On-Chain Securitization Roadmap / New Silver audit

No. It’s presenting risks as they were back in April.

The only risk that is less today about this structure than in April is the existence of an independent director at the SPV level — and only after the repeated insistence of @g_dip and others. And apparently even that was done in a way that was “quite weak.”

From the RWF CU mandate:
“Use real-world finance to produce more yield while keeping our risk appetite low thanks to wider diversification and risk management tools.”

Keeping risk appetite low thanks to risk management tools. I think your CU is supposed to have opinions on these RWA that come in front of us :man_shrugging:

But what is important is that Maker now has an actionable to-do list! So let’s start checking these off so that we can continue to onboard collateral from Centrifuge without worrying we will end up as a headline on Rekt.news

I would like to see an independent third party within the DAO who can observe this process.

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Thanks for sharing this with the community, it is extremely helpful. It covers many structuring points, but not risk alignment points with the other stakeholders. I have been trying to find more about risk sharing with the originators and extra security liens like hard assets collaterals, programmatic buyback of non performing positions, or pre agreed NPL sales to credit collectors. However I have not found much. Is it due to my inadequate skills of navigating the forum or to the fact that those are confidential info not shared with the community?


Welcome aboard the Maker Community Luca! We have not crossed the nonperforming loans chasm–so far no unpaid principal balance/ delinquencies. Very early in the game, but totally-you have brought up some good questions. TY, and again, benvenuto

Thanks for the welcome. In New Silver case, where credit is not too granular, structurally pro cyclical, and back-ended in nature, it is even more important to have all the incentives aligned. We want to be considered ‘the smartest money’ by investors. Looking forward to hear more on those topics. :pray:t3:


@SebVentures nice to see the report with actionable items.

I think we really need to limit the total DC for NewSilver/TinLake until a number of these issues are taken care of.

I think this is important the ‘Maker is footing the bill’ part here to solve the issues we think we are stuck with. Literally governance can DC/0 existing facilities to not allow them to extend until a certain critical path list of items are dealt with. I am NOT suggesting this needs to be done on my first round reading. But if anyone came up with a good reason for doing such I would not stand against it.

I feel like we just plowed ahead with NewSilver rather than wait because everyone wanted RWA to come on line to solve the DAI supply problem. Yet we have another key player in the space that as far as I can see has dotted almost every i and t - still waiting for a DC - 6s. Unclear to me what to make of this, I have my own opinion and will leave others to form their own. I do think process should come to question though for many reasons brought up in the thread I will not repeat here to prove the point.

What I am looking for from RWA CU here is a risk assessment regarding ‘critical path’ items in the list. I don’t see a ranking of these issues on ‘any scale’ that gives me a feeling for criticality to the system or our funds and whether any form of actions should be taken.

I also really would like an opinion from RWA CU unit regarding limiting DC - a specific recommendation in that regard.

I really want to echo this and wonder does each CU have a document delineating their authority and responsibilities? If Maker CU’s don’t have these I would urge them to put together some and present them for approval. Given the intimate nature of RWA requiring NDAs etc. and needing specialists to even analyze this stuff I would have thought only the RWA CU team and their legal consultants ‘could’ do these risk analyses. I don’t see how the risk CU could - or they would have to hire a separate unit specialized on RWA to even have hope to doing this.

Given Maker is already partially in here I think cutting up the actionable items into critical path - limited DC until done, whether and what that limited DC is, vs. not critical path would be a prudent next step so the tasks can be lined up. I also hope that if Maker is paying for this work that the costs associated are broken out. My biggest concern here is the negative PR of an article suggesting Maker is paying for 3rd party Tin Lake legal expenses to straighten out their RWA token legal structure to the benefit of New Silver and detriment of MKR holders.

The short terms items should be fixed quite quickly and I don’t think we should onboard/increase anything before most are fixed (following whatever expert will tell us). I don’t think we should reduce DCs as everyone is working in good faith to fix those issues asap.

Having a Collateral Agent/trustee is the most important thing to me outside of the short-term section. It might or might not be easy to have. The main issues are who directs the trustee and how does it work with the NFT locking.

Ownership of the DROP is also one item (not in this list as not related to Centrifuge). The DROP is owned by an “autonomous” smart contract (MIP22). The Cayman RWA Foundation is probably providing a solution to that but will require some work as well.

Our investments in RWA are paying as we see more sophisticated asset originators coming to us and people with a financial background interested to work with us. This will make RWA on MakerDAO (and more broadly in DeFi) safer. There is a kind of feedback loop.

The pace is defined by MakerDAO. This is why I asked earlier this year and the answer was quite one-sided toward growth and leading RWA in DeFi. We can also be more cautious and onboard only things that have a full pristine legal review by MakerDAO lawyers (and get those paid by the borrower) and get an anchor institutional co-investor. That would delay all RWA until we get a Legal CU and would require RWA to already be mature in DeFi (which was the slow path in the post).


My general opinion on this that I stated periodically.

1% of outstanding or no more than 50% of surplus buffer DC on any one experiment is probably tolerable. This currently works out to this 25-60M range. It is a loss that would hurt but would not break Maker. It would teach us a lesson as well. I keep thinking 10M isn’t a big deal and we can take on 3-5 of these without breaking the system as it spreads risk. Provided SF was also reasonable (2-3% range) it would provide income (.75-1.8M/yr) that could have been earmarked specifically to hire outside legal opinions.

There is basically a set of optimization loops going on here that we need to keep in mind. I literally want versions on these legal document structures as well as authors because given the newness here I expect these structures will undergo multiple revisions for reasons that will come from various parties over time and I really want to know document structure inheritance as well.

It is my impression from the Maker side that we really want and need RWA to ramp up, and to kick this off Maker governance (with polls, executives etc.) is more prepared to take on the credit side risk against the loss of DAI vs. doing extreme DD and holding this back. Our only issue is whether we feel comfortable enough to extend DCs. I think given your above report on Centrifuge there are some issues that need to be dealt with before we extend their DC(s).

Again what is critical path here to a DC raise? Personally I am concerned we need to tap on the brakes with Centrifuge/New Silver and all the new DROP vaults they want, and let 6s get up and running. In the loosest sense diversifying risk in this RWA arena means looking to bring on more RWA players looking for 10M so we can diversify not portfolio risk but RWA counter party risk as we ramp up legal opinion, risk assessments, and onboard qualified people. This will cost more initially and probably place a high cost demand on legal opinions, risk assessments, manpower, etc. but if Maker is going to wave past being more careful on the first 10M RWA borrowers, well lets spread these intial 10M risks out to more RWA players and focus on what we will need to do to get the first RWA player from 10-20M DC to the next step 100M DC.

If New Silver/Centrifuge wants this - well then they need to start fixing the issues we are seeing. If this takes a while - so be it. I want to be more protective of getting to 100M because next step from there is 500-1B and by the time we hit that number we better have our collateral custody chain (liens) well in hand.

The race here isn’t who will be first, but who will be best. Whoever wins this is going to be first to 100M facility and they will have laid the hard ground work easy to follow the rest to follow.

The RWA job here is not just to facilitate getting somewhere, but to make darn sure risk is covering this, and legal has some handle in here as well and to start lining up funding, legal consultants, and people (and god knows whatever else we need - Eng Dev, smart contracts, PR, biz, ??) to get this ramping hard and fast.

While Maker has other issues on the plate I see RWA as priority one effort until we see that first 100M or better 1B vault. Remember our RWA players are going to need time to ramp business as well.

My question to New Silver/Centrifuge or any RWA player is whether a pause in DC raises is reasonable and expected result of this process, or whether it will put undue strain on their plans, because if they need to move fast then Maker needs to be prepared to move with them if we can. As a delegate and MKR holder I also want to make sure we don’t get ahead of ourselves. We should not allow our desires to rapidly grow DAI and demands from RWA players take a front seat to the health and security of Maker and of DAI. I personally put health, security and sustainability as priorities over growth.


I have to echo this sentiment. Maker does not have an equity stake in Centrifuge. Centrifuge does, however, enjoy backing from quite a large number of VCs, institutions, and prominent individuals.

If JST Capital, Mariano Conti, Stani Kulechov, Julien Bouteloup, Fenbushi, Moonwhale, Fintech Collective, and other sophisticated, deep-pocketed Centrifuge investors aren’t willing to fix the legal structuring of Tinlake pools, Maker should not be doing it.

I will oppose any new Centrifuge assets until there is progress on the most urgent items on this list. If that’s the end of 2021, then that’s the end of 2021. We’ve rushed into this situation for $40+ million in exposure. Let’s learn from that, and not rush the next tranche.

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:sweat_smile: I think Mariano is calling you out Sir


For sure–one for All, All for one. Together we stand, divided we fall, right? If not, then what…

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Maker is not the piggy bank for Centrifuge or its investors.

What next, pay the hundreds of thousands that 6S spent on their structure?

It’s one thing to work around the edges for bespoke changes. But this is beyond ridiculous.

That we got to this point at all means that our RWF CU has failed Maker. This is unprotected financial sex, and makes us look like amateurs who can’t even be bothered to drop a few thousand dollars on a lawyer when tens of millions are at stake.

Someone savvy will actually read these documents and see the asymmetric power relationship. And then what? We ask nicely they not rug us?


You have a right to your opinion–I personally would not bring-up individuals personal investments to make a point. But that’s just my 2 Conti’s–you can do as you wish. ¯_(ツ)_/¯

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Their list of investors is much longer. And we are not on it.

My point is that they have backers who can help them. Don’t they have a famous law firm?

We should certainly have counsel review their fixes. But we should not be paying to rewrite the legal structure of a platform whose sole purpose is to create a sound legal structure to bridge RWA and DeFi.

But the important thing is we have a to-do list. So everything is addressable. Once the most urgent concerns have been, then we should be back on track.

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So I asked and the answer is that enforceability opinions are very helpful due diligence elements but they are not a substitute for a legal analysis of the receiving party (which is needed even just to understand the limits of the enforceability opinions, indeed, some stuff are based on “customary practice” and not even written in the enforceability opinion, and my knowledge of “customary practice” is next to null).

@christiancdpetersen also provided a helpful description “Enforceability opinion means that a court will enforce the terms of the agreement (agreement is not legal). A legal review is about leveraging the experience of external counsel on a host of commercial and legal matters, including, among others, enforceability. Is it a term market? What the risks, etc? They are completely and totally unrelated.”

So it is my understanding that it’s a way for the borrower side to reduce the time needed on legal review on the lender side. At scale, it’s probably a market practice to make the borrower pay for the lender’s legal review cost anyway. Like making it a borrower MIP6 cost. Great way to shrink the deal flow to nothing as well… :thinking:

As a notable aside – how much did Centrifuge’s integrations with Maker (and Centrifuge’s related marketing) drive investment from those notable individuals? Suppose one looks at the summer/fall 2019 Centrifuge “pilot” with the Maker Foundation, and the venture round they raised in October 2019. In that case, it appears that Centrifuge brought on investment principally because of the promise of their conenction to Maker. Given that shark and remora-like relationship, it seems troubling that we are stuck footing the bill to fix a legal structure that Centrifuge should have worked out and paid for in the first place.

Perhaps rather than freeze Centrifuge-related efforts, we should consider removing related collateral…


Hey El Pro,

I love Conti – great dev and thinker and a kind, good hearted person. But sometimes in life you have to call a spade a spade (or llama al pan, pan, y al vino, vino). Paper is doing exactly that with regard to Centrifuge, which is commendable to protect the state of our still-growing toddler protocol. I don’t believe we should interpret pressing Centrifuge as hostility; somebody has to raise the rankles and bring attention to this issue. Anyway, my two Dai.



Haha good one dude — haven’t heard that in a long time.

For sure—as I said before everyone has the right to their own personal opinion. I prefer to take a different route—i like to think of communities as amoeba clusters. An organism that can withstand any environment.

Strong culture of people with the same goal in mind—that works IMO. Within a community you’ll always have differences of opinion. And that’s fine. Like I said before — we hang-out in the same hood, but have on different shoes and different apartment views. :wink:

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@PaperImperium & @Tosh9.0 I would like to clarify something you’ve repeatedly misrepresented:

Centrifuge has been working and paying their own lawyers to work on this structure. The lawyers that were recently hired by Maker are reviewing the structure and serve as a third party audit and are not actually drafting any legal agreements. Centrifuge is paying for the continued work on the legal agreements. And as part of that work we will be addressing the comments by Maker’s firm.

@PaperImperium, I’m not sure why you continue to imply that Maker is footing the bill for all of this. Nowhere in @SebVentures’ report do you actually see him suggesting that S&S actually implement any of these changes.

As for the actual changes; we have already added some comments in the report above on how we plan to address them and will present the work as we improve the setup.

@spin Maybe I read too much into sentences like this. If so, then that’s wonderful news, and means we can all just comfortably pause while Centrifuge upgrades the legal structure.

I think we are not at this point yet. Let’s give Centrifuge a chance to update the legal protections to be more robust and more creditor-friendly

@spin would know better than I would, but I believe there was a major fundraising round at the time of the initial Maker financing. I don’t recall which investors were new with that round, however.

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I don’t get why anything would be paused as long as there’s a reasonable expectation that the pain points will be fixed. It’s not a smart contract situation where at any time a catastrophic bug could drain Maker nor an unknown counterparty that may run away at any time.

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So there are multiple catastrophic legal bugs. Remember that our SB barely covers the DCs already authorized. This is not an issue with a single pool but with an entire platform.

I had a banker tell me this week that this arrangement would never get past a credit committee at a professional institution.

Perhaps most importantly, the creation of a sound legal structure is supposed to be one of Centrifuge’s core competencies. Just like actually doing due diligence is supposed to be one of ours. Sanity checks clearly failed at both protocols.

This is a failure of process, and we need to address that before digging a deeper hole.

I think experience to date has shown us we do not have this reasonable expectation.