🔑 Should we burn the admin keys? An argument for minting MKR

Is Maker complete? Are we done improving the Protocol? Should we burn the admin keys and let Maker run its course?

Hypergrowth

Some of us believe that we are just getting started, that Maker is ripe for hypergrowth, precisely what we want to achieve. The MKR we’re asking for is no different than a startup raising Series A. Yes, it will dilute the token holders, but the goal of that dilution is the sought hypergrowth.

The Slippery Slope Argument

“Minting MKR is a slippery slope.” Governance will (arguably) always have the power to mint more tokens. A Decentralized Maximalist might argue that having the admin key to change the code is the beginning of the slippery slope.

The slippery slope argument sounds more like a motion of no-confidence towards Governance. And it’s by no means invalid. But if we do not trust Governance, we should frame it that way.

The Social Contract

MKR is burnt when things are going well and minted when needed.

These needs might vary:

  • recover bad debt (we’ve seen this in the past)
  • raise funds to grow (we’ve also seen this in the past; that’s why we have investors)

It seems that we have forgotten the second need.

The Market Value of Valuable Contributors

Every single worker has a market value. Right now, the industry dictates that a given person will earn a given amount that might seem fair or not. For example, there is no shortage of projects that will take any Maker developer without blinking before lunchtime.

Should every contributor get MKR tokens? Maybe not. We will need to decide as a Community how much we want to align to the industry and how much we choose to override.

Base Salary versus Bonus

Most have agreed that the “base salary” should come from the surplus buffer to provide job security for the Maker contributors; some argue that any “bonus” should not.

Usually, a worker will look at their total compensation package and decide if that is competitive or not. You can name each piece of the compensation however you want, but removing certainty to any of those parts will make the deal less attractive.

An extreme implementation of that argument could hold that we should only pay minimum wage to our employees. Anything above that is a bonus that the contributor should only get if the Protocol is faring well.

Making the total compensation package less certain will make our offers less competitive and hinder our capacity to attract talent. We should be worried about attracting the wrong talent: that is the actual slippery slope.

If they are only here for the money, then…

I have also heard that money should not be the primary factor for hiring someone. I think we all agree on that one. However, this should not mean that we need to underpay our contributors — much less not pay them at all. I don’t want any core contributor to consider an external offer because we are not competitive.

How about if instead of minting we…

We need MKR that is readily available to compensate people. Minting seems to be the easiest, direct answer to solve this need.

Any other creative solution seems to carry risks of slippage, front-running, or both. What’s more, there might be risks attached to using elements such as the Surplus Buffer for things that are not intended.

Things To Agree

Should we burn the admin keys?

First, we will need to agree on what type of project we are. Is this it? Have we achieved maturity? Do we let the burn bring value to the token holders? Should we consider burning the keys and ensure that Governance cannot change this (the code is the law) ?

Do we want (hyper)growth?

We need to decide if we want hypergrowth. To raise the required capital (MKR), we will need to mint.

As an option, we might want to choose to be a bootstrapped project and only use the money we get from revenues. If that is the case, we need to be clear upfront about it and let contributors decide if they want to stay in a project with this constraint.

Do we want an overarching framework?

We probably don’t want to have this same discussion every time a Core Unit comes up with some compensation scheme. Ideally, we can agree on something that we can reuse (and review from time to time).

Framing a Framework

General Framework

  • Do we align with the industry and compensate with tokens (MKR)?

  • What is the best way of obtaining these tokens? (reduce slippage, avoid front-running, etc.)

  • Do we want to include a vesting period, a cliff, and weighting (you get more on your fourth year than in your first)?

  • How often should we review this framework?

  • etc.

Specific Framework

  • Which teams/contributors get MKR tokens?

  • How much MKR should they get?

  • etc.

Edge Cases

  • What happens when a contributor changes Core Units?

  • etc.

Next Steps

Discussion

We will have a Community Call on Wednesday, 31st, to discuss these topics.

Working Group

We will probably need to form a working group to tackle this issue and present a decent framework to the Community and teams. Please write to me if you’re interested.


Bonus: a diagram

How much are we minting?

If:

  • 100 contributors (will we have that many?)
  • at the suggested 0.1% rate (most will get less)
  • stay for four years (turnover suggests it will be less)

Then we would be minting 10% of the total supply.


Edit: added link to the call.

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Great work on this. Some thoughts.

I personally think MKR inflation should not exceed projected MKR burn per year, resulting in net inflation/MKR price depreciation.

MKR mint allocation should only go to core units that can adversely affect the risk profile of the system thus making it necessary to align incentives/interest. This includes distribution weighting to the ones we deem most important on a scale (or perhaps flat if agreed upon).

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Thanks, Aaron.

I did cover this point:

here:

I think it’s a valid point to sustain, but we need to make sure we’re all on the same page. Some people want to work on hypergrowth projects so we need to be upfront with them.

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Right. Growth vs hyper growth or the equivalent of borrowing against your future for more potential firepower. Cause as I see it now we’re growing pretty well already and have quite the surplus accruing. Perhaps if we actually had somewhere to aim the warchest at it would be easier to digest a dilution. As it stands it’s all theoretical and ethereal (haha).

For sure, just expressing my personal opinion.

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As a technical point I will say, if we burn the admin keys of the MKR token, we can’t upgrade the flop contract anymore.

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A couple of things:

  1. We’re growing pretty well already because the Foundation is paying the tab.

  2. I think that the price of getting the Smart Contracts, Risk, and Oracle Teams on board might push the supply past 1 million.
    We all believe that this will bring more growth, more value captured, and more burning MKR.

I believe that you are proposing the following:
Step 1: let’s see how much money we will have (projected)
Step 2: let’s form a team with that.

Some questions for you:

  • What if that team will not be able to grow the Protocol, but only maintain it?
  • What if they are not even able to maintain it?
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Well that information would be useful in making a decision wouldn’t it. As a MKR investor on the outside, do I have all/enough information to make an informed decision in these regards?

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@Aaron_Bartsch , before we go into studies (likely not very cheap) and projections (likely not very precise), I would like to know what your opinion on the two questions below:

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Those are good hard questions.

I really hope that is not the case but if it were then I think spurring further growth through minting would be necessary to realize the potential for the protocol that a lot of MKR holders envision. I’d be afraid what that potential scenario would do to the valuation of MKR… Perhaps that’s why the price is where it is today (insider information). If the Foundation is dissolving and making some financials public and they know it won’t look good vs expectations (speculation) then…yikes. These are details I think would be necessary to know to make a decision.

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What is the Foundation’s position on this issue and when will they be unable to continue picking up the tab? Also, I understand we usually do not consider their MKR holdings but given that a lot of people suggest that those holdings will either be untouched forever or burned, surely, that’s a good place to start?

Just making sure we consider all other possibilities that allow hypergrowth before minting.

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From inference it seems that your hypothetical scenario to mint 10% of supply (90-100k MKR) aligns closely with the amount the Foundation holds and the number of staff at the Foundation. :thinking: If this hypothetical scenario became true how would we handle MKR minting after the 4 year period?

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I’m not sure how much the Foundation holds.

Adding yet another variable into an already complex topic might derail the discussion and we might lose focus. Then we end up with no framework and no strong indication from the Community on how to proceed with these things.

Can we assume that the Foundation will dissolve (soon) and that it will leave us with zero extra funds? That way we can have a solid plan that works in the stated situation, and if there’s something extra, even better!

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At least this much.

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C’mon really? At minimum https://etherscan.io/token/0x9f8f72aa9304c8b593d555f12ef6589cc3a579a2?a=0x8ee7d9235e01e6b42345120b5d270bdb763624c7

It’s kind of annoying that we know you know more but have to play dumb for legal reasons. Handing off legal responsibility to community members is intellectually dishonest. Why don’t you come up with a proposal. You speak in assumptions and hypotheticals while trying to nudge the “community” in a certain direction. To me it sounds like Foundation members looking to “decentralize” into the DAO have a plan in place to finally get some MKR compensation that the Foundation has been unable to adequately provide. I personally don’t have an objection to that if they deserve it but would love some transparency on the matter instead of this vagueness and hand holding. Please tell me if I’m way off base here. Am I thinking too hard about this? Lack of information leads to speculation in order to fill in the gaps. If this is untrue I apologize.

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@Aaron_Bartsch @juanjuan does not work for the Foundation. He is strictly a community member and voicing his own opinions, while balancing some objective manners from an Operational Support perspective. The Foundation will announce dissolution details in the upcoming months. I personally do not have the timeline for this.

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I have no relationship with the Foundation (maybe that’s why I’m more outspoken?).
All my dumbness belongs to me.

Full-disclosure: I will pursue compensation in MKR when proposing my Core Unit, so I AM biased.

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@amyjung @juanjuan Thank you for the clarification. I will continue this discussion in good faith.

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This was very well laid out @juanjuan. I was against minting from mostly just a PR perspective, in that I didn’t want people vaguely familiar w/ Maker to look at us and dismiss MKR because we were diverting away from the deflationary value proposition. But at a certain point why should I let an uniformed opinion about MKR dictate the course of action? We should pursue what has the best chance to continue and extend Maker dominance in the crypto-credit space.

To that end, it’s pretty illogical to throw up fundamental objections to minting. We’ve seen the MKR token over 4x in value in the last few months, perhaps we should be looking to companies like Tesla who capitalized on market perception by printing a budget. The buy and burn model can still be at the core of what we’re building here, but especially at the true start of the DAO era I’ve come around to the idea of minting. Decades from now I think MKR holders will be much better off because we decided to fund our growth fully up to needs rather than an arbitrary revenue projection.

This is a pretty huge point that I ignored in my gut reaction to MKR minting. Without minting our “warchest” is just what has been diverted to the SB, and from a risk perspective we really don’t want to be drawing down that number. We’ve appreciated all this growth because the Foundation had the ability to sell MKR into the market (not that different than minting when you think about it) and that has lead to us hitting nearly 3B DAI and and over 100M in annualized SFs. We should absolutely take caution when making the decision to inflate MKR, but as Juan so eloquently pointed out here, assuming we wouldn’t take caution is the same as saying we don’t have faith in Governance to do the right thing in the future. If that’s the case, as someone looking to take on a serious role w/ GovAlpha, I’d love to hear the concerns and what we can do to strengthen faith in Governance.

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Don’t know, yesterday I was chatting with @NikKunkel .

He said that 100m usd/year (which is what we currently get as a protocol without any MKR minting) is a lot to spend efficiently.

I agree. I’d be surprised if we actually need that much to grow effectively.

I don’t think any MKR was minted to fund growth.

Simply, a large portion of the initial 1m MKR was assigned to growth, with a long term strategic decision.

Starting with 1m, with say 300k planned to be sold for growth, is not the same as starting with 700k and then eventually minting 300k for growth when needed.

The community largely supported the stopping of MKR-burning, to create a buffer of 30 millions. So the community is not trying to stop growth at all.

But I suspect this ‘Hypergrowth’ is mostly a way to just print MKR for Core Unit contributors. I think MakerDAO should fund growth just with the profits it makes: >100m/year.

I think we had enough community discussion with hundreds of posts, following the SC Core Unit budget proposal.

At the end, the MKR voters will decide (many MKR do not belong to the people discussing in this forum).

So perhaps after 1 month of discussions in the forum, which doesn’t seem to go anywhere,it is perhaps time to ask the MKR holders what they think about MKR minting.

@juanjuan thanks for this nice post. I think somebody should try to run a onchain poll to see what is the sentiment of the people that are actually going to decide (MKR whales).

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I want to add, as a separate post, that it is a shame that the Foundation has not yet informed us what the plan to do with their 93k MKR tokens.

I understand they have their legal problems. And I assume they are in good faith and will burn the tokens, or donate them to the DAO somehow. Still, I (and quite honestly also most people I have spoken to privately) think this way of operating over the course of the last years has been… well… discouraging and disheartening.

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