Senator Warren Meeting; Chance To Address Issues

I quoted because I want to re-emphasize the above point not just for MakerDAO but also yourself @PaperImperium you do not and can not represent MakerDAO. You can only represent yourself as a delegate just as a politician would. You vote carries significant weight which, like any politician, can change as the politics blow. You speak for yourself and as long as the voting weight is there your constituency.

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If you are meeting a PhD in monetary policy, perhaps also prepare for a conversation around 1) monetary policy implications of the continued growth of stablecoin (is it sustainable, if not then what and how does Maker protocol mitigate risk vs a traditional fiat currency) and 2) any spillover systemic risk to traditional finance, pros and cons of non-fiat collateral backing, and where DAI is different to other stablecoins.

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I read her dissertation, and it’s about how to change the structure of the Fed with earmarked director seats (at the regional bank level) for organized labor, community organizations, and academics at the expense of bankers. With the express purpose of making the Fed less hawkish.

So I think trying to highlight the DAO’s decentralization will be a key point I want to get across. DAO = Main Street. Our core goal of disintermediating Wall Street + extreme transparency is very much aligned with Warren’s usual agenda.

That’s the point. I’m not even paid for this. We’re self-organizing and no individual has the ability to bind the DAO to anything.

I’m trying to collect good, quick analogies, so feel free to throw them out. Ex: Gensler’s comments about fees on DEXs is akin to saying a user agreement with Ford or GM is why it cost $40 to fill up your gas tank. I find a good analogy can really help people wrap their minds around new things quickly. But it’s got to be spot-on.

I’m actually finding Cam Harvey’s book really useful in being prepared to make fairly short, non-technical explanations of a lot of the basic mechanics.

That’s a very relevant point. But you may find your arguments challenged. Indeed, I find myself a bit challenged on how effective DAO governance and token-weighted voting can actually be, when it comes to realizing a strategic vision of developing the future platform for global finance vs short term MKR tokenholders’ private needs, even if the objective of a DAO is censorship resistance as well. Check this great piece of research on token-weighted crowdsourcing from University of Pennsylvania on https://pubsonline.informs.org/doi/10.1287/mnsc.2019.3515

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By now, You probably know MakerDAO more than I do, and can explain it better.

But when trying to explain to some friends what MakerDAO is in DeFI I had some success with the following 2 points:

  1. MakerDAO is Pawnbroker, lending you money (at a variable interest rate) taking some collateral. The catch is, however, that here money is DAI, a cryptocurrency minted out of thin air by MakerDAO that is supposed to be at 1:1 with USD.

  2. How does DAI stay 1:1 with USD then? A number of methods but basically as follows:
    if 1DAI<1USD then people will hurry to pay back their debts, because they can obtain the DAI borrowed at discounted price in the market: this buy pressure eventually push up the price, restoring the peg.
    If 1DAI>1USD, people will be happy to make new DAI-loans, sell the DAI for other stablecoins (i.e., USD) and make therefore a profit, as long as 1DAI>1USD. This sell pressure eventually push down the price, restoring the peg.

In my experience, people immediately get the first point, and the smart ones are kind of dubious about the second regarding peg (rightly so).
But at least they get what MakerDAO is under the assumption that (2) is indeed a working method for keeping the PEG (as it has historically proved to be, kinda).

Plus, add that: MaderDAO, the DAO controlled collectively by MKR holders, controls:

  1. the interest rates,
  2. what types of collateral to accept,
  3. what kind of platform to operate on (e.g., Ethereum, L2s, etc)
  4. etc etc

and that it is sufficient to buy MKR to have a say in MakerDAO.

Not the narrative I want to push with Warren. Bad consumer protection reputation. That is, however, how I’ve analogized to ratings agencies. Different audience, though.

It’s not effective at all is the answer. But I doubt lawmakers really care about that. Good consumer experience + financial stability + passively accepting Fed policies seems like the three that come up the most, with different emphasis for different interested parties.

I feel like this is the long-awaited opportunity to distinguish ourselves from centralized stablecoins on the regulatory and economic landscape. Because that difference is really our core value proposition to the financial system.

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I would argue consumer protection + financial stability + protecting the existing system is what they care about. A bit late for your meeting Monday, but perhaps this community should try to front-run regulation that will inevitably come and propose something directionally to guide lawmakers?

Sounds like she may be interested how diversified MKR voting power is, since one way to view MakerDAO is like a central bank where every MKR is a seat.

One could argue that MakerDAO itself provides diversification at the expense of bankers.

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This seems like something to remember when I get the inevitable pushback. Thank you

@PaperImperium I like the idea of pushing the diversity of MKR voting participants, but please please please do not use the “bank” analogy or related language, as Spidomo suggests. Using those words will have negative regulatory consequences for Maker, no doubt, (and is incorrect) so we need to stop.

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This is probably good advice. Re-purposing words already in use by regulatory regimes can be risky.

Maybe we should adopt this disclaimer from Yearn when using such words:

When used on this website, the terms “debt,” “lend,” “borrow,” “collateral”, “credit,” “leverage,” “bank”, “borrow”, yield”, “invest” and other similar terms are not meant to be interpreted literally. Rather, such terms are being used to draw rough, fuzzy-logic analogies between the heavily automated and mostly deterministic operations of a decentralized-finance smart contract system and the discretionary performance of traditional-finance transactions by people.

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I understand the thinking on Yearn’s statement, but that’s a slender reed of protection at best. Better to use accurate terminology and continually hammer the explanation (Dai is a user-generated currency and NOT A LOAN, for instance) than rely on incorrect terminology and analogies that confuse users and regulators alike to the DAO’s detriment.

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I agree that is one of the most fundamental points to get across (that Dai is not created/controlled by a centralized entity, but can be created by anyone when they lock up collateral).

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I’m not a Maker DAO participant, but I feel like this could be a crucial meeting that needs to go beyond just a Maker discussion but also give a better introduction to decentralized finance technology to these advisors. Here would be my personal recommendations.

1. Don’t get bogged down in technical details. Some commenters have suggested discussing layer 2 solutions like optimistic rollups or zk-rollups. In contract I believe this should be avoided unless your interlocutors specifically request details. Zero knowledge proofs, fraud proofs, time to finality, byzantine fault tolerance, etc: people deep into the crypto ecosystem often forget that these are highly non trivial concepts for non-tech savvy people. You’re meeting with banking advisors, not computer scientists. Of course it might still be useful to explain that distributed ledgers like Ethereum are being made more scalable and environmentally friendly by a diverse, global community of contributors and no central actor, but there’s no need to go into the weeds of it in a first approach.

2. Emphasize that you have a common goal: more transparency, more access, less shadow banking. Regulators have been quite biased so far, equating the entirety of the DeFi ecosystem with actual shadow banks like Tether, or decentralization theaters like DMM. Let them realize beyond any reasonable doubt that this is not representative of the entire ecosystem. Explain how Maker is actually decentralized with transparent governance, transparent system state, transparent execution etc. Give examples of systems like Uniswap that don’t even have governance and that can be accessed by anyone, and where no single actor, or group of actors that would easily collude are able to change the way these systems work. This should be contrasted with the opacity of the current financial system, including execution flow etc. Consider for example that in the case of on-chain decentralized finance, even if there might be front-running, it is transparent and easily detected; a win-win for users and regulators alike. As Mike Novogratz put it: “We wouldn’t have had a mortgage crisis in 2007 if we could have just looked on chain and seen Bear Stearns’s mortgage exposure”. This might not be perfectly accurate, but this conveys a core idea of DeFi.

3. Prepare a short, quick demonstration of the user experience. In my experience discussing decentralized finance with outsiders, it all sounds a bit like mumbo jumbo until you actually show them what the experience is like. I believe S. Warren’s banking advisors would be highly sensitive to a live demonstration of DAI minting, redeeming, and perhaps a simple trade on Uniswap if time permits. At a minimum, I would set up a wallet with enough ETH to be able to mint DAI using one the interfaces that allow to interact with Maker.

  • Open a CDP and add collateral to it.
  • Mint DAI.
  • Show the transactions on Etherscan to emphazie transparency and accessibility of data by third parties.
  • Show a Dune Analytics dashboard for Maker. Emphasize that similar to Etherscan, Dune Analytics is not affiliated with Maker in any way = transparency and accessibility.

This can all be done under 5 minutes, and this demonstration will serve to demonstrate several concepts that should speak to these banking advisors much more than abstract claims, namely:

  • The ability to take out an instant collateralized loan without any gatekeeping and the robustness of algorithmic liquidations.
  • The complete transparency of the process from start to finish.
  • The ease of use.

This might also start a good conversation around the supposed risk of misuse by criminals or terrorists. These advisors will see firsthand that this can all be tracked in real time and that as such the idea of criminal misuse doesn’t make much sense. All in all such a quick, live demonstration should be worth a thousand words.

Hopefully with these talking points, they might realize that decentralized finance (done properly) is a weapon against the shadow banking Senator Warrent claims to fight rather than yet another shenanigan from scammers.

Let me know what you think!

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Absolutely. I think Senator Warren would favor the transparency of our self-sustaining model. No more bail outs of banks by the tax payer.

I think it would be interesting to focus on the lending side, rather than ending up on the generic pile labeled “stablecoins”.

I totally agree with you, sometimes it is necessary to show the final product, what you do and above all, that generates greater understanding.

While I agree with the focus on transparency for Sen. Warren, I want to caution against getting us drawn in with “lending” platforms like Compound, Aave, etc. Not only is the activity that occurs on the Maker Protocol fundamentally different than those two protocols and other lending/borrowing platforms, Sen. Warren’s close ally, Gary Gensler, has made clear his intention to pursue the lenders/borrowers of our space.

Why paint a bigger target on our back by erroneously describing Maker as a lending platform if we don’t have to? By doing so, we give credence to the regulatory authorities who may see us as more of a target. To be clear, the DAO presently does not “lend” anything and the activity that users engage in with the Maker Protocol (with a non-cuatodial, user created stablecoin) is not what one traditionally considers “lending”.

I don’t mean to beat a dead horse here and I apologize if my tone comes across as such but we REALLY need to be careful how we describe the Maker Protocol and the activity it permits.

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Differentiation from Compound and Aave was literally already in the talking points, not just in operations but in genuine decentralization. Not to worry.

I’m optimistic this is an amazing opportunity for Maker to be on the right side of historic policy making. And to highlight the differences between our own stablecoin and others.

The call is at 5 pm EST. I’ll report back if anything of substance/public can be. The main goal is to get a second meeting, and perhaps broaden the conversation to more DAO members/Warren’s staff.

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Awesome re Aave and Compound. Knew you were on it, Paper! :slight_smile:

Wishing you good luck tomorrow – make us proud!

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Good luck on the meeting @PaperImperium. I know how hard you’ve been working for these opportunities.

For my two cents, you will need to effectively convey the benefits of a blockchain based system over traditional financial rails and infrastructure. I believe you may be capturing this in the customer experience talking point, but I think it needs to go further as this has easy counterpoints on its own (would the same customer experience be possible on traditional rails with some policy changes? Why not just pursue the policy changes then versus supporting Maker and other DeFi initiatives?).

To me, this means highlighting the fundamental opportunities present at an infrastructure level. Improved transparency, improved functionality via smart-contracts, lower costs of access and participation, efficiency gains from an open and interoperable digital platforms, etc.

Of course, doing all of this at a high-level without getting bogged down by the technical complexities and without detracting from your other points! No big deal though right…

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