Oracles Incentives Restructuring Proposal
To further decentralize the Maker Protocol, this proposal aims to create an incentive model that fundamentally aligns the different agents of the Oracle ecosystem to create a decentralized, sustainable, and secure Oracle network. The three agents that comprise this system are MKR token holders, Feeds, and Data Consumers. Their relationships are outlined in the figure below.
Feeds are individuals and organizations who submit asset prices to the Oracles smart contracts. They are compensated for this service by MKR token holders through a monthly Feed Stipend (see diagram). Currently, the Feed Stipend is being funded by the Maker Ecosystem Growth Foundation. In the future, the Feed Stipend is expected to be sourced from the Stability Fees generated by the Maker Protocol. Formal acceptance of this proposal does NOT change the Feed Stipend to be sourced from Stability Fees. As such, governance cannot change the Feed Stipend amount until governance changes it to be sourced from Stability Fees.
Feeds act as data inputs to the Oracles so the Oracles can provide a canonical price for an asset. This canonical price can be read and utilized by smart contracts on the Ethereum blockchain such as the Maker Protocol. The ability to read this price is regulated by a whitelist. The whitelist is a list of smart contract addresses which are permitted to read the canonical price from the Oracles. This mechanism enables MKR token holders to monetize the Oracles in order to recoup their costs for administering them.
Data consumers who want to read prices from the Oracles pay an Oracle Fee in Dai to MKR token holders in exchange for being added to the whitelist. The Oracle Fee can be realized by MKR token holders in the form of a surplus auction or a subsidy to future Feed Stipend payments. The default monthly Oracle Fee is zero Dai until MKR governance votes to raise it.
This mechanism closes the loop between data producers (i.e., Feeds), data consumers (i.e., dapps), and capital providers (MKR token holders). In doing so, it provides the necessary incentive for MKR holders to engage Feeds to support Oracles for all kinds of assets that dapps require, rather than just the collateral types in the Maker Protocol. In combination with the blockchain-agnostic architecture of Oracles V2, this system of incentives enables the Oracle service to expand to other non-Ethereum blockchains in the future.
If this proposal is accepted, the following will occur:
- The monthly Feed Stipend that each Feed receives will be set to 1000 Dai. This will be funded by the Maker Ecosystem Growth Foundation.
- A whitelist will be integrated into the Oracle V2 smart contracts which will determine which entities can read the price.
- MKR governors will gain the ability to add/remove entities to/from the Oracle whitelist.
- MKR governors will gain the ability to set the monthly Oracle Fee that entities must pay to be whitelisted (the default fee will be set to zero Dai).
- MKR governors signal their intent to fund Feed Stipends through Stability Fees once the functionality for this has been added to the Maker Protocol.