Real-World Finance Core Unit Report - 2021-07

July 2021 reporting for Real-World Finance Core Unit

Current strategy

(no changes vs last month)

Our current strategy is to onboard $300M of real-world assets. While the long-term strategy is to simply invest in senior tranches of structured products rated by credit rating agencies, we recognize that it’s not currently possible in DeFi. We have a two-path approach. First, partnering with Centrifuge, we work on a smart-contract way of investing in structured finance. Second, we are investigating a Trust-based way to invest the MakerDAO balance sheet in the real world using real-world tools.

We also think that having a strong capital base (i.e. surplus buffer) will be important to disrupt the traditional finance world. As we recognize that people prefer to burn MKR while it’s seeing as cheap, we also work to inform the market and the community on the financial strength of MakerDAO. We think that if the market recognizes the financial prospects of MakerDAO, the MKR price will increase, giving more opportunities to consolidate the capital base. Such knowledge will also help Maker Governance make more scientific decisions.

Review

State of RWA at MakerDAO

New Silver is still the only one RWA on MakerDAO and continue to grow steadily.

RWA Pipeline

An executive to onboard 4 Centrifuge-based assets is still needing some MKR to be executed at the time of writing (5k MKR needed).

6S should submit a finalizing executive soon.

For Solar X, a compromise was find to secure the investment at the pre-development phase by adding the land as collateral.

The pipeline remains strong and we meet with plenty of prospects around the globe.

A significiant amount of MIP6 application where submitted:

The native Ethereum bond from a bank mentionned last month will have it’s MIP6 application end of September if approuved by its executive committee.

The main bottleneck is still on the legal structure front (see the research section).

Finance

@Aes updated the budget simulator. Even with some Core Unit proposals rejected, we are still not profitable. It is important to note that we are still generating cashflows, the difference being the MKR dilution (but we are remaining well below 1M MKR for the forseeable future). Some needed Core Units are still missing (tech ops for instance).

Research

Research work is mainly on creating and improving legal structures for RWA.

An analysis was done on the Prudential treatment of cryptoasset exposures. Work will be done in August to provide an answer to this BIS consultative paper.

Cayman Foundation

We are making significant progress on the Cayman Foundation structure. The key component of the structure is that it working in synery with MakerDAO through DAO Resolutions. We are at the third iteration of the Articles of Associations (to be shared in August) and a MIP to formalize the relationship with the Foundation will be published soon.

Securitization 2.0

On-chain securitization is a strong RWA strategy of the Core Unit. The work we are doing on the New Silver audit is highlighting a path toward industry grade securitization. This will be an iterative path but will lead to liquid traded securities rated by credit rating agencies.

We will start by framing a roadmap and targeting low hanging fruits before moving to more complex improvments. The roadmap is expected to provide guidance to issuers on what are the milestones they need to achieve to unlock higher Debt Ceiling. For instance, currently, an independent director is needed to get above 5M DC.

RealDAO

@jameskmccall submitted a RealDAO Spv Concept which is an interresting way to tokenize assets by using the DAO construct.

Marketing, Communication & PR

N/A

Data infrastructure

We have continued to work on the MakerDAO Data Warehousing tools adding Snowflake as a database backend. The heavy lifting is done by @thedstrat.

Public work

Team composition

@SebVentures - Full-time - Facilitator
@williamr - Full-time - RWA
@Philinje - Part-time - RWA
@jameskmccall - Part-time - Expert for farmlands
@christiancdpetersen - Part-time - Expert for energy-related project finance and legal
@Aes - Part-time - Financial analysis
@thedstrat - Part-time - Data Science

Core Unit budget

You can find the ledger of the RWF Core Unit multisig here . 54,857.98 DAIs were spent, mainly on compensation and legal.

Previous reportings

8 Likes

I have a meeting with BIS digital technology folks next week. If you have questions that are helpful to have answered before finishing your response, let me know and I’ll be sure to ask them and see what they say.

After a couple readings of the guidelines, I don’t think they are as burdensome as we have originally worried.

Thanks, I’m already in touch with them.

Thanks for the update, some Qs:

  1. $300M of real world assets
    Do you mean as part of the maker reserve? Where can I find info on current reserve composition?

  2. New silver
    Where can I see how the price of that is tracking back silver?

  3. cayman
    Where can I read more on why the Cayman entity is required? And what other options were considered (e.g. a US LLC)?

Thanks

here, here or here.

That would be here I guess

The Cayman Foundation is quite flexible and doesn’t need to have members/shareholders. It is used a lot in crypto. If you read the links, you will see that there will be subsidiaries of this entity that will most likely be US LLC.

May I ask what your response is looking like?

Because after a couple successive reads, even being in the Group 2 bucket of crypto assets doesn’t actually look very bad. I think all the initial reactions — my own included — were based upon quick skims and first reads.

I’m just curious if you saw something I didn’t, and if so, what the response would be.

@PaperImperium As stated in the report, work on this will be done in August so nothing is to be seen yet. What did change your mind on Group 2?

1 Like

It’s not so much that Group 2 is good, but it seems like it won’t be prohibitive for banks to own or trade crypto outright in Group 2 given the typical capital ratio of large banks. It’s probably not very appealing, but it’s not as impossible as I think we assumed at first read.

The 1250% seems like a lot (It did to me!) until you sit down and think about what the capital ratio already is on most large banks. For unleveraged positions, even being in Group 2 isn’t a problem. In fact, in many jurisdictions it should result in less capital requirement than the issuers of redeemable stablecoins pledge to hold. If USDC and (supposedly) Tether can do it, then more sophisticated banks presumably can, too.

I also don’t think any of the guidelines affected activities that are on behalf of the bank’s customers. The guidelines appear to only be in relation to the bank’s own account. So activities like leveraged proprietary trading are out based on these, but that’s it. For us, I don’t know that leveraged proprietary trading by banks was ever going to make/break us.

It’s not that we can’t respond, but I just don’t think it’s as disastrous to us (or other crypto) like we assumed at first.

I’m open to being convinced otherwise, but that was my take after successive readings.

1 Like