[Poll] What should we do with the system surplus?

Now that MakerDAO is producing sizeable revenues I wanted to gauge the community on what we should prioritize spending on. Below I have created a list of topics that I can think of using the surplus DAI on.

What should we do with the system surplus?

  • Increase the auction (FLOP) threshold
  • Focus on hiring domain teams
  • Strategic Reserves
  • Keep accumulating to insure the system
  • Other (Please explain)
  • Abstain

0 voters

I’ll keep this open for as long as we have engagement and hopefully we can narrow down the priority use cases and have some meaningful discussion on next steps for expanding/improving the protocol.

Edit: The auction parameter is FLAP not FLOP

2 Likes

Adding a link to the Strategic Reserves => MIP13c3-SP3: Declaration of Intent - Strategic reserves fund (SRF)

Much of the surplus will come from USD stablecoin vaults. We will likely have a loss in the future on them as the debt will be higher than the collateral. We should monitor this expected loss (avoid it if we can by enabling liquidation when the peg will be secured) and keep enough DAI aside to avoid MKR issuance (or to buy them at around the same time in the market so it’s a blank operation).

1 Like

Buy and burn MKR.

I recommend that the community vote to decide if it wants to mint MKR (dilute the existing MKR holders) and sell that MKR for DAI to accomplish tasks. I wouldn’t change the existing flow or surplus to burn MKR.

7 Likes

Keep in mind that people are now voting insanely to give 15000 MKR to the people who had their vaults liquidated on black thursday. If this really passes, all surplus will be gone to pay for this bail out.

1 Like

That MKR will be printed so I don’t think the surplus will be affected.

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Maybe but this is a direct tax on MKR holders and we need to use all the surplus to buy and burn MKR to pay it off. MKR price will be a low lower if it passes so maybe this wont be too hard.

I think we need to get past this buy and burn thinking. The most important thing we can do right now is start bootstrapping the DAO with more domain teams and collateral onboarding.

7 Likes

The compensation plan has practically no affect on the surplus buffer. The vast majority of funds for compensation are newly printed MKR. 15000 MKR is about 1.5% of MKR outstanding, so we can imagine that, if the proposal passes, the price of MKR will decline by 1.5%. For example, if the price is 500 DAI/MKR then the price might fall to 492.5 DAI/MKR. Is that a big decline relative to the goodwill that the project gains from owning up to early weaknesses in the auction/oracle system? You decide.

5 Likes

Thats not the way it will work though - its a much more negative impact. Its a horrible precedent - that not only did MKR holders have to suffer a huge loss to pay off the underwater CDPs from the flash crash (which is the known risk for MKR) but they are also on the line to bail out CDP holders even though it was obvious that they had a risk of losing all their collateral. Once you set this precedent and remove moral hazard from opening a CDP, you have totally changed the social contract for MKR holders.

8 Likes

We should put the capital on what really bring value to MKT token.

Failure to bring domain team and be autonomous would likely bring MKR to $0

Storing some liquidity in strategic reserves is good insurance to be able to pay domain teams in the near future no matter what (people somehow like to be paid each month) and provide a buffer to avoid costly dilution if a crash happen. We are going to work with real world actors and make a due diligence on their accounts to see if they are financially strong. They might want to expect the same on our side.

3 Likes

We explicitly disclaim this as a precedent in the compensation plan. “The persons drafting or implementing this compensation plan maintain that MKR holders have no obligation to issue any compensation for losses, and volunteer to implement this plan solely at their discretion.”

1 Like

Also I doubt this will generate any goodwill. The people who were liquidated are still suing the MKR foundation and won’t be coming back. It just increases liability for MKR holders and removes moral hazard on CDPs.

2 Likes

No one cares about that. Guarantee that after next flash crash if CDP holders do not get their collateral back minus the stated liquidation penalty, they will be clamoring for another bail out and it will be very hard to say no if we do it now.

Other: Buy & burn mkr, if the compensation plan goes through we must enable burning so the impact is lower (mostly PR)

Other 2: Voting rewards? Subsidize gas fees?

2 Likes

I would like to explore the issuance of Dai-denominated bonds to finance capital improvements.

MKR token is currently incredibly cheap compared to the overall crypto market as a multiple of revenues, so I think it would be preferable to use debt financing rather than equity dilution if it is feasible.

2 Likes

I am opposed to giving direct monetary rewards for voting. It will pressure holders who are uninformed or don’t really care about the outcome of their votes to vote, and that is likely to result in a misalignment of incentives.

Rewarding people for contributing to the community via discussion and research is a good idea, though, and I think if the sourcecred experiment is successful, that it makes sense to fund that directly from the protocol.

Voting costs definitely need to come down, especially given the current EVM txfee scenario. I am not sure if subsidizing gas costs is the way to go. Maybe it makes sense to fund research into layer 2 voting technologies, such as zkrollup.

@latetot Oh man, I just discovered about this “plan for compensation” in this thread…

I really hope this will not pass.

All of us ‘playing’ in the crypto space know perfectly well that it is risky for a large number of reasons (bugs, regulations, flash crashes)…

We MKR holders lost money on that event (because new MKR had to be minted, and MKR price dropped enormously), just as the CDP holders did…

Yesterday (18th Sept) there was some kind of hacking on Metamask related to the UNI release. Do you think Metamask and/or UniSwap will compensate the poor guys who lost their money? The answer is: No. As it should be.

3 Likes

So far, the interests of MKR holders have not been reflected, and only the dilution and continuous dedication have been obtained again and again. MKR holders seem to have only responsibility. But we must persevere and let us wait.

I honestly don’t know why people don’t understand that companies need cash for operations not to mention to pay people for work.

Surplus needs to go into a treasury which would be used for Operational Maker expenses (it costs ETH to update the contracts folks), onboard Domain teams, sourceCRED, grants, etc.

Eventually the Treasury should have various things that hold value even when markets take a dump as this would be where we could look for value instead of minting MKR to raise DAI.

Almost every company in the world has cash on hand for operating expenses. Once we get to some reasonable amount of DAI/treasury funds personally I would just set a rising floor that MKR would be purchased for (bottom bid) rather than selling DAI in a reverse auction for MKR. Now if we have DAI coming out of our ears in the surplus and know we have banked at least 12-24months of MKR operations fees, EPC/Domain team salaries, legal, advertising, etc.etc. AND MKR price is low sure I’d vote to reverse auction DAI for MKR.

There is more to company value than just buying back stock.

3 Likes

You are kidding me right? MKR holders via goverance votes are directly reflected in actions so here I have to disagree with you.