Post-mortem - New Silver - Executive summary change


The DROP subscription of New Silver (and all Centrifuge assets) has a provision allowing the Asset Originator (AO) to change the conditions unilaterally after a 2-week notice. It was mentioned during the contract assessment, but the mitigation action, notification, didn’t work. The change was caught during the following monthly audit. There was no monetary impact, but it showed that relying on the notification is not good enough and that MakerDAO specific covenants are probably too complex to be applied directly. This is something that needs to be addressed for Real-World Asset loans to scale.

Root Causes

During the monthly audit of New Silver, the high Loan-to-Value (LTV) box on the New Silver RWF Dashboard was in red (see capture below), triggering an analysis. It turned out that the threshold was at 80% LTV (in the formula). Some loans were above 90% LTV.

While the original executive summary of the NS Pool offering details was pointing to a maximum 85% LTV, the risk assessment reported an 80% LTV. The updated executive summary showed a 90% LTC with an average of 85% LTV. This has allowed New Silver to add loans between 85% and 90% LTV to the pool.

Original executive summary:

Updated executive summary:

The change was done for two reasons according to New Silver:

  • to match the competitive landscape
  • to rely on a more tangible metric. The appraisal value of the LTV is an approximation while the Loan-to-Cost (LTC) is simple to define.

Note on ratios:

The LTV is based on the value of the financing (for the property acquisition) divided by a third-party appraisal of the property - i.e., acquisition loan to initial value. LTV is usually higher when the rehabilitation part is small.

The LTC is the total value of the financing (acquisition loan + rehab loan) divided by the total costs (purchase cost + rehab cost) - i.e., total loan to total cost. A 90% LTC means that the borrower is providing 10% of equity/cash.

The After Rehab Value (ARV) is the ratio of the total value of the financing (property acquisition + rehab) divided by a third-party appraisal after the rehabilitation of the property - i.e., total loan to final value. All New Silver loans are currently below 75% ARV and don’t expect to go above 80%.

The change was bundled with a decrease for the DROP APR from 5% to 4%. This was discussed with New Silver beforehand and was expected but it wouldn’t have any impact on MakerDAO as the SF is 3.5%.

The difference between the DROP APR and the SF exists for 3 reasons:

  1. Over-collateralization we have a credit enhancement on DROP with the 105% overcollateralization;
  2. SF rate is APY while DROP rate is APR;
  3. It is a business way to increase exposure by being competitive as the pools were oversubscribed.

The ability for the Asset Originator to change the terms is defined in the section 4.F and was highlighted in the Centrifuge Contracts Assessment before the collateral onboarding (even if centered to the TIN/DROP ratio which is the riskiest change).


It is important to note that what New Silver can change is the Executive summary (link to the current version). Those are the contractual obligations. There were also covenants defined in the MakerDAO Risk Assessment, those are more strict and represent what the RWF thought were good covenants to avoid risk. Failure to comply with those covenants means that MakerDAO can liquidate with a cause. Nevertheless, Maker can decide to not liquidate or liquidate without any of those covenants breach. It’s a way to provide guidance to the Asset Originator about what MakerDAO thinks is fair.

Regarding the executive summary change, there isn’t a legally enforceable way to have a notification. The solution was to have a Maker Representative subscribing to DROP tokens. This was done by the RWF CU facilitator. This is only additional security as it is unlikely that MakerDAO would continue to do business with an AO that didn’t share data.

The whole structure also counts on other DROP investors to sue the AO in case there is something fraudulent. Again having some subscription of DROP inside the MakerDAO community is better insurance to have someone making legal actions.

Nevertheless, the notification was not acted upon as it wasn’t clear. It was mainly related to DROP APR decrease that didn’t impact MakerDAO.


Quick fix

As a first response, we discussed with New Silver to limit the LTV deviation. New Silver bought back a high LTV loan from the pool (added after the cutoff date) and sold it to another partner and agreed to limit high LTV (85%-90% LTV) to below 15% of the total pool.

Long term solution

A solution was discussed at the June,15th weekly RWA internal meeting. As the Centrifuge pools are migrating to add an Independent Director that needs to validate some Material Actions, the idea was to make changing the executive summary a Material Action that will need the Independent Director approval. The approval will need to perform some actions:

  • Ensuring notification to a list of people (most of the RWA Committee for more redundancy). Section XIV.3 (i)
  • Ensuring that all DROP holders that want to exit the pool have been repaid before application of the new executive summary. Section XIV.3 (ii)

(full operating agreement will be shared when finalized)


  • 2021-05-XX: Discussion between RWF and New Silver about a executive summary change to decrease the DROP APR
  • 2021-05-21: New Silver sent an email about the change in drop rate
  • 2021-06-08: New Silver monthly audit call by RWF
  • 2021-06-08 (after the call): Updating the New Silver Dashboard and finding the issue
  • 2021-06-09: Discussion the matter with New Silver
  • 2021-06-10: Publishing the RWA Monthly Report
  • 2021-06-11: Call with New Silver to discuss the issue and apply a quick fix, shared with the RWA Committee
  • 2021-06-11: PaperImperium publish [Discussion] Liquidation Mechanisms For DROP Assets – Under-Collateralized & Mispriced
  • 2021-06-18: Community call: Focus on #02 - New Silver
  • 2021-06-19: Signal Request by PaperImperium to increase SF by 3% when there is an executive summary change
  • 2021-06-21: Negotiation with New Silver on the new final terms
  • 2021-06-21: Draft finalized of this postmortem and sent for review
  • 2021-06-22: Team review
  • 2021-06-22: Publication

Lessons Learned

What Went Well

  • The monthly audit detected the issue
  • New Silver immediately took action to offboard a high LTV loan after our June, 9th call.

What Went Wrong

  • The notification procedure completely failed. The mail wasn’t clear enough and was discarded as it highlighted a change to the DROP APR that didn’t impact MakerDAO.
  • The community didn’t seem to be aware of clause 4.F.

The RWF CU shouldn’t be a bottleneck

The notification arrived at the RWF CU facilitator (as per the DROP subscription). The rest of the team didn’t subscribe to DROP tokens. Even if some community members have subscribed it is not clear it would have been expected of them to inform the rest of the community.

Moreover, only the RWF has access to the loan tape to update the dashboard. Failure to do so would leave MakerDAO in the black. We work by 2 to have some redundancy but that might not be enough.

All the parties are working to get the loan data (LTV, LTC, and ARV) on the Centrifuge chain in a public format. With such a feature, anyone would be able to check the status of the pool in detail and that would enable MakerDAO to create a smart contract to automatically protect the protocol if needed (DROP co-investor falling below the minimum threshold).


Thank you for putting this together. It’s a concise, accurate timeline of events with links to the relevant information :+1:


Thank you very much too, it seems to me a good compilation at the height of the circumstances, reminds me a little of the line that leads

Thanks @SebVentures for this great summary, it for sure confirms my confidence in you being the CU facilitator. Great to have you on the team :heart:


Thanks and great work for finding it and to deal with all of it.

Thank you to everyone for participating and providing feedback. We are working to make the noted improvements and will share an update in the coming days.

Also I wanted to note that I added an explanation of various metrics we use and provided an example loan, the link to it is here: Focus On #02: Focus On New Silver - #7 by prankstr25

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Thanks again for your feedback, which we heard loud and clear, and we have been working to improve the structure to ensure the DAO is adequately protected and make incremental improvements on the structure we started with.

In the spirit of transparency, I am sharing here the independent manager service agreement and the updated operating agreement of NS Pool LLC, which is the SPV operating the pool. Both have been fully executed and effective as of yesterday. CitadelSPV ( has appointed Orlando Figueroa as independent manager and managing director. That makes the SPV fully bankruptcy remote, and together with our servicer FCI ( able to operate and make key decisions in case of a number of events that may negatively effect the operating company or the collateral.

CitadelSPV has served as an independent manager to thousands of SPV structures just like this one, and this setup is commonly used by credit funds, banks, etc, and has been thoroughly vetted in courts for bankruptcy remoteness. In addition, we included rules to address the specific concerns of the community. Every interested community member can register as a DROP Investor Representative to get full notification rights without the need to sign a DROP subscription agreement and to purchase DROP tokens individually. The independent manager will ensure that changes to the Executive Summary can only be executed if:

  • the SPV has notified all DROP Investors and DROP Investor Representatives about the change in an email with the Executive Summary attached including deleted, replaced, and new content;
  • the SPV has posted these changes on the Maker forum
  • the notification has happened at least 28 days ago
  • there are no open DROP redemption requests

The last point gives MKR holders the ability to disagree with those changes. The Maker community has 28 days to do a vote and trigger the redemption of the DROP tokens in the Maker vault if there is a disagreement. The change cannot take place as long as this redemption is not fully satisfied, meaning all DROP tokens of the Maker vault are liquidated. A few community member were concerned about DROP Investors “front running” this redemption. We think the average maturity of around 12 months of our portfolio as well as that all redemption requests will be satisfied pro-rata to the number of DROP tokens being requested to redeemed (no prioritization of earlier redemption requests) is a fair and effective protection against this unlikely possibility.

We thank you again for your feedback and we are looking forward to continuing and strengthening the partnership.


Awesome progress, thank you for this @prankstr25


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