September 2021 reporting for Real-World Finance Core Unit
- The RWA Foundation and MIP58 are live.
- SolarX is delayed as a new land should be used.
- SocGen published a MIP6
- @teej and @Eumenes joining the team
The RWF CU is currently focused on RWA. RWA at MakerDAO are considered at the experimentation phase. The current goal is to achieve around 300M in a wide range of assets/structures to learn. It follows a 3 pronged approach:
- Off-chain lending: lending without leveraging the blockchain, cash is managed in the real world by legal entities acting on behalf of MakerDAO. For instance, 6S and SolarX are in this bucket.
- On-chain lending: MakerDAO is investing directly or indirectly (through a legal entity) in a DAI denominated product. Tinlake pools and the OFH token are in this bucket. This adds significant complexity in the short term but allows to leverage of blockchains.
- Scalable off-chain investments: Both previous buckets are complicated and are taking significant time to assess and monitor and are risky. TradFi offers commoditized products for short-term, low-risk investment. In order to solve the USDC exposure, we can invest in short-term investment-grade ETFs.
After one year of dealing with RWA, here are some thoughts.
A significant number of MIP6 are new asset managers meaning they are allocating capital (not borrowing for themselves but to lend to third parties). For most of them, the senior capital is coming mainly/exclusively from MakerDAO. We are the lender, but also the main customer.
It was my view that, with time, we should move to more institutional asset managers. It seems less risky to have Blackrock invest your money than a young startup. Nevertheless, the latter can offer a deeper relationship with MakerDAO than the former (for which Maker will always be one of many customers). In a decentralized manner, they would provide “internal” asset management for MakerDAO.
Hence, the idea is to have those “Asset Managers” being Core Unit so they have a more direct relationship with the community. They would still have the same business model (management fees, exposure to the junior tranche, excess spread profitability, origination fees, …), therefore no additional budget.
There is currently around 30 RWA-related MIP6. In my view, we should aim towards 10-20 RWA onboarded collaterals maximum at any time. The crypto-collaterals are already showing that most are a distraction and costing more in Oracles than what we earn (ETH and WBTC are providing 92% of revenues). There is a strong Pareto law. There is a tendency to approve collateral as we want to scale and use RWA to decrease the USDC exposure.
It is my view that each new collateral should be intrinsically better than the rest, offer strong diversification, and/or strategic value.
This might also mean flipping the system by not using what is submitted as MIP6 but looking for what MakerDAO needs (top/down approach).
Following the 20-slot rule of Warren Buffet, have already punched 6 cards. 14 are left. Time to be strategic.
The RWF CU will limit itself to 10-20 (active) due to its maximum expected size.
I’ve published an article on how to solve the peg and enable “fungibility” for all DeFi stablecoins. DeFi spent years now making fees on stablecoins swaps. That doesn’t make any sense. One dollar at any bank or fintech is worth $1.
Obviously, DAI has a key role to play here.
New Silver is still the only RWA with significant exposure on MakerDAO and continues to grow steadily. FortunaFi financed it’s first loan. 6S, ConsilFreight, and Harbor Trade Credit have open vaults and will use them as soon as they have assets to finance.
The pipeline remains strong and challenging to process. The greenlight process seems contested but it is an important input for the prioritization.
We are also improving our internal processes (see MIP6C3-SP1 for instance) by working on a new framework and onboarding new team members.
We are reviving the RWA Committee with a meeting tomorrow. The new version will be RWF presenting 2 challenging topics and getting feedback from the RWA Committee.
Following the New Silver audit, both Centrifuge and New Silver are working on providing a better setup.
The short-term items were:
- Revisit the Independent Director clauses: Centrifuge working with Manatt on Shearman & Sterling comments
- Construction cash escrow: this is now fixed.
- True sale vs Security Interest: not yet started
- Security interest for TIN/DROP holders in the Tinlake Protocol Service Agreement (TPSA):
- Pro-rata exit: the wording is there, will be used onward. Doesn’t change what is really done.
- Limitation to change the executive summary: will be negotiated onward.
- DROP and Investment Company Act: waiting from Centrifuge what are the exemptions for each pool.
The biggest concern is on the collateral agent (which was a medium-term thing). It’s difficult to find a trustee willing to deal with on-chain stuff.
We have spent so far very little resources on that. We are mostly working on providing legal ownership of DROP tokens, therefore working on the RWA Foundations.
The RWA Foundation was incorporated on September 21th.
On September 25th, the director took some resolutions:
- Appointment of the director, the secretary, and the supervisor
- Resignation of the subscriber, the RWA Foundation is now orphaned
- Appointment of Ogier as legal adviser
There is still quite some work to be done to have something useful. The plan is to get a public process to issue a DAO Resolution. MIP58 was approved.
We are already looking to duplicate the structure in Jersey for Nebula Capital and maybe SocGen.
We are making progress but it’s quite a challenging project. On one front, it’s the first using the RWA Foundations MIP so it’s a learning process on that front (and a KYC/AML with partners which is always taking time).
The legal documentation is also quite complex with more than 200 pages of legal documents.
Finally, the number of involved parties is significant as you can see in the diagram below (which is just a draft yet).
The Mattituck property is no longer available. SolarX is providing an alternative but this requires some new work (and a new risk assessment).
Not much to show this month as @Aes joined only at the end and spend time understanding the complex SQL financials queries. A new forecast is in the work and should be out soon.
Société Générale Forge issue a MIP6 to refinance some bonds. This is the first step after a few months of work (years for Growth CU).
- Fixing the par value of the stablecoins
- MIP6c3-SP1: (RWA Only) Supplement to Collateral Onboarding Application
- RWF - Ask Me Anything - September 2021
- RWA Foundations - Jersey edition
- MIP40c3-SP38: Real-World Finance Core Unit MKR Compensation (RWF-001)
@SebVentures - Full-time - Facilitator
@williamr - Full-time - RWA
@Aes - Full-time - Financial Planning & Analysis
@teej - Full-time - RWA
@Philinje - Part-time - RWA
@jameskmccall - Part-time - RWA
@christiancdpetersen - Part-time - RWA
@Eumenes - Part-time - RWA
You can find the ledger of the RWF Core Unit multisig here. 42,774.00 DAIs were spent, mainly on compensation.