Proposed Additions to the Collateral Onboarding App for Synthetic Assets

MakerDAO has laid the groundwork for collateral-based lending on Ethereum. We believe that a transition to MCD, where multiple asset types other than Ether are accepted as collateral, will fuel the growth of a new and more open financial system built on Ethereum, with MakerDAO acting as a decentralized central bank. For that system to reach its full potential, we believe that synthetic assets should be introduced as collateral to help scale the demand for Dai while also keeping it stable.

After reviewing the Collateral Onboarding Guide and conducting our pilot in July with U.S. Treasuries, we realized that while the app is very comprehensive for bearer assets, there are a few areas that could be improved for synthetic assets.

Suggested additions in bold below:

Technical Specifications

Financial Specifications - Bearer Assets

Synthetic Asset Specifications
Overview
1. Please provide a description of the synthetic asset mechanism, including a detailed description of the lifecycle of the asset (creation, pledge, maturity and any additional steps throughout lifecycle)
2. Please provide an explanation of the underlying asset, including use cases (i.e., main users and how/why they use the asset) and total market size and subset that is relevant to DCS

Token Considerations
1. Please walk through the steps required to create a synthetic token
2. What is the relationship between the token and the underlying asset? What does the token represent?
3. Please provide a detailed description of the token architecture and the mechanics of how the token will be utilized within DCS (i.e., are there additional contracts that provide any data required for DCS).
4. Can tokens be minted and/or burned by a third-party administrator? If so, what is the end-to-end process by which tokens are minted and burned?

5. Liquidation Events
a. What is the process for the DCS to recover Dai in a liquidation event?
b. How is the underlying collateral managed during a liquidation event? What mechanisms, if any, ensure that the collateral will be properly sold in a liquidation?
c. If the issuer is insolvent or otherwise not performing, will Keepers be able to access the collateral? If so, how?
6. Please provide a link to any other supporting materials that you would like to share (i.e., whitepaper, etc.)

Underlying Asset Considerations
1. What is the historical volatility of the asset?
a. What is the average change in value in a 24-hour period? (please base on a reasonable historical time frame)
b. What is the maximum change in value in a 24-hour period? (please base on a reasonable historical time frame)
2. How liquid is the asset in the market?
a. What are the common secondary markets where the asset can trade?
b. How easily can the asset be bought / sold? Please describe the steps taken to buy / sell the asset.
3. Please describe the existing infrastructure (technical and operational) that exists currently to verify both the ownership and the value of the asset
a. What mechanisms, if any, are in place to ensure that the collateral is not encumbered or sold off-chain? How would the DCS know if those actions occurred?
b. What mechanisms, if any, are in place to validate the value of the assets? How are the assets valued and how often is the data updated?
c. Describe how these can be linked into the existing MCD oracle system
4. Please describe any other relevant facts that are helpful for the asset to be included in MCD.

Legal Specifications
1.Who is the token issuer (if any)?
2. Do you have legal representation related (1) to the issuance of the token, (2) regulatory requirements regarding the token, or (3) otherwise? If so, whom?
3. What is the regulatory status of the token? Please provide relevant documentation (e.g., legal opinions, prospectuses, public disclosures, filing documents, etc.).
4. Are there any rights associated with the token that do not follow from its technical implementation or technical ramifications of the system in which the token is used? If so, what are they? How are they enforced? Please provide documentation memorializing these rights.
5. In what jurisdiction(s) was the token issued? Please provide all filings and public documents related to the token’s issuance.
6. Was the token issued as part of a regulatory process (e.g., securities offering)? If so, under which law, rule and/or regulation was the token issued? Please provide all documents related to this regulatory issuance process (to the extent not already provided in response to the above).
7. Was the token issued as part of the fundraising process for your project? If yes, who are the investors and how much equity do they respectively hold?
8. Please describe the corporate and legal structure of the project/system/product in which the token is used.
9. Has counsel provided a legal opinion as to the regulatory status of the token, as well as the enforceability of the instrument against the issuer in the event of liquidation?
10. What rights come with holding/owning the token? Do any rights change or come affect based on certain events (e.g. liquidation)?

2 Likes

These all look good, thank you for sharing them. I particularly like the questions requiring concrete explanations of processes, I feel these are very valuable, particularly the following:


Further to these additions (and following on from my comments in last weeks governance call), it seems like it would be valuable to have a section of questions regarding the processes around global settlement.

Perhaps this is something that can be expanded on in v2 of the Collateral On-boarding Application.