that regulatory arbitrage has encouraged a migration of deposits from formal bank savings accounts to money market accounts. By altering the label on the account, the funds are once again profitable to deposit at the central bank and earn 15 bps as excess reserves, and there are not a lot of alternatives that earn more and are of similar low risk. You would need to buy and hold a 2-year Treasury obligation in order to achieve a better risk-free return, and then you’re exposed to duration/market/inflation/interest rate risk if you want to keep that cash 100% liquid.

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Banks Reserve Accounts go down (pretty much empty) as they move their liabilities (USD) into the Feds Reverse Repo Account for that low rate you’re describing above—-this means there will be deflation—as banks won’t have enough reserves (USD) to make loans ( especially to RWAs such as RE). Enter MakerDAO + DAI to save the day :wink:

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So this is literally losing money business for Maker as the profit can’t be returned to Maker. Isn’t following which said it will give Maker predictable income a false statement then?

"Each trust will only purchase one batch of securities, and proceed to hold them to maturity, providing both Maker and the charity beneficiary with predicable, regularly scheduled income. "

In terms of government protection, there are literally countless organizations and governments buying billions in US Treasuries daily that what Maker does with treasuries won’t make a dent. That will never shield Maker from getting cracked down on.

In terms of good will, might as well use $300k directly to charity via governance if that’s the main objective.

Now reducing USDC exposure in PSM point is interesting but I don’t get why current RWA groups can’t solve that instead of creating new CU. Either way, I will wait to see the Maker holders’ decision. Also I appreciate that you are active in Maker community. Don’t take my criticism personally

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No. The trust pays Maker a stability fee for the financing. It is designed to turn a profit, not lose money. My emphasis that profits aren’t the main goal of this program should not be construed that it will lose money. Maker loans to the trust at X%, the trust buys Treasuries yielding Y%. Maker gets X%, the trust pays for its expenses Z. Then Y-X-Z = what is given to charity. We can make that amount as large or small as we wish, as long as we do not charge the charitable trust more than the yield on the Treasury note.

The goal is to own 5% of the Treasury market, which would be a run-rate of $30B in monthly purchases. For reference, the Federal Reserve currently makes $80B in monthly purchases. In theory, we are limited only by the peg’s appetite to absorb DAI on the market. In practice, this is likely to be used as a peg management tool rather than pushing the peg to its limit. We would begin with smaller amounts and work up from there. Note that the market readily absorbs large amounts of DAI. There was a day last week when 180m DAI were minted, and half of that was the PSM to hold the peg.

At the margin, every million of Treasuries is a million less of USDC.

I think I have failed to articulate that the MPCU is not going to be holding money or making the investments. Its role is to establish the trusts, which can then use financing from Maker. The bulk of the MPCU funding is pay for drafting of trust documents, reviewing them, establishing the trust, etc. The MPCU is more akin to a loan officer than a wealth manager.

The trusts then pay Maker a stability fee for that money, which is paid for by the purchase of fixed-income securities – in this case Treasuries, though if the DAO wanted more yield in exchange for risk, there are other things we could buy. I prefer to start with the goal of making the next billions of stable backing a positive-yielding Treasury instead of 0% yielding USDC.

The goal is for tens of millions to go to charity, tens of millions to go to Maker, and to give us stable asset backing aside from USDC. It’s a simple structure that touches upon a lot of areas, so I feel that I’ve not done a good job explaining how this purchase program would work following the parallel threads of peg management, stable revenue, PR/lobbying.

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Ok, now I see how it can be profitable

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@PaperImperium

I can see the appeal of having something like this, but I want to echo these words of wisdom:

Crawl, walk, run

Custodying all sorts of securities, treasuries, etc., can bring about its own tangled web of a regulatory nightmare, imo.

Also, I want to note… I noticed a mention of off-boarding risk assessment. I believe part of our entire ethos is assessing risk in-house. I mean, look at how we caught the Polygon risks.

I don’t see Maker as this like… “hedge fund” which is presiding over managing all sorts of assets, securities, financial derivatives for generating revenue. I don’t think it’s what meant to be… and again, invites a whole regulatory mess.

We shouldn’t rush into generating yield from any and every direction, especially when it involves tradfi assets. I’m open to the idea of bringing in all sorts of RWAs, and we’ll need to, but in a very measured careful way.

Crawl, walk, run

:innocent:

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Don’t worry. I want to off-board Risk assessments to the Risk CU, as opposed to the MPCU. That’s different from how RWF does it, so I want to make it clear that risks would be assessed in the same manner they are for crypto collaterals. A return to a tradition that has served Maker well

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As an update, it has been confirmed that there should be no legal hangups with this general structure, and should cost ~$8k to draft documents + ~$2k to have a second firm review them.

The big hurdle appears to be finding a trustee without a blanket “no crypto” policy, but I believe we already have one whose fees run a flat $7500/year for the first $5m in assets, then 10 bps up to $15m, then 7.5 bps up to $25m. They can prepare and file taxes for $1250/year for each trust. They have also expressed an openness to discounts for regular business, particularly as this structure would require less effort to administer than many complex trusts.

If the MPCU is approved, it is estimated to take around 8 weeks to get the first trust operational. Subsequent trusts should be both even less expensive and even quicker to establish.

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Great! We should be experimenting with different structures that can grow MakerDAO in a safe and efficient manner,

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I have stated publicly at least twice that it is inappropriate for a CU facilitator to also be a delegate. Separation of powers within Maker is also one of the pressing challenges I introduced during my Meet The Delegates Q&A.

After some personal reflection, I want to lead by example.

Now that delegation has arrived, it would be hypocritical of me to simultaneously stand as a delegate and present myself as the inaugural facilitator for a new CU.

While I feel this CU would provide a valuable tool for peg management and integration with the real world, it is important that I adhere to my own pledges and commitments — particularly with regard to governance quality.

I am withdrawing this and related proposals from formal submission.

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