Next Steps for Real World Asset Onboarding - Risk Parameters for the recently accepted MIP21 and MIP13c3-SP4 for 6s Capital

Risk
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#1

Next Steps for Real World Asset Onboarding - Risk Parameters for the recently accepted MIP21 and MIP13c3-SP4 for 6s Capital

Based on the recently ratified MIP21: Real World Assets Off-Chain Asset Backed Lender and the Declaration of Intent subproposal MIP13c3-SP4: Off-Chain Asset Backed Lender to onboard Real World Assets as Collateral for a DAI loan, there have been a few questions about what the approved risk parameters are for the implementation of this MIP and thus, the Real-world collateral type. Given that these two proposals outlined how a non-blockchain entity (a Trust Company in its fiduciary role as Trustee over the Trust) would be responsible for liquidations (if needed), many of the standard risk parameters coded into the Maker Protocol are simply not required (or rather, should just be set to zero). Therefore, based on the accepted proposals, the risk parameters outlined in the term sheet are as follows:

  • Sector
    • Financing Commercial Real Estate Credit Tenant Leases
  • Sub-sector
    • Constained to Single Tenant Net Leases and Ground Leases with pre-defined tenants (see the MIPs for more detail)
  • Risk Premium
    • 3.0% (as presently computed, see the MIPs for more detail)
  • Liquidation Ratio
    • Note: This should be hardcoded at 100% given that the community must signal a liquidation manually.
    • For reference, Construction Phase: 142% & Stabilized Phase: 117% (based on cost computation, not appraised value)
  • Debt Ceiling
    • 15MM (initially set to zero until 6s has demonstrated that it has implemented the contemplated structures)
  • Auction Lot Size
    • N/A (handled by the Trust Company)
  • Minimum Bid Increment
    • N/A (handled by the Trust Company)
  • Bid Duration
    • N/A (handled by the Trust Company)
  • Max Auction Duration
    • N/A (handled by the Trust Company)
  • Liquidation Penalty
    • N/A (handled by the Trust Company)
  • Dust
    • N/A (handled by the Trust Company)

Next Steps

Pursuant to the approved MIPs, the 6s Capital team will be implementing the structure contemplated therein.

Once completed, I will be posting all related documents in the forum for the community to review (along with having conference calls to dicsuss any questions). Thereafter, an Executive Vote shall be put forth to both technically implement the collateral and raise the debt ceiling from the current 0 DAI to 15 MM.

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#2

Thanks for this, Matt. I just want to share an opinion that I’ve developed regarding real world asset vaults:

So long as the legal setup is absolutely solid and there is no “contract risk” posed to the MKR holders, I believe that every unforeseen circumstance can be handled by altering the stability fee and the debt ceiling.

For instance, 6s has put forth a list of tenants for which it must receive pre-approval to lend to. Let’s say that the credit risk (as perceived by MKR holders or risk teams) increases over the period of a governance cycle. Let’s also assume that 6s has deployed 25% of its capital to this tenant. What MKR holders could do is determine the appropriate new rate for this tenant and weight this rate by 25%. To highlight further, imagine 6s has deployed capital to two pre-approved tenants, with 75% of the deployed capital going to “Tenant 1” and 25% to “Tenant 2.” Matt’s initial proposal cites a 3% rate so let’s apply that across the board. Now “Tenant 2” suffers some kind of adverse event in the market and becomes more risky to lend to. MKR holders can now say that all loans to “Tenant 2” shall carry a 4% rate. The new rate for 6s’ Vault at the end of the weekly governance cycle would then become 3.25% – ((3% * 0.75)+(4% * 0.25)). The inverse can also be done if credit risk shrinks.

Since 6s will be reporting regularly to the DAO as to its activities, I think that these two levers offer more than enough opportunity to control risk. The debt ceiling is our hammer*, the stability fee our scalpel. I also want to note that I don’t think the lack of legal paperwork (which Matt describes above as coming soon) should delay us in onboarding this asset from a technical perspective. The MIP has already passed and he will not achieve a positive debt ceiling (and hence the ability to actually draw Dai) until he’s completely satisfied the MKR holders as to the efficacy of the structure.

I’m very excited to see the progress in real world assets!

*I should note that I’m assuming the paperwork will support the notion that a 0 debt ceiling constitutes a prohibition on revolving the facility

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