Real-World Assets - Report - 2021-05

Real-world assets are more complex than crypto-vaults based only on an on-chain price, some information is off-chain (at least for now) and discretionary judgment is needed. You can see more details in the covenant forum post and poll .

Real-world assets exposure

Still only one pool: New Silver

New Silver

You can find the covenants definitions in the risk assessment .

This month we have some data issues as I didn’t take a snapshot at the end of the month, which is why the loan value (Maker, loan tape at the end of month) is so low compared to the Centrifuge one (as of today). The DROP amount/price is of today. Therefore the CR and NewSilver TIN investments are less good than reality (but still above the threshold). This shows what would happen if two loans were fully in default.

Concentration in Florida is decreasing from last month and the pipe will decrease it further. You can check the previous report for a more detailed discussion on this point. The RWA Committee is assuming that the maximum state exposure makes sense at the full use at the DC to give to get diversification as a small pool is unlikely to be diversified.

Analyzing the document also showed a discrepancy between the dashboard and the Risk Assessment. We wrote the LTV max was 80% but the executive document at the time showed 85%. Since then the executive document was updated to 90% max LTV. The dashboard has an “Exposure high LTV” line that shows what is above the 85% limit. The 15% allowance was set at the creation of the report. I told New Silver to keep the exposure below the threshold. I will have another call with them to discuss the matter. The average LTV of the portfolio remains at 72%.

This shows that we need to formalize our monthly audits something we will address next month and give the audit report to the RWA Committee (and to the public if this seems possible).

As New Silver is growing they will ask for a DC increase, this will be a good opportunity to address those points and have a community call with New Silver.

Previous reporting:

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Can we get more clarity on what happened here? Mainly:

  • What was the intended LTV from the MIP?
  • When approving the Vault, did the MKR holders have an opportunity to review the executive document where the discrepancy could have been made apparent?
  • Who updated the executive document? How? Why? With what authority?
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Had a friend who “Flips” properties tell me right now is not the time to be flipping properties based on the price exuberance and mania of RE. Does the RWA team see it differently, or Y’all are also looking into such?

What was the intended LTV from the MIP?

85% in the MIP6

When approving the Vault, did the MKR holders have an opportunity to review the executive document where the discrepancy could have been made apparent?

Yes it was on the website and the information is also in the subscription document on IPFS that is embedded in the executive spell.

Who updated the executive document? How? Why? With what authority?

New Silver, they can do it according to the Tinlake DROP agreement (same document as the previous one).

So do you want the max LTV to be 80%, 85%, or 90%?

This is very a valid concern. Price where increasing already before Covid. Probably @prankstr25 (New Silver) has the best knowledge to enlighten you on that. We will look at it independently (maybe @Philinje
has something to comment), but always hard to call a bubble when you are in it. To my personal opinion, we are in an everything bubble anyway and the best solution would be yield generating assets (like real-estate but not fix&flip loans). But that would probably not be the best match for MakerDAO due to the length of the loans.

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I don’t decide, MKR holders are. I’m negotiating for terms with New Silver but the community can fix them as they want or liquidate the whole thing.

A maximum average of 75% and 15% of the exposure in 85-90% LTV does seem okay to me personally if there is a business reason and if New Silver increases their TIN exposure like they are currently. As much as I like numbers, I like to understand the real risks, they are taking risks with their equity so I would start there. Numbers are usually just an approximation of a more nuanced situation.

But is the exposure 85% or 90%? If 90%, when were MKR holders notified of the change and where is the approval? I don’t see 90% written anywhere outside of this thread, apologies if I missed it.

To be clear, I don’t remember this going up for any kind of poll:

the executive document was updated to 90% max LTV

Two quick points, Seb. One, how was New Silver unilaterally able to make the change above?

Two, does anyone on the RWA Committee have a financial interest or investment in New Silver?

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There wasn’t, but I agree that the AO should change the terms only after MakerDAO approved them (which makes more sense at least). The Centrifuge way is that if you don’t agree you redeem your DROP token.

Two quick points, Seb. One, how was New Silver unilaterally able to make the change above?

We might have discussed the point, but I didn’t understand the implications and New Silver probably thought it was enough. I see it as part of the learning process.

Two, does anyone on the RWA Committee have a financial interest or investment in New Silver?

I have a few DAI in the DROP token. No one else in the RWF CU nor in the RWA Committee has declared any investment in New Silver (@_LS isn’t able to vote on Centrifuge assets).

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What do you mean “you agree”? You are the real world finance facilitator. This is your job. Did NS tell you that they were going to change the agreement? Did you approve it without notifying MKR holders? Either way you just allowed an originator to unilaterally change a material term in the agreement and (apparently) there’s absolutely nothing you can do about it, because as I’ve been saying for a long time, this is a piss poor structure. They were also able to do so without any kind of oversight from MKR holders, which should have been a non-starter for this entire concept and is what you should have been enforcing as a mandated actor. Also why don’t you go ahead and try to redeem our DROP? Let’s see how productive that route is. This whole thing is a complete joke.

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I believe they need to provide 2 weeks notice to do that, under 4.F of the main agreement. Was the DAO informed of this when RWF received notice? Or did New Silver neglect to provide the notice?

Think it’s time for another decorum reminder…

Remember we are discussing the ideas, not the people behind them, and Good Faith should be assumed in all interactions until there is ample reason no to trust the intentions. This is not one of those exceptions IMO.

There are some questions to work out with this latest update but let’s focus on the content of the questions and what clarity we desire from them. I understand that you are upset with the structure @g_dip but I think it’s important to highlight here that this is a structure approved by MKR voters and executed according to their wishes by Seb. There are plenty of governance tools we can use to reevaluate this structure and I’m happy to assist with providing different options that you might want to peruse. Let’s all take a deep breath and remember we are on the same team, despite any differences in opinion.

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like removing a facilitator? can a core unit have no facilitator?

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I suspect it would need to re-form under a new entity, unless the legal entity is sold/given to someone else. The DAO doesn’t own any companies/LLCs/corporations/partnerships.

Yes, important point: MKR voters agreed to this. If the setup is bad, the responsibility is ultimately on MKR voters to make sure future RWA structures don’t have these flaws and if possible adapt to the facts of the current one.

I don’t spend a lot of time looking at RWA and I guess there are a few people like me – @SebVentures I would be very interested in a breakdown of 1) What happened 2) How big of a hole in the structure does it reveal in your opinion 3) What changes to the RWA onboarding process you’d make, if any, to avoid that in the future.

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I think the first thing we need to determine is if 1) New Silver gave us the 2 weeks notice as required, and if so, 2) why we are only hearing about it now.

Indeed, I’m doing my best to facilitate and help MakerDAO in the topic that falls under my mandate by trying to understand what the MKR token holders want (which is really the hardest part of the job).

According to the CU MIPs, you can submit a Signal Request to tell me to stop dealing with RWA.

You can remove me as Facilitator, it’s not a problem for the RWF CU, it’s mainly managed from the MakerDAO RWF CU multisig. I can understand the individual positions, but I’m working for MKR token holders.

There is this fancy trend to fire me lately. For those that are entertaining this idea for weeks, please do or don’t. I’m here to do work, not politics. The work is already hard, the rest is just exhausting.

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I think you might be misinterpreting what happened. MKR voters did not agree to allow a core unit facilitator to unilaterally approve changes to what is effectively the collateralization ratio of the Vault. To my knowledge, no core unit is vested with that power. Additionally, there has been an outright refusal to share the deal-specific documents (akin to the smart contracts in a crypto-vault), so the MKR voters had no way of knowing that this was even possible and trusted Sebastien to ensure their interest were adequately represented. I am all for getting along, but this isn’t a game and I’m seeing 0 accountability being taken here. This is real money at stake and this isn’t the first time these concerns are being raised - and somehow still being ignored.

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