PSM, Flashmint, MKR tokenomics and MakerDAO security

Hi, I have a few questions and points that I have already shared in the Maker rocket chat, but with just one response with a suggestion of re-posting it in the forum, so I am re-posting it here.

    1. When PSM and flashmint module? I think both would be very beneficial functions, which would generate additional revenue for the MakerDAO/MKR holders. The stablecoins in the PSM could be loaned out for profit and the repayment denominated in USD (in order to decrease the risk asociated with stablecoins like USDC, TUSD and others).
    1. MKR tokenomics are weak with secondary negative effects on the MakerDAO security (low marketcap, low voting and forum participation, etc…). The MakerDAO currently generates ≈$30MM in fees per annum, which translates into 6% annual MKR burn, that’s a lot and yet MKR marketcap and price are stagnant. The buy back and burn model rewards predominantly passive free riders (~90% of MKR holders). Instead, if the fees would be used to reward only the active MKR holders (currently ~10% of the total MKR supply), the effective reward per 1 MKR token would instantly jump from 6% to 60%, which would significantly increase demand for the MKR token and active participation (voting, discussion in the forums, etc…).
      There are many possible reward models and I think the buy back and burn is the least efficient one. Another possible way of rewarding active MKR holders and punishing the passive ones is by MKR supply inflation. For example, 1% supply inflation per annum would translate into ~10% reward for the active MKR holders (assuming 10% of the total MKR supply would be active participants). And the $30MM in fees could be used in more useful way (the Maker foundation won’t exists forever and the MakerDAO needs to be self sufficient and learn to stand on its own legs).

The intention of the first question is to get more concrete answer. Is someone working on it and if so, when is it going to be integrated?

The intention of the second question/point is to get the community sentiment about the topic of MKR tokenomics. Presuppose there are enough resources to do the changes (time, money, developers, etc…). Would you like to see some MKR tokenomics revamp at some poin in the future? If so, what would you like to see to be changed? If not, why? What importance do you think MKR price/MarketCap plays in the security of the MakerDAO system, especially in relationship to events similar to the black thursday and subsequent issuance of new MKR tokens to cover the losses (the higher the marketcap of MKR the safer the system is)?

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well @Homo_Economicus,

it is not that the community does not want to discuss with you, it is just that the text you posted makes it very hard for anyone to come up with a response.

Let discuss your first sentence. You ask one question covering two subjects. PSM and Flash are two separate things and so may have two separate answers. You then come with your opinion, which is fine, but that will not accelerate the implementation of any module.

Your second block of text has no questions but touches on multiple topics, about five or six, each of which could be a whole discussion on their own. This is unlikely to generate a response. I kindly suggest you apply a bit of @Homo_Economicus to your own writing so it is even possible for community members to respond. The price of MKR is not really discussed in this forum here either, the appropriate place would be in chat or r/ethfinance or similar.

Regarding 1/
@hexonaut implemented both of them.
You can find the code in his gitrepo.
I believe it is going on code review and some securities change have already been applied regarding the user log into the vault.

I am not sure if the community want to go for a proper security audit.

2/
I think Sam is also working on a split to diverge fees into different spending contract such as classic burn, paying staff, charity etc.

Regarding the price it is actually a good price compare the market. Maker has 6% return which is relatively low compared to eth2 or curve.

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I just want to comment on

with my (very) personal point of view:

1) MakerDao bas been able to generate these levels of fees only very recently. Just one Year ago, we had ~60m DAI in circulation. And 2020 was a very difficult year. In fact we had to mint about ~5000 MKR after Black Thursday rather than burn.

2) Even assuming a consistent 6% annual MKR burn, this is not particularly amazing considering all the large risks that MKR holders need to take. I guess many people would just prefer to invest in LP or other safer options that can also produce ~6% APY.

This said, I feel MakerDAO is now reaching a point where the high MarketCap (~500m) is justified today, i.e., the price is not so speculative anymore.

So it is not really ‘stagnant’, as you say, but it is probably correct. Furthermore, if:

  1. We manage to keep the peg close to 1:1 during all 2021.
  2. We manage to increase the DAI supply, say to 5000m DAI by end of 2021 (500% growth in 1 year)
  3. We manage to do the above by keeing SF > 2% (including other profit mechanisms such as PSM) on average

then I have no doubt that the price of MKR might grow even 10x from here in 12-24 months.

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it is not that the community does not want to discuss with you, it is just that the text you posted makes it very hard for anyone to come up with a response.
Let discuss your first sentence. You ask one question covering two subjects. PSM and Flash are two separate things and so may have two separate answers. You then come with your opinion, which is fine, but that will not accelerate the implementation of any module.
Your second block of text has no questions but touches on multiple topics, about five or six, each of which could be a whole discussion on their own. This is unlikely to generate a response. I kindly suggest you apply a bit of @Homo_Economicus to your own writing so it is even possible for community members to respond. The price of MKR is not really discussed in this forum here either, the appropriate place would be in chat or r/ethfinance or similar.

Well, english is not my native language and not only mine but also of many other members in the crypto community, which clearly stems from its global and distributed nature. Due to this fact, some imperfections in communication (grammar or structure of the text) has to be expected. In my opinion my text is clear enough to be understood. And I don’t think touching a few (very similar) topics is a problem. There obviously is no need to answer or reply to every single point I made. Anyone is free to reply to any part of my post. E.g. Is there plan to implement the PSM? If someones knows, then I would like to hear the answer. Maybe it is just my imperfect english, but I find your reply a little bit arogant. But stuctural or grammar imperfections in my text are not what I wanted to discuss, so let’s move on.

Although not in the form I expected, thank you for your reply anyway. And if you have anything other (than critique of my text) to add to the discussion, I would be happy if you do so.

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I am advocating the protocol just take the underwater vaults now and drop them with DAI onto curve (as per others suggestions) to earn LP fees at least. I realized something here btw in that rather than liquidating to get DAI the protocol should have just confescated the underwater USDC vaults immediately and paired it with DAI to earn this return.

Tokenomics can be significantly improved. I think I will have to make a separate post on this but for now Maker is not earning 30MM/yr it is earning 15.13M because the USDC-A vault 4% is non-performing. My calculations have us at 1.26M/month and 15.13M/yr on 970M of the 1B. I ignored the last 30M for simplicity. This is a P/E of 34 with MKR at 518 currently. I think this makes MKR undervalued.

As to aligning tokenomics for all parties. I think it makes sense to take some part of the MKR obtained from flap auctions to burn and to offer it as a bonus through sourceCred or some sort of nomination for MKR rewards by the community as a reward for work. The point with doing this is that basically MKR ends up again in the hands of people working for the protocol and aligns the burn incentive of MKR holders with the special MKR reward for everyone working on the system.

Then EVERYONE working on the system have an incentive to help cause burns to happen. Sure if we take 50% of the burn and pay it out to people working as incentive there is less burn,. I maintain that in the end what MKR holders should want is more alignment of incentives to increase cash flows and hence opportunities TO burn and everyone to be rewarded during these events than just MKR holders. Also everyone who is working and earning MKR gets additional incentives to not just burn MKR but see the price go up. Over time as Maker improves cash flows we will create a massive cash flow and burn not 50% but maybe 40%, then 30% while rewarding contributions at 50%, then 60% 70% etc. of the burn. Now could we just pay the DAI and avoid the MKR buy and let people decide for themselves whether to buy MKR. We could but frankly I want people to get MKR as a reward when MKR burns - everyone wins.

IN conjunction with this I’d like to see an addition to DSSChief where MKR could be deposited by the protocol for multiple wallets and locked for a vesting period for the MakerDAO workers so they can still vote but not withdrawal. A wallet may have to make a transaction to connect to their MKR or the protocol just deposits it and sets up a delegation for voting. THIS one thing I think would help improve tokenomics in a massively positive way for the protocol.

I tend to prefer reward systems vs. punishement ones and the above I am proposing I consider to be much healthier for the protocol than just minting and inflating MKR. In this vein I really would like the surplus to be raised or better what others have suggested in that when we get to the point we are going to flap DAI for MKR we take part of those assets and put them into a treasury account. Everyone seems to think MKR deflation is the path to riches. The path to riches isn’t burning MKR but creating a revenue stream so large that the value being generated and put into a treasury and potentially ready for emergencies and to burn MKR is so large it can’t be ignored any more.

The true value of a company lay not in a stock price but in the profits it generates.

BTW: The above fully aligns the incentive to burn across all players in the Maker economy. It also helps secure the economy by vesting MKR for long periods in DSSChief and because this MKR is given to people who are working it has a much higher likelihood of participating in protecting the hat. It is a wider distribution of MKR to people who have already proved with work and time their dedication to the community.

I also was thinking of an easy way to do the delegation in the protocol. Simply take the MKR assign it to different wallets (the protocol will have keys to these) and then assign delegation to the workers getting the rewards. Sure a lot of mainnet fees but hell if we are burning MKR surely we can burn a little DAI profit in ETH fees for this. Just make sure the amount of MKR being distributed during a distribution to folks is worth it from a network fee perspective. Even sourcecred has a minimum amount they distribute use the same approach accumulate rewards until they pass a threshold and then distribute. Later on when the vesting period for a particular MKR tranche is over, simply open up that tranche in DSSChief to any wallet to execute a MKR vested tranche withdrawal initiation not just for themselves but everyone else in the tranche as well.

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Yeah I agree that tokenomics on Maker could be improved but in the end you would want tokenomics to (1) align long term growth incentives with the the core token, MKR and (2) increase the token price over time as the network grows.

Buy and Burn accomplishes both of those objectives. Still it could be improved. I think Maker needs a delegated voting system, and a do it yourself voting system, so you can vote individually or you can have a delegate vote for you. If you vote individually you get max rewards. If you have a delegate vote for you you get max rewards minus the delegate fee. If you do not vote you do not get any rewards.

It may seem at first glance like those not voting would be getting punished but this is not true. The people not voting are actually playing an important role in pushing up the rewards for those who do vote. Because each individual MKR token can now earn more money the value of the token itself will increase, as more people buy it to vote and earn rewards. Therefore even those who do not vote benefit due to an increased token price. There is no punishment.

(And I think this system of rewarding those who vote could completely replace buy and burn. It would turn into a staking cash flow model instead.)

As far as rewarding people who talk on forums, I am skeptical about that. I do like the idea of rewarding people who produce code that ends up being used: that should be rewarded with MKR or Dai. But as far as giving 50% of buy and burn rewards to people who talk and organize on forums – I could not get behind that. I think to earn rewards you need to own the token and then do something with the token, like vote! A small exception could be made for those who produce code.

I do not think it would be sound game theory to offer big rewards to those who do not own the token. It would prob open up attack vectors and at the least it prob would not align incentives with the token holders. You want people to have skin in the game if you are going to offer them rewards – and the best situation is that they have skin in the game and put that skin to use to earn rewards, like through voting – or through staking.

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First the 50% number is just a picked number. Secondly the rewards can then be split up on github (sourcecred supports cred and grain for github activity). Thirdly MKR in this case could be distributed for forum ‘work’. The idea here is that MKR rewards would go to ‘everyone’ including people being paid under grants as an additional bonus for being here and doing the important community work. Based on effort I honestly would be happy to see LongForWisdom and Charles Louis, and all kinds of other new faces getting the lions share of the sourceCred MKR if we were to distribute. I mean honestly you would rather just burn MKR rather than distribute it to people who are working to positively shape Maker. I think that is a kind of view that stifles community and ecosystem growth. One can have an issue with an amount, but the idea that people posting here are just fluffing off. I don’t get a whole lot for the time I spend in this community. Comments like these are quite off putting.

You want to reward people for voting. Personally I want to reward people for work, and give them a reward so they CAN vote. We can also take part of this reward and reward vault holders who give feedback in on-chain polls, use it as a kind of community top workers of the month reward, whatever. The % amount we can debate. But the concept I believe is sound. The fact people do actually step up and say something around here. I think sourcecred rewards are a positive thing and I want to see people contributing here, on github, on CCs, analysis, debuggin actually get more MKR.

So lets run it like this say we burn 500MKR and assign even 20% to rewards taking 100MKR and then
20% to all sourceCred participants including foundation folks, Maker grant people etc. In fact I see the key players here as the prime ones to reward with MKR btw as they are the most likely to vote, they are the most vocal and the most to win/lose (there jobs) if MKR succeeds or fails. This includes people like @s_Ben for his outstanding work for Maker with sourcecred etc.
20% for github/coding work
20% for Domain teams to be distributed how they see fit.
20% for a monthly or bimonthly Maker exceptional contributor award.
20% other stuff. (rewards for vault holder on-chain poll participation, closing out large vaults, paying a lot of DAI fees, a MKR vault lottery system, pay at least 100DAI in interest and be registered for a MKR give away lottery or some such)

I also want this to vest in Maker controlled wallets that Maker smart contracts control which then is deposited into new DSSChief and delegation made to the peoples wallets that opt into this. Once the vesting period (1-3 years) is up then these MKR vesting tranch wallets open up in a way that people can withdraw their Maker from DSSChief and have it sent to their personal addresses. Or some variation of this.

This doesn’t just reward everyone for working on the system, it aligns incentives for everyone to focus on generating cash flows to increase the Maker burn. It helps protect the hat because all this MKR ends up in DSSChief for 1-3 years. We build a community of active Maker MKR voters who all have proven with tangible contributions their commitment to the project.

20MKR is $10K USD roughly - a total of 100MKR provided we burn 500 and take 20% isn’t a lot of MKR. The community is already funding sourcecred at $5K/week. IN the above scenario I am talking about 100MKR every time we burn 500MKR (20%) if 50% this would be 250. This is 50K to be distributed probably to over 100 people (maybe $500 or 1MKR per person on average for every 500 burned) to further align incentives of everyone to focus on increasing revenue and burn even if it is a little.

You somehow think this is some ‘big rewards’ @LongForWisdom alone deserves like 1MKR/month as a bonus for his dedicated service on TOP of the DAI he earns, same is true of other key contributors here. Ask him if $500 say every month or two is a big reward for what he does. But if that $500 worth of Maker grows to $5k - he and everyone else will.

How do you think these people are going to get skin in the game. Take part of the money they are earning and buy MKR? I have to choose between paying rent, food, insurance or buying some MKR. Really even corporations have company stock or stock options that drip to their employees via a vesting model to encourage company loyalty and align worker interests with shareholders.

I have long been an advocate of a kind of MKR staking model to be able to earn MKR. I eagerly await a pre-MIP proposal discussion on the subject from you or anyone else btw>

Expect a new forum thread post on the above because I believe taking part of the MKR burn and using that to align incentives of everyone towards burn is a valid idea. Ultimately the community (like you and me) can weigh in and shape the proposal, kill or move it forward. I consider things like this doing the work of the community. Even if some of us have done a heck of a lot here and for their service come up empty handed. The idea that the only people who get to earn MKR are the ones who hold it imo doesn’t take into account that Maker wants the DAO to grow and include many people into the community not just MKR holders. I want some really poor african guy who is talented at documentation or smart contracts, or even as an analyst or great contributor without too much to his name to be able to earn DAI as well as MKR and someday maybe rise to be a Domain leader or whatever actively participating in governance. I want tons of these people there is still a lot of work to be done.

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Honestly it sounds a bit like a governance attack. MKR is not some magical horn of plenty. If you pull a Vlad and try to reward everyone and their mother with MKR you dilute the value of the actual token. You ask how people get Maker? They buy it just like everyone else. Bitcoin does not dole out Bitcoin to community participants, nor does Ethereum, nor does any other project I can think of. (Tezos just started giving community participates like $50 but that is nothing to write home about) As far as allocating some MKR to people producing code or doing other very specific tasks, yeah I can get 100% behind that. And to be fair you did say 50%, as in 50% of the income that MKR is producing should be doled out to community participants. Perhaps if you has said a much smaller amount I would have gotten behind what you said. But even at a much smaller amount it would probably have to have a system for adjusting the payments rapidly due to potential exponential growth.

In any case if MKR is awarded to community participants it should be a fun silly thing – not the basis of a new tokenomics system!

Skin in the game, staking, voting – that is what we need. Otherwise, just stick with buy and burn – it’s slow; it is steady; but it will get the job done.

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Well with that and the rest of your comments we will have to respectfully disagree.

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ha, you highlighted what was probably the weakest part of my comments and did not respond to anything else. To highlight the weakest part is a good debate technique and so you score a point for that, but regardless all my other points remain.

I would add one more: when you pay for community participation you no longer know what is organic and real, and what is manufactured and mercenary. If you start paying for community participation you would probably, and ironically, lose your community.

rapper

Well hey I appreciate counter views but no-one is holding me down saying YOU MUST DEBATE. Not yet anyway.

To your:

well you know by the people who opt out. But honestly while I have seen a shitload of sourceCred gaming elsewhere lately I think it is minimal here.

I finally put up a Pre-MIP forum post you can vote NO to. I just want you to give the idea a fair bit of thinking. The details are up for debate.

If it is shot down well so be it.

Notice the goal here is to align people doing constructive work for Maker towards burning MKR. Does anyone have another idea to align these people towards this goal?. There are also other possibilities of what to use such MKR for.

I stand by my contention that taking some piece (even if small) of the MKR slated to burn and using this to reward the behavior and work we want to incentivize will distribute MKR into hands that have already show interest enough to work here. I believe these people are the ones most likely to vote. I also believe it is better to have MKR in DSSChief for 1-3 years with voting partipating players than people who just toss $$ at MKR and sit on their thumbs doing diddly for the protocol other than that one event and don’t vote at all.

Perhaps this might be a way to get these people not just to vote but to also participate in some real positive way and be rewarded.

But hell - shoot it down - I want to hear all views pro or con.

Please I want to encourage you - put up some Pre-MIP discussion regarding any form of staking model. I have some work shelved on that topic and have posted regarding using MKR to run MKR in the past (link not handy atm) but would love to see what you are thinking on that one.

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I am not sure how to do the MIP stuff also I did not know that sourcecred was already running here. I remember some discussion on it way back when. Good it is running I guess.

As far as staking/voting wouldn’t the simplest system just be:

  1. You can choose a delegate to vote for you. (This would give community members a way to earn dai/mkr without having to buy it if they are a successful MKR politician, and I imagine those most active in the forums would be the most successful politicians. They would earn a fee for voting on behalf of people – but of course would vote their own views. People could change politicians if they do not like the way they are voting

  2. You can vote manually. If you vote manually you don’t have to pay a fee to a politician.

  3. You can choose to not delegate and not vote manually, but in this case you will not get any rewards from the protocol. But this is not all bleak. Because some folks will choose this option the earnings of all other MKR will be higher. That will make the MKR token more attractive for new folks to buy it which should push up the MKR price: a higher MKR price will obviously benefit even those who do not vote.

It seems to me that if you choose to delegate your vote you are essentially staking, and if you choose to manually vote you are voting, so that is why I would consider it a staking/voting system. It is the system that Tezos uses and they get 80% participation.

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Could you elaborate on that, please? What does " the vault is non-performing" means and why is that so? Thanks.

Welcome to the forum @textrapper, great to have you join us.

I do think that rewarding the people actively working on Maker with MKR is a good way of helping to ensure that those people are aligned with the protocol’s best interests (giving them monetary skin in the game). The vesting idea proposed by @MakerMan is the only solid way to ensure this, but even paying out SourceCred rewards in MKR is an improvement, in my eyes.

Sure, the people who really want MKR will go and buy it with their DAI, and sure, if people receive MKR there would be a portion that immediately swapped it for DAI. The point is that the default is important for a couple of reasons:

  1. Many people will just stick with the default because it’s the default.
  2. It sends a message that Maker Governance wants people working on Maker to have a say in its future.
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In initial discussions of how to integrate SourceCred into the protocol, several people have argued for sourcing from Flap auctions, for this reason. Conceptually it makes sense to me. You will need a way to address volatility in pay, but there are a number of ways to address that, e.g. a rainy day fund.

We could definitely explore adding GitHub rewards. I recently fleshed out the potential issues and opportunities around this in a comment on the SourceCred Funding MIP.

tldr; the GitHub plugin is less mature in some ways than our other plugins, though pretty battle tested at this point and communities are using it, some distributing considerable sums of money. We’re also ideating on how to improve it. E.g. we’re looking at finer control over how much Cred is minted in different repos.

I’ll take it :blush:

We’re looking at implementing “Cred budgets” that can be broken down similar to this, in response to feedback from 1Hive (placeholder Cred to them for feedback). E.g. you could mint X amount of Cred per week on Y.

Looking for ways to spice up my weekly reports (:heart:s are down :sweat_smile:) Perhaps I’ll highlight highest monthly Cred earner. Was also thinking of highlighting new contributors that are rising through the rankings…

I see from your profile @textrapper that you’ve only started posting in the last couple days. As the person running the SourceCred trial for Maker, I’m obviously biased, but would say that nearly everyone who encounters SourceCred is skeptical at first. Which is justified. People often change their minds though once they start seeing the system in action. Our aim is to strengthen communities by valuing things more accurately, which has been the case in all communities so far that have flowed significant value.

As someone who’s primary income source was once a volatile governance token (DCR), I personally think paying in MKR is a good idea. NOTE: this is not necessarily the position of SourceCred. In my experience, it does make you more concerned about the project, gives you more skin in the game. It can also help filter out the mercenaries @textrapper mentioned (which do exist). The volatility can even emotionally bind you further to the project. And having payments in MKR could make vesting schemes and other incentives for voting easier. I think you need to accommodate those without the financial means to absorb that kind of volatility. But that can be mitigated in a number of ways.

I also suspect that many, if not most contributors, will keep it in MKR and vote with it. A colleague in the Decred DAO recently did chainanalysis on two years of treasury outflows, including significant payouts to contractors (~$200k/mo worth while I was there). It found that most contractors didn’t sell, but staked and participated in governance.

23.7% of the DCR paid out by the Treasury ended up in a known exchange address. 23.5% of this DCR has been staked, almost certainly by the contractors who received it.

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I don’t own MKR but I for one think that getting paid in MKR for Maker governance improvements would give me “skin in the game.” The hard part is making holding and voting with MKR the most profitable of all of the options because the alternatives can lure people away. A hard nut to crack no doubt, but at least we are inching closer to a viable solution.