Recurring Strategy Reviews - Next Steps & Key Focus Areas (Poll)

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:

  1. Grow market share of ETH and WBTC lending
  2. Scale Real World Asset Collateral
  3. 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:

  1. Either they are very illiquid on-chain and we cannot offer high debt ceilings
    or
  2. They are liquid but they are newer and carry higher risks due to having not gone through a stress test (e.g. OHM)
  3. 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:

  1. ETH and WBTC derivatives (different LR, fixed rates, stETH type of products, etc.)
  2. LPs (again mostly ETH and WBTC based)
  3. 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
  • Other

0 voters

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.

15 Likes

While the 3 provided areas are good growth metrics or business lines, I believe they need to be balanced with additional metrics if they are supposed to express the general health of MakerDAO, or express sustainability:

  • Security / risk
  • Governance effectiveness
  • Community (workforce) health

So there may be a potential mismatch, and I’m nervous about reductionist thinking, when writing:

  • The only CU performance metrics aren’t growth metrics
  • The only issues aren’t growth issues
  • The only opportunities aren’t growth opportunities
  • The only adjustments aren’t adjustments needed to drive growth
  • The only capital allocation optimizations aren’t the the ones that increase growth

The strength of MakerDAO is that it has historically recognized these wider objectives. Otherwise we should all be working for SPELL/MIM instead.

Unrelated point is that if @Oracles-Core-Unit ’s ambitions are to be fulfilled, I believe we should add oracles as a separate business line?

Indeed, I would be happy with this list of 7 to organize our work around (coordination meetings, plannings, roadmaps, evaluations, etc.):

  1. RWA collateral
  2. Crypto collateral
  3. DAI demand
  4. Oracles
  5. Security & risk
  6. Governance & operations
  7. Community development
6 Likes

Seems like a good start, some initial impressions:

  • Might want to split governance from operations, especially if we want to focus on making both of these much more robust individually (ie, setting up different ‘branches’ of government and scaling the DAO organizationally.) Maybe:
    • Governance
    • Stakeholder Communications?
    • Operations
  • Not sure about community development, feels like we should maybe have a more specific goals for this that fit in other categories? Ie: Governance Participation versus Talent + Recruitment versus User Support?
  • Also L2 feels like it should be a primary-level organizational goal? Perhaps you’re seeing it more as a supporting member for the other goals though.
2 Likes

The most shared goal of MakerDAO is to increase MKR value. If we assume the markets are somewhat efficient over long term that means accruing capital per MKR token.

Accruing capital is not really actionable by itself so you need to break this objective into subgoals. Hence the goals from @aes. All are measurable in real-time and accrue value to MKR token in a straightforward way. They should probably be divided again in subgoals that are easy to track and more actionable (increasing demand for DAI is quite broad).

Notice also that the choice of metrics in strategic objectives is quite important. It’s market share of ETH lending, not DAI issues from ETH lending (there is a strong correlation with ETH price, so this isn’t super relevant). For DAI, it’s again a market share (in market cap and transaction volume).

We have spent hours discussing the Wintermute proposal to add liquidity on who knows where (and mainly discussing MKR liquidity). I didn’t see much discussion about how we lost the first battle of stablecoin supply on Arbitrum (neither on how we won the Optimism one).

This is the key of strategic reviews, to focus on what community decide matters and avoid discussing the last random topic.

The list should be short otherwise it’s not a strategy but a wishlist. I think 3 is more than enough (with maybe up to 3 subgoals for each), but we can maybe go to 5 (Oracles would be easy to track, governance health is less linked to accruing capital but somewhat makes sense). It’s not that the rest doesn’t matter, it’s just that bandwidth of governance is limited.

List of stuff that are not included but could:

  • cost control. Less useless expenses more capital accrued to MKR holders.
  • tokenomics. I don’t have much interest in that but I do recognize that there can be some reflexivity (having a higher artificial MKR price can indirectly accrue value to MKR holders, for instance with token-based M&A). It seems to be 80% of the governance bandwidth of some other protocols.
  • term lending/yield curve products
  • increasing the number of collaterals
  • climate change cost/benefit (in term of CO2 footprint?)

Again having only 3 slots makes us decide.

PS: Maybe this strategy review should be limited to what impacts the P&L and balance sheet? I’m not sure a “finance” CU is the best to facilitate non-financials discussions.

6 Likes

Thanks for the comments Wouter. I agree these metrics are important, but feel that they would be more appropriately discussed in a separate call focused on Operations (which I have plans for following the roll-out of the recurring strategy reviews).

Good goals should follow the SMART guidelines and be:

  • Specific
  • Measurable
  • Achievable
  • Relevant
  • Time bound

The Strategic Focus Areas I’ve listed out meet all of these criteria and as @SebVentures mentioned, can all be measured in real-time, today, leveraging the blockchain. While Security, Governance Effectiveness, and Community Health are all important metrics, I don’t believe we’re at a point where we are sophisticated enough to be able to quantify those without a very high degree of subjectivity. Could they be measured in the future? Absolutely, but there are more qualified individuals that can create and assess those metrics.

The metrics we listed are not set in stone - if Oracles as a Business (OaaB) starts earning revenue and growing we could certainly add it as a strategic focus area. In the current deck the Oracles CU already has a slide to cover the state of the business.

1 Like

These are excellent core metrics that focus on growth - Maker’s top goal.

I also think we need one metric measuring the asset portfolio’s credit quality and liquidity. Maker can scale to say $1 trillion in DAI which would be awesome but if we have a crappy asset book, the next crypto sell off could destroy it all.

As such I think we are maximizing smart DAI growth subject to having a solid/liquid asset portfolio. And so lets have one metric that focuses on this key constraint.

We have a few Risk metrics we’re considering as KPIs that roll up to the strategic focus areas - CET1 ratio, Liquidity ratio, and Leverage ratio. The credit quality and liquidity seems more relevant to real-world assets and would certainly be important to track as we scale that business.

All - I will be closing this poll by EOD tomorrow so we can move onto the next phase of identifying and aligning on the top ten KPIs to support these strategic focus areas.