MKR as Compound collateral

Hi guys,
not sure if it is a right category to put this question but:

Are You aware of voting on compound to add MKR as valid collateral of a system?


Is it something we should be worried about?

Is there anything we can do ?

What are your thoughts about it?

I view it as very dangerous and here is my reasoning behind it:

  1. It will allow to short MKR for another collateral and by that manipulate it’s price and by that may lower a total cost of attack on the MakerDAO system

  2. It will allow to vote for someone who did not own MKR just borow some.

Imagine scenario.
Someone lock in compound lot’s of USD Coin, Borrow lots of MKR, sell half, causes panick on market, to add on that votes in some irresponsible way to cause eeven more panick. Buys MKR back at lower price (at the bottom of panic) and profit

2 Likes

It’s been a known risk from the beginning. We had a chance to contemplate it early as we asked ourselves the same questions regarding allowing other project’s governance tokens into our system and what affect that would have on their ecosystems.

I don’t think worried. We need to watch it closely and continue to think about potential mitigation and look for evidence of tampering with the governance process.

If you mean to stop them, no. This whole crypto thing is predicated on assuming that the ecosystem is hostile and mechanisms need to be robust or they need to be improved.

The rules are that one MKR equals one vote, there are currently no expectations that people have to be long term holders. I imagine there will be a lot of discussions around ‘proof of commitment’ soon.

There is also no reason to assume that benevolent actors won’t borrow MKR to vote as well.

I was thinking about having a lock up period for tokens that are participating in voting (may be few months), but this will increase the cost o voting and will decrease the voting participants.

giving incentives for voters will create another whole set of problems.

We need better ideas!

1 Like

It’s not about short versus long holding. Borrowing instead to owning changes incentives dramatically. Now person being in control (not owning) of some MKR can actually profit from harming MKR,

Rational best interest of MKR borrower might be opposite to best interets of MakerDAO. If Maker owner (longtime or short time does not matter) wants to harm MakerDAO he will need to accept some loss to do so. Maker borrower can harm system and profit from that harm.

Maybe if voting were compensated with a portion of the stability fee I.e. MKR that would not be burned. However this compensation (maybe together with the voting MKR) would be locked up for let’s say three months. So if you want to sell MKR you have to wait three months without voting before your MKR is released from lock up. Maybe this way entities that vote on behalf of other non participating MTH could also be compensated for their work.

1 Like

Maybe if voting were compensated with a portion of the stability fee I.e. MKR that would not be burned. However this compensation (maybe together with the voting MKR) would be locked up for let’s say three months. So if you want to sell MKR you have to wait three months without voting before your MKR is released from lock up. Maybe this way entities that vote on behalf of other non participating MTH could also be compensated for their work.

This can work although it adds more cost and complexity to the whole system but, we might not have a choice.

You can’t really short something with a ‘real’ value. Like Coca-cola stock. Investors will start buying it very quickly if the price drops just a little - they generally believe people will drink ‘classic’ drinks for years to come. By analogy, we can assume people would start buying maker if buyback percentage is something like 5 or 6 percent. If they believe current demand for dai is sustainable.

I’m unaware of any plan that financially rewards voting activity that has not been exploited for financial gain.

1 Like

I’m just think out loud.

But still having trouble imagining how something like this with a lock up of both reward and governance token could be exploited. Do you have some good resources where one could read up on this subject?

1 Like