Question about future products

At Maker growth we are always trying to find ways to grow the protocol, both through partnerships and through the creation of new products (example institutional vaults), and following this line, I have been thinking lately several examples of products of which I would like to know the opinion of the community about it.

ETH Staking Services by MakerDAO ™: It is known to many that ethereum staking services can and will capture a large portion of eth’s working capital in the long run, this leaves me thinking that these services have the opportunity to be able to issue any form of stablecoin, since they are the owners of the staking interface and the interest generated by it.

What is your opinion in relation to makerDAO creating a staking service where the stability fee is directly absorbed from the staking interests?

Permissioned / Permissionless Lending Pools by MakerDAO ™: Creation of an AAVE / compound both Permissioned (Like AAVE Pro / Compound Prime) and Permissionless. Surplus funds could even be used to grant extra yield as an incentive mechanism for liquidity while at the same time it is a very easy product to implement at the institutional level and being the ideal match for Vaults.

What is your opinion in relation to this type of lending pools?

All this arises because I feel that we have to use the capital we have to create products that reaffirm makerdao as a leader, in pursuit of an ideal called "Maker Nation"

In this Maker Nation, I would like to see a whole range of Dai-based products where each of them is hierarchically connected to another, always having Dai and Vaults as the beating heart.

Let me know your thoughts about it.

Best Regards

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Dude this is such a great idea! And why not take it a step further and create a Staking Facility for other PoS layer 1s and provide staking services for Institutions.

Yes, yes, and yes!

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Banks and maybe Funds could try to be key participants in the ETH2 staking services in the future. We need to be a step ahead and offer this service to institutional clients. This could be a really big deal.

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Both initiatives make a ton of sense.

I believe this is absolutely right. Maker must position itself as a prime location for ETH2.0 staking services before banks (which I believe could be in a few years, but it’s best to be in advance).

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I would love to hear @Protocol-Engineering team opinion on this.

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I can’t speak for the rest of Protocol Engineering, but I’m happy to volunteer my own opinions:

What is your opinion in relation to makerDAO creating a staking service where the stability fee is directly absorbed from the staking interests?

I am personally much more interested in seeing the staking derivatives from other services used as collateral in MakerDAO. Staking services are a highly competitive market with winner-take-all tendencies/power law success distributions–I expect operating margins to be thin, and scaling challenging unless we’re one of the top services (hard to do when it isn’t your #1 focus). Building something like that also requires the DAO to invest in physical infrastructure in one or more specific jurisdictions, or to establish financial relationships with entities that provide those physical resources. It’s not clear to me if the advantages from running our own staking service (i.e. a more trustworthy staking derivative, no middleman, and deeper possibilities for integration with the rest of the protocol) outweigh the risks and high costs of doing so. IMO it’s probably a distraction from our core business until that reaches a scale where it’s feasible to spin up completely new lines of business.

What is your opinion in relation to this type of lending pools?

Not sure I fully understand the idea, but–I think you’re suggesting expanding the financial services offered by the DAO to directly include a Compound/AAVE-like product that would directly compete with those other lending protocols. I have some similar opinions here as mentioned above–I think at the moment it would distract from the core mission of growing DAI as a currency. It also jeopardizes cross-protocol efforts like the Direct Deposit Module (an AAVE integration that creates DAI supply in certain interest rate regimes). An idea that’s been floated around is some sort of attached lending market where Vault users can opt-in to making their collateral available for borrowing (they’d get a cut of the interest for taking additional risk, partially offsetting their stability fees). This would increase the risk to DAI though, so I’m not sure it’s a good idea. That said this sort of “vertical integration” (i.e. offering a full stack of financial services) is certainly a direction the DAO could choose to grow in.

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Sir, Staking yields in osmosis.zone are 500%++!!

Oh man I think I just leaked some alpha :grimacing:

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I believe offering staking services will be critical, or we risk being losing a lot of ETH collateral to services that do offer it.

I agree that margins will be thin or non-existent, but for us I believe that isn’t necessarily a disadvantage or maybe even a competitive advantage; because the objective is to offer staking rewards as an incentive to drive growth of our #1 focus — DAI supply. We could afford to take a smaller cut of staking rewards than competing pools because skimming staking rewards isn’t our main business.

This will indeed be tricky. As an alternative to managing hardware, I was wondering whether it would be possible to run validators on cloud providers with very good SLAs and multiple regions (AWS,
Iron Mountain, etc)? Alternatively could we use an existing cloud Ethereum backend service

I believe that first-mover advantage will play a big role in determining who will be the winner that takes all in this market, so I think it’s worth considering getting ahead on research for this before the “docking” of the Beacon Chain occurs (some time soon after which withdrawals will become possible, which is when liquidations of staked collateral will be possible).

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My current model of what’s needed for a Maker-backed staking provider to work:

  • Napkin estimates of why this would make a material difference (for Maker) compared to opening various staked ETH vaults types (edit: main intuitive reason so far is that it enables lower total costs for ETH holders which pushes up the amount of DAI – Maker could also have more confidence in internal operations and thus allow a lower CR).
  • Few human resources are diverted from current efforts. So either a current team with available slack does it, or new recruits.
  • Economically good for Maker because Maker would be commoditizing its complement (a very powerful way to look at many Maker activities I believe), economically good for stakers due to low rates, economically good for the operational team because being Maker-backed gives them a competitive edge.
  • As with all activities that are not fully onchain, details of how Maker ensures the staking business stays under the control of governance have to be fully sorted out.
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It is perhaps not a whole future product idea but I would like Maker to integrate derivatives and risk products such as the ones being developed by Barnbridge. More choice, better risk spread, more liquidations, more profit.

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Kurt, thanks for your detailed answer, always a pleasure to discuss things with you. Please see below my responses.

Staking services are a highly competitive market with winner-take-all tendencies/power law success distributions–I expect operating margins to be thin, and scaling challenging unless we’re one of the top services (hard to do when it isn’t your #1 focus)

The idea behind this is not to obtain a “significant” margin but rather is about horizontal expansion to offer more services that we can connect with DAI regardless of whether we are a TOP service or not. In my mind Focus # 1 is growing Dai and the DAO. As a base, we have a collateralized stablecoin issuance system that is the envy of many and I think it is our duty to expand the capabilities of the possible byproducts that this building block can give us.
We are in a nascent and tremendously competitive industry, where every minute more and more capital is deployed, far greater than ours, and from my strategic point of view, we have to act first (which is our advantage) to cut chances for other players.


Building something like that also requires the DAO to invest in physical infrastructure in one or more specific jurisdictions, or to establish financial relationships with entities that provide those physical resources.

Yes, if we want to achieve the vision that we have for DAI we will definitely need to establish financial relationships with entities around the world.


It’s not clear to me if the advantages from running our own staking service (i.e. a more trustworthy staking derivative, no middleman, and deeper possibilities for integration with the rest of the protocol) outweigh the risks and high costs of doing so

In competitive environments, it is often much more expensive not to develop a business line.

Take a look at our run rate, mostly comprised of people (salaries).


IMO it’s probably a distraction from our core business until that reaches a scale where it’s feasible to spin up completely new lines of business.

The point is that the consensus on what MakerDAO’s core business is is practically nil, almost all members of the community have a great vision of what DAI should be, but very few propose HOW to reach that vision.

Does Starbucks sell just Coffee?
Does Apple sell just Phones?

Also, is not clear what scale we should reach to create new lines of business, if we have the opportunity and the capacity, I think we should take advantage of it.

Is it easy? No

Will it cost money? Yes

We will need to work our asses off? Definitely, that is why we are here.


Not sure I fully understand the idea, but–I think you’re suggesting expanding the financial services offered by the DAO to directly include a Compound/AAVE-like product that would directly compete with those other lending protocols. I have some similar opinions here as mentioned above–I think at the moment it would distract from the core mission of growing DAI as a currency.

Yes, competition will always exist and we have to be prepared for it.

The problem that I see with just “Dai as currency” is that is limited to be a type of commodity. Nowadays, the “Dollar parity” is the proposition sought after by everyone in order to create financial services, this is very easy to achieve, either via USDC, USDT, or any other stablecoin, if we limit DAI within This category of “as a currency” we do not have any type of weapons to fight against other options. Even in terms of regulation, which sooner or later will arrive, Dai is at a serious disadvantage compared to the options mentioned, that is why I want to bring to the table that the core mission of the Dao is to grow an entire ecosystem around DAI so we can avoid that “commodity label” and be able to generate a differentiator and a stronger value proposition than any other stablecoin out there.


It also jeopardizes cross-protocol efforts like the Direct Deposit Module (an AAVE integration that creates DAI supply in certain interest rate regimes).

Cross protocol efforts will never be more important than the protocol itself.

If we build a useful ecosystem, they will build things anyway.


An idea that’s been floated around is some sort of attached lending market where Vault users can opt-in to making their collateral available for borrowing (they’d get a cut of the interest for taking additional risk, partially offsetting their stability fees).

This is neat!


-That said this sort of “vertical integration” (i.e. offering a full stack of financial services) is certainly a direction the DAO could choose to grow in.

I really hope so.


I’m starting to see a dichotomy where we need to think and define if we want to be some sort of “public good” and grow because we are sailing the good waters and tailwind of the industry or if we want to become a powerful ecosystem with Dai & MKR (DAI as an Appstore analogy) at the middle and craft our own destiny. I lean towards the latter.

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Going to reply to a few things at once here:

@someone said:

I believe offering staking services will be critical, or we risk being losing a lot of ETH collateral to services that do offer it.

I don’t get this argument. The market has already provided liquid staking derivatives that will make very viable collateral. Everyone seems to agree that the top priority right now is DAI supply; well, I don’t think we’ll get significantly more supply by building our own staking service versus onboarding derivatives of the large, successful services that already exist.

@Planet_X said:

It is perhaps not a whole future product idea but I would like Maker to integrate derivatives and risk products such as the ones being developed by Barnbridge. More choice, better risk spread, more liquidations, more profit.

I agree that there are a lot possibilities in this space–I think the market is telling us that the Vault model could be a lot more attractive. I think we might see some “variations on the theme” come out of the work on institutional Vaults ongoing right now. At the same time, we should ignore it when the market solves problems for us–see e.g. all the work B.Protocol has been doing to make liquidations backstopped and thus allow more capital-efficient Vaults. If their developments prove out, integrating more closely with them is a win-win.

Now finally to the points raised by @MarianoDP :):

In my mind Focus # 1 is growing Dai and the DAO.

Completely agree. IMO, DAI as a business only makes sense if we can scale it. And to be clear, by “scale it” I mean hundreds of billions, probably trillions, of DAI.

We are in a nascent and tremendously competitive industry, where every minute more and more capital is deployed, far greater than ours, and from my strategic point of view, we have to act first (which is our advantage) to cut chances for other players.

I think we’re at a stage where we can choose between playing one game well and hopefully winning, or playing a bunch of games in a mediocre fashion. And to be quite honest, I don’t think we’re playing that one game particularly well right now. We are struggling with governance (look at how hard it is to just pass executives lately). We are struggling with supply. We are struggling communication and organization. I do not see now as the time to spin up orthogonal efforts and distract from the very real challenges at hand. I don’t think we’ve “won” the decentralized stablecoin market by any means, especially not given the multichain future that seems to be emerging–if we don’t keep on top of that, we might wake up to find our lunch being eaten.

In competitive environments, it is often much more expensive not to develop a business line.

Does Starbucks sell just Coffee?
Does Apple sell just Phones?

Google has a lot of varied business and product lines now, but they started out by winning search market and monetizing it effectively. When I look at the size of the opportunity represented by growing DAI into a bona fide world currency, I feel like we are in a similar position to the early days of Google. Turning Maker into some sort of financial services omnibus today just seems like the wrong order of operations to me. Going head-to-head with every other DeFi protocol will create integration friction and drain resources. Another lesson might be to look at how companies that compete with Amazon in retail actively avoid using AWS. I see the core Maker protocol as analogous to AWS, and if we decide to start competing in other areas, those new competitors are going to be a lot less receptive to building on the core protocol, using Vaults, or integrating DAI. I’d rather make our AWS better–more Vault types, more collaterals, more RWA integrations, better liquidations, better stability mechanisms, more robust governance, DAI bridging to and generation on L2s/other chains, etc–than try to spin up tangential lines of business.


I don’t disagree that at some point, spinning up these more orthogonal things will be a worthwhile investment. But for now, the DAI supply/demand flywheel is the thing I find most compelling to focus on.

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This is an excellent reminder what our real business is. Vaults will end up being only one of many ways to create, manage, and earn fees from DAI

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Indeed. The Vaults could need a serious dose of love. Flat liquidation fee? Overkill. 13% liquidation fee? In light of Liq2.0 performance - pure leeching. Also needs variable LR and LF. And multisig.

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How do these liquid staking derivates work? I think the concern some people have is that demand for Eth vaults will be lower once staking is rolled out in mass. If you can stake Eth through a pool for a 6% APY and SF on an ETH-A vault is 2%, your real interest rate is 8%. Does the staked eth derivative allow you to accrue and redeem value of the staked collateral or how does it work?

Yes exactly–in the case of something like stETH, the staking derivative accrues value over time. If we just kept using vanilla ETH for collateral we’d have an issue, but if we allow people to borrow against the staking derivatives they hold, then they still get the staking yield (assuming they don’t get liquidated).

If the ETH devs had had the foresight to build a native staking derivative into ETH2 our lives would be a whole lot easier, but integrating 3rd party staking derivatives is still vastly cheaper and easier than creating our own staking service.

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For “cheaper”, this depends on the exact numbers. If the market rate for staking services is .5% and Maker charges .1%, that leaves .4% to split between increased SF and savings for users. Depending on the split, the overall volume of DAI generated, and the cost of running the staking service, it may or may not be cheaper to stick to integrating 3rd parties. (But an in-house service will anyway make staked ETH a stronger source of DAI supply than it would have been otherwise).

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I think if people are really serious about considering this, the next step would be to do some modeling along the lines of what you’re describing–there’s a lot of uncertainty obviously, but by looking at some realistic ranges for the various parameters, we can get a ballpark idea how much additional DAI we’d need to make having our own staking service worth it relative to just using 3rd party derivatives.

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I am only in favor of staking services if they can be combined with Vaults. If it is a separate service I feel it is a distraction.

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exactly this!
The idea is to give Vaults a kind Super Power with a Yield generating capability in ETH.