Thank you to everyone who had the opportunity to join the Strategy Process Review call last month. The next step in moving this initiative forward will be to vote as a community on the 3 - 5 most important Strategic Focus Areas. As most are aware, the business model of MakerDAO is an overcollateralized stablecoin lending platform. Generally speaking, the more Dai that is minted the more stability fees can be earned by the protocol. The protocol is only limited by the amount of assets that are on-chain which I expect to increase tremendously over the coming years as the crypto markets continues to grow and traditional financial assets are moved on-chain.
As discussed on the call, we believe the strategic focus areas are:
- Grow market share of ETH and WBTC lending
- Scale Real World Asset Collateral
- Increase demand for Dai
a. Expand our presence on Level 2s
To reiterate why we believe these are critical to MakerDAO’s success, let’s briefly revisit the valuation framework we posted last Spring as well as Messari’s valuation of MKR. Under the current tokenomics, the value of MKR is primarily driven by long term free cash flow. With current operating expenses quite low relative to traditional startups, most of our revenue converts to cash flow and either increasing the surplus buffer or burning MKR.
Today, over 97% of the protocol’s revenue is generated from Ethereum and BTC vaults and derivatives. @Primoz summed it up quite nicely in Nik’s recent thread regarding offboarding unprofitable collateral types, saying that the issue with other vanilla ERC20 tokens is that:
- Either they are very illiquid on-chain and we cannot offer high debt ceilings
- They are liquid but they are newer and carry higher risks due to having not gone through a stress test (e.g. OHM)
- Maker doesn’t offer cross-collateralization which hurts users since they have to maintain every single vault type
Additionally, Oracle expenses are much higher than most of us expected and will likely continue to trend higher in both Dai and ETH terms until more level 2 infrastructure is build out and sharding is implemented.
Therefore when it comes to crypto-native collateral, MKR should focus on:
- ETH and WBTC derivatives (different LR, fixed rates, stETH type of products, etc.)
- LPs (again mostly ETH and WBTC based)
- D3M type of modules
As the crypto market grows, we should continue seeing an increase in Dai denominated lending. That itself will not be indicative of success assuming continued price momentum in ETH.
When it comes to Real World Assets - I strongly believe this avenue is our best chance to scale MKR to a $Trillion+ behemoth and enable us make an impact when it comes to financing sustainable and renewable energies and averting the climate crisis. The total addressable market (TAM) for RWAs is in the hundreds of trillions of dollars. Credit alone is estimated at a $124 Trillion market compared to a minuscule $2.8 Trillion for crypto today. As more and more financial assets make their way on-chain, we need to continue building expertise and position ourselves to be the go-to lending platform for those looking for liquidity.
As the backbone of the DeFi stack - keeping Dai safe should be priority number one. Increasing demand and the utility of Dai will drive the supply of Dai up and the better Dai is as a product, the higher our chances of success.
If you believe there is another area we should focus on that’s on par with the aforementioned metrics, please comment in this thread and provide your reasoning.
- ETH & WBTC Market Share
- Real World Asset Collateral Growth
- Dai Market Share
To briefly reiterate why we believe these recurring Strategic Reviews are valuable:
- Gives the community an opportunity to take a step back from day to day operations and assess how CU’s are executing the mission and agreed upon strategy
- Understand what issues or obstacles the DAO needs to address
- Discuss new opportunities that have arisen that the DAO may want to pursue
- Decide if adjustments are needed to our plan
- Optimize capital allocation by providing more capital to high performing CU’s
These meetings will also present us with an opportunity to talk about the achievements we’ve made, what’s going well, and new innovations in the industry and how to take advantage of them.
We will have a standardized format to review what CU’s have delivered and analyze critical data points driving the health of the MakerDAO ecosystem.
Once the community is aligned on the primary strategic focus areas, we will post another poll to align on the top ten KPIs that support them.
Link to the deck presented last month.