MKR - from voting to staking - part 2

Staking part 2 - collateral waiting period and community responses
After an investor has onboarded a potential collateral type, a waiting period follows where MKR holders might challenge the onboarding as the staker might have tried to onboard unsafe or unwanted collateral.
During the waiting period no DAI can be drawn from Vaults containing the candidate collateral type. The community is informed through the contract that a new candidate collateral type has been added and during the waiting period the community can challenge the onboarding .
In this period entities called Hunters will check the collateral type. An informed reader might have noticed that the role of the Hunter is the same as that of a Maker risk team, but in reverse. Under the voting system a Maker risk team finds and evaluates collateral before bringing it as a proposal to the community. A Hunter finds already staked collateral, evaluates it and if after the evaluation the collateral type is found wanting seeks the community for approval to have it removed.

If no action has been taken on the part of the community the collateral type is automatically approved at the end of the waiting period and DAI may be drawn from Vaults containing this type of collateral.

This process is in other words the opposite of the voting process where the collateral type will have to wait for approval. Under the staking system the collateral will be automatically approved unless the community takes action to remove it.

A Hunter is any entity checking the range of onboarded or potential collateral in order to find dubious collateral types. These collateral types could be scams or in breach of Maker legal or ethical guidelines or have incompatible hardforking or distribution mechanics. Once a Hunter has found one, arguments are prepared and the case is brought to a community vote. If the Maker community votes in favour of the Hunter, the collateral type is invalidated and the Hunter is awarded the staked MKR, but not any accumulated DAI. This in order to incentivize early countermeasures and not let more time pass so more fees are accumulated. Any DAI goes straight to some system fund. In order to keep the Hunters honest a small ‘Hunters stake’ (1% of staked MKR?) should be applied, the Hunter loses this stake if the voting goes against him or her. This to prevent ‘nothing to lose’ spamming of the governance system.

Due note that there is nothing that prevents the community from removing a collateral type at any time, the advantage of doing it during the waiting period is of course that no DAI has been issued yet. Alternatively, one could argue that the role of the Hunter should be limited to finding bad collateral after the waiting period is over, during the waiting period the community as a group should act as concerned token holders. In that case if the collateral is deemed unsafe the staked MKR would be distributed to the community members participating in the voting process.

With the staking process differing substantially from the voting process, the system consequences will be explained in the next part of this series.

Couldnt voters vote to seize the stake everytime, what would stop them from taking the potentially free money? Even if the staked vault was eventaully successful, the staking investor would likely see more profit than mkr voters

Couldnt voters vote to seize the stake everytime, what would stop them from taking the potentially free money?

They could in theory do that - but MKR value would start to suffer really quick if valuable collateral types start getting rejected. Remember that investors are not usually stupid, you start off onboarding maybe 10,000 DAI worth of a new collateral type, not millions right away.

Even if the staked vault was eventaully successful, the staking investor would likely see more profit than mkr voters

That is what i am hoping will happen! Incentivize active MKR holders onboarding valuable collateral.

NB: thanks for the feedback btw

Yeah I like. Its almost akin to an external risk team, in the form of an investor with mkr. They would want to perform similar evaluations as the risk team to secure their stake. Figuring out how they could still vote in general governance seems important too, although I think you agree with that.

While an interesting idea I think it has many flaws.

  1. Using DAI means the ‘entire’ Maker ecosystem from a DAI stability perspective is put at risk. Sure the MKR staked gets the first chop if this collateral type fails but I see it as creating added risk with limited controls in place.

  2. You make a primary assumption here. That the system needs to grow massively to reach the intended targets. Frankly after my own analysis of the entire Maker ecosystem I DO NOT believe this system should be allowed to grow much beyond 1/2 the market cap of MKR itself and even then I have some issues. RIGHT NOW if you look at the vault/CDP holders the VAST majoirty of DAI is being utilized by perhaps 100-200 ETH whales. I am honestly having a hard time seeing how this is serving the ‘underserved’. I also do NOT see how growing this system without any changes to actually serve the underserved is going to do anything except enable more whales.

  3. Unless someone shows me where this vast amount of collateral is coming from the way I see it there is perhaps another ~5-8B IN TOTAL (if that) available in other ERC compatible, decentralized coins. Maker probably has like 1-2% of all ETH on deposit. Even if Maker got the same numbers this would be 50-80M in deposits leading to what 30-50M in more DAI. Please tell us where this extra collateral is coming from to cause this rapid expansing in DAI.

Until the security of Ethereum is improved by the switch to proof-of-stake, I tend to agree.

Why is this more risky for keeping the peg? All I can see it as is a known quantity and location of X amount of DAI backing a vault. I could easily of missed something tho.

The market cap of mkr should go up the more debt activity increases in value and volume. More debt activity generally means more revenue for the protocol it controls, so theoretically mkr total value should increase as a result (not only price increase from the supply burn).

Well some of that is other crypto projects leveraging ICO eth or at least similar situations with someone trying to fund star ups without selling capital. Sure, definitely not serving the undeserved yet. Keep in mind DAI hasen’t even transitioned out of its baby (beta) stage yet . So it makes sense that the main group of people using it are investors familiar with blockchain (in eth in general or mkr or both) looking to increase yields with leverage and/or stimulate a project that affects other investments. If you hold a lot of mkr then paying interest also goes towards increasing the value of mkr. Many eth whales likely also hold mkr somewhere,

Another run up in the market even in its current state could greatly increase the value of collateral. A proposed collateral onbording process is in progress and should be released soon, many diverse projects are waiting in line. If any eventually succeed at scale then we are gold. Basically, betting that maker can onboard enough collateral to achieve wide scale, is the same as betting that etherum will house mainstream large scale applications/functions (that use tokens in some form, equity, utility, ect)

  1. What added risk? Please specify. The community has the ability to reject collateral just as with any other asset onboarding method.
  2. System needs to grow? Yes, yes and YES!
  3. Majority of future collateral will be linked to real world assets. Fiat bank accounts, shares, bonds, life insurance (ref. proposal on Friday).