Pre-MIP Discussion: Fixed Payment Schedule, Lump Sum Vaults on Existing Collateral Types

Cross-collateralization may have some promise. That’s a good idea we should remember for the future.

I think a lot of this will hinge upon making users less anonymous in either past behavior or identity.

How about onboarding Whiteheart ETH and WBTC as collateral with 100% collateralization ratio. Instead of making payments to MakerDAO weekly, bi-weekly, or monthly; premiums are paid to Whiteheart/HEGIC for wrapping ETH and WBTC with a put option. If the collateral ever falls in value, the difference is paid to the vault in USDC maintaining its original value assuming the underlying crypto asset falls in price. If it rises in value, then the vault has a credit limit increase since the collateral has appreciated. Hence, non-liquidatable fully-collateralized loans with a fixed duration. It would be a win for MakerDAO since it would protect from Black Thursday-type events. It would be a win for customers to be able to sleep well at night while having all of the upside of ETH/WBTC and none of the downside of being liquidated due to market risk. ETH-A is already the most popular vault in the system. It would only require evaluating the risk of HEGIC options. If they are safe, then the underlying assets are safe by extension.

I worry about counterparty risk being higher rather than lower if even a high-quality party is backing large swaths of debt instead of a heterogeneous mix of individuals.

But definitely something to consider as derivative markets develop. I guess it would be akin to buying insurance on a mortgage with a low down payment.

There may also be some way to leverage time differentials like some credit unions and interest-free lenders do. But unfortunately I think we’re running down the road to lots of complexity.

But wander around Reddit and you’ll find fear of overnight liquidation is discussed, and I think we can all admit that’s a bad user experience. It does absolutely have to be down in a way that protects the protocol from losses, though.

If nothing else, we will eventually have some collateral that isn’t reprised every hour and this may be more appropriate to table until then.