Proposal: Market Making Proposal from Wintermute Trading

One thing few people point out is that MKR only has about 1M tokens, A good chunk of those are required for governance to function.

I have posted elsewhere a DeepLiquidity thesis regarding how to build community value via a v2 Uniswap contract (not v3) via Token-Stablecoin pair. The conclusions in my own analysis was that if one could get about 1/3 of the available liquidity paired with a stablecoin the Token price support would be limited to no lower than a 90% drop. In fact if you figure out actual open market liquidity it simply couldn’t be this bad (you need all the other 66% tokens to come out and sell which is unlikely). This also presumes LP suppliers don’t pull and sell. The whole point was to focus trading and liquidity into a single DEX venue where all LPs shared equally in fees and where liquidity and trading could be focused.

CEX’s liquidity doesn’t really do dink for providing community value because these MM players can come and go as the winds blow. Same is true of LP providers BUT if the dominant LP provider IS the community then it is rather unlikely the community governance would pull liquidity. BTW. All of this has issues for MKR simply because such a collection of liquidity could be used to attack governance itself (this has already been discussed).

I always come back to the prime questions here. What is the goal of additional liquidity? Is it to stay listed, is it to backstop community value (so if MKR needs to sell it can get a good price with decent liquidity). Is it governance activities.?

I am back to using MKR as a rewards token honestly because this would get us a good chunk more cycling liquidity, deeper MKR markets generally, etc. Put simply with a MC of what 2-2.5B there just is no way 200M is going to enter or exit this market without significant price impact. In fact even 1-2% (10-20K MKR) or 30-60M could move the price around 5-10% easily. This is just the nature of this market and I don’t see how greasing the wheels for other players to trade here satisfies any of the key goals because there is no reason to believe these players care one whit about MKR valuation. They are Market neutral which means they will not hold a position so they don’t care which way MKRs price blows.

I am not against this because I believe they will move the price, price is going to do what it does. I am generally against this because I don’t believe the community has any real clear goals.

For this reason I was more for creating an additional MKR-R reward token that under conditions could be swapped for MKR, and also could burn in conjunction with MKR (buy MKR to burn then use some MKR to buy MKR-R to burn to form the long term value proposition for MKR-R with MKR etc.) and this way we could finally get a rewards token that has value, with a mint (say 1B instead of this 1M) to focus the value of MKR into a different more highly traded and much more liquid token which focuses back its value on the governance MKR token.

The point here isn’t the issues with disconnecting governance value from actual governance but building somewhat separate token to add value in multiple ways to the protocol enhancing the overall value to the protocol in many different ways.

  1. rewarding borrowers expanding deposits and DAI borrow.
  2. with possibility of negative rates.
  3. Building a collection of token values around the Maker protocol not just MKR
  4. Creating a potential to explore new governance models using MKR-R
  5. Bringing new people into the Maker governance system.
  6. With 1B outstanding and even a price of $1-3 US if MKR holds it’s value MKR-R addition would double Maker community Market cap and give it additional monetary and governance tools.

Maker doesn’t need to be stuck as a one token pony but can use two or more.

I honestly really like the two token model of /r/ethtrader where they have the financial token coupled with a contribution token to create the vote=min(DONUT,CONTRIB) where DONUT is the financial and CONTRIB is a earned token that does NOT move from a wallet once acquired.

I am not saying we should follow this particular model. But with two tokens there are many more possibilites for governance and value building than with one token.

In the end:

I am against this because I think there are a lot more discussion that needs to happen here before governance considers doing deals with MM’s on the MKR token. Maker needed this in the past I am not entirely sure it needs this today, or at least not via this particular style of liquidity providing and MM making.

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I agree on everything you said.
Altough for me liquidity is king. always.

For what it’s worth, I asked Yearn — another low-token count DeFi name on lots of CEXs — if they use a MM. They don’t. And it sounds like we don’t now.

I just don’t see what the need is. We seem to be liquid enough, and any additional liquidity is probably only needed if some VC wants to dump quickly with less slippage.

If Wintermute wants to make a market for MKR, perhaps they can offer us some collateral or payment for it?

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The only place I saw “paid” MM on some small stock. Like without it there would be no way to sell $10k within a day. We are not that, liquidity is good and prices are consistent.
Therefore, someone is already arbing the price and feels compensated enough for that.

Regarding DAI, with the new PSM, we should provide plenty of low-risk arbitrage opportunities without much capital needed.

Maybe it would make sense to frame the problem we want to solve here.


With the new proposed Sagittarius Pool I don’t think this proposal makes much sense anymore. Instead of increasing the value of MKR by increasing the liquidity, the proposal would instead add more tokens on the market that would need to soaked up by the pool mechanics before new issuance would make sense. This is of course not the fault of Wintermute, it was just a case of unlucky timing.

This is great news! Glad to see the possibility of MKR and DAI expanding to other Layer 1s.

So, I think a point that is being missed here is that adding liquidity to MKR provides opportunities for DeFi Fund style vehicles like the Grayscale DeFi index that holds MKR. IMO these type of vehicles will expand/get more popular and trading desk are going to need the liquidity–especially since most have to work within compliant grounds–meaning via centralized exchanges.

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Imo these vehicles can(and probably already do) get liquidity without going through CEXes, OTC channels are pretty liquid for most tokens.

Frankly paying for MKR CEX liquidity doesn’t seem to make sense.


First off, much thanks to the Wintermute team for submitting this MIP. You all are one of the most respected trading desks in the space, and seeing you embrace the transparent process here is excellent.

On the proposal itself, I believe these sorts of terms – unsecured loans with a “quasi-call option” at the loan’s conclusion – are pretty standard and do not strike me as unreasonable. That said, I’ll defer to others on whether it’s warranted for MKR on CEXes and DEXes, as I do not feel strongly. (Note: I think it’s clear as day why Dai liquidity is essential across the space).

While we consider this deal, we should also look at decentralized liquidity provisioning options popping up. One I know of is Tokemak (here’s some interesting literature about the project) though there might be others. To the extent we as a community can locate and engage with a decentralized approach to seeing liquidity provided, it behooves us to do.

Disclosure: I hold MKR and TOKE (Tokemak’s governance/liquidity director token), so I would stand to personally benefit from seeing a relationship between MakerDAO and the TokeMak community.

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Following up after discussion with Maker growth team we are happy to raise our call option strike price to $10k which makes this much better deal for the community and to display our faith and commitment to the project.


I like the idea but it still lacks some KPIs as well as some terms if they are not met. They don’t need to be stringent but as of now there are 0 numbers to shape what you’ll do after receiving the MKR. Could you add performance metrics that mention things like spread/volume?


Can you split your proposal into two separate pieces, one for DAI and one for MKR?


Thank you for reconsidering the terms of the deal. I’d just like to emphasize the question from @swakya

To me, we need to have clear KPIs and reporting on how liquidity is being impacted and how the MKR community can measure the success of Wintermute’s stated objectives in this proposal.

Additionally, I would like to have a formal service agreement that protects MKR holders from Wintermute running off with the loaned MKR (not that I believe Wintermute would) - we could possible use the RWA Foundation structure @SebVentures.


Improving liquidity in all the main networks is essential for the Maker Protocol because of the following reasons:

  • Liquidity is a significant indicator for traders, investors and almost all crypto users to determine if a project is worth it or not.

Yes, that’s the goal, but we also have to understand that under the current circumstances we can’t expect of asking retail to vote. The reality is that investors are the ones investing in DeFi and participating in governance because they want to see their investment grow.

  • Liquidity is the base of crypto, is what keeps crypto alive. When exchanges or crypto projects decide which token to integrate, they look for the most liquid tokens. Low liquidity will bring problems in the future for these projects.
    This has a serious impact on DAI. Right now with the multichain strategy of the entire crypto ecosystem, having low liquidity in the newest networks will have a negative impact on the adoption of DAI.
    And for MKR is also a problem:
  • The security of the protocol is semi-dependent on the liquidity of MKR and that in its current state we’re not protecting ourselves sufficiently in a tail event. In the event of a solvency crisis, where we have to mint MKR it’s better to have a lot of liquidity to sell into and not to mint and dump MKR into a thin market.
  • Greater liquidity leads to fair price discovery and removes the chance of distorted pricing.
    That’s one of the biggest problems we have now with MKR. We all witnessed how PlanetX selling his MKR had a dramatic impact on the token, and how the recent increase in MKR showed us an unhealthy price action

  • New networks mean new DAI and MKR distribution channels, and the projects on those networks will be looking for the most liquid markets

I think the current liquidity on ethereum is decent but is not enough to support the expansion we are experiencing on other networks (and is not ideal until we don’t have a decent MKR/DAI pair) and doesn’t protect the protocol in the event of a solvency crisis. Besides that, although it’s great to have community members providing liquidity, we can’t depend on individuals. The protocol’s liquidity can’t rely on individuals.

Wintermute’s proposal is fair, what they do it’s not just to deposit MKR in uniswap. They are providing other’s pair liquidity -even fiat, which requires a bank account-, they are maintaining their bots with a neutral strategy, they will deploy liquidity in different networks (talking about that, hop protocol needs DAI liquidity if we want the multichain-DAI) and they want a call option for buying MKR.

It’s possible, but what I find interesting is to explore other options and understand how they are doing business with other DAOs. Reputation is valuable for us and them, and that’s what allowed us to have an agreement with the Nexo IV without a company.


I am not an expert on the topic (which is normal on complex proposals such as this one).

I think, personally, this endorsement from @Nadia (her CU has been stellar so far) is what really matters.

From what I have heard today (but don’t quote me on that), @YM_Wintermute is even upping this to 20k. Let’s go!


(But with something legally binding in writing!)


Yes. They can execute some lending agreement with Growth CU’s company wherein Growth CU is obligated to return the funds to an Ethereum address under the control of MKR governance.

How much is this call option worth? I approximated the annual volatility of MKR by taking the standard deviation of the differences between the logs of the daily prices. I got 55% volatility. Is this ballpark correct? Then I plugged in the numbers,


So this option is worth about 16 USD? Did I make some mistake?

If my calculation is correct and the call is worth 16 USD then I’d must rather pay WM an extra 16 USD than give them the option.


Hi @psychonaut, I’d be interested to take a look at your methodology, but 55% sounds improbably low to me: using daily returns for the last 365 days, I get a realised annualised volatility close to 140%. With Black-Scholes that comes out to $720 for the $10k call option, so the cost of this proposal is valued at $7.2mm ($720 x 10,000 MKR). This is quite expensive to say the least, but cheaper than the original proposal with $5k strike which would have come out to close to $12mm with the same realised volatility assumption.

Let me know if you are getting different numbers.


Yeah, so I loath the idea of giving WM a call option. I’d rather pay them the present value of the call option instead of providing the option itself. If they are really good at market making then they can easily buy 10,000 MKR at $10k without our help. Let’s not do their job for them. One reason that people buy call options is because there is too much slippage buying the underlying directly from the market!