Yes, liquidations are an important component to this, and we worked hard to develop a good auction system. It certainly is a source of risk, but it’s also possible that a slightly different auction system may provide some resiliency, as it is less likely to fail under the exact same conditions as Maker’s. Nevertheless, I do think Maker should carefully evaluate that risk, and should deal with it via the DC mechanism.
Regarding your comment and @iammeeoh’s comments about how MakerDao should add fixed rates, I expect that Maker eventually will add native fixed rates. But eventually can take a while. When we started Yield, we were told that Maker was considering adding fixed rates by Maker Foundation members. Over a year later, Yield is live, and there isn’t yet any work on adding fixed rates directly into Maker that I see. And for good reason: Maker has higher priority initiatives like real world assets that are going to be huge and there isn’t the bandwidth to do everything.
That’s where the TLM comes in. It’s not trivial to do fixed-rate loans. We’ve had to solve a lot of problems along the way, and it still remains to be seen whether we got it right. Before Maker invests a lot of resources trying to add native fixed rate loans, buying loans can help Maker evaluate the market and the technology. If it works, the lessons learned can be used to build fixed rates into Maker. Yield would support such an effort, and this MIP can be thought of as the first step in that direction. You might even say that Yield is helping Maker to add fixed rates for free, basically.
Look, we could have built Yield a lot of different ways. We could have focused on USDC borrowing first, and that probably would have given us faster adoption. We wanted to do Dai first because we believe in decentralization. Decentralization is important. That’s why Yield v1 is fully decentralized, no governance, no upgrade keys, with Maker under the hood.
This MIP doesn’t help pump any tokens, and we don’t earn any fees from it. All we get is kudos. I hope that’s a fair trade.