[Signal Request] Adjust the Surplus Buffer

That is a very nice idea! I took the freedom to add a second poll for that.

Happy Xmas everyone!

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Cool, nice to have the second poll.

I’ll change my vote for a bigger Surplus Buffer.

Happy Holidays!

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I’d like to draw more attention to this. @ultraschuppi added an additional poll to the initial post that mitigates what I think most would consider the major downside to increasing the buffer (preventing MKR burn.)

Thus far the initial poll has far more votes, and neither poll are coming close to a majority on any one option. As always, please remember that the square voting boxes mean that you can select multiple options and consider compromise to achieve a compromise outcome rather than a status quo outcome.

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There’s no reason why there couldn’t be a simultaneous “burn” and increasing the SB. Denominate the SB in MKR - buy MKR for the SB, in normal cases the SB is not used and thus the MKR in the SB have the same effect as being “burned” until another rare black swan liquidation. Would also reward MKR token holders if the current 4 MM Dai are converted into MKR.

@ratchet5000

I am not sure. We have experience that when SHTF, MKR value drops significantly: e.g., during Black Thursday it went from 600usd to 200usd in 1day.

This drop occurred even before any MKR mint. So we had to print new MKR (about ~8000 IIRC) at historical lows.

In this sense, having the surplus in DAI seems to offer a more predictable layer of protection. Because the ‘hole’ generated by bad events is denominated by unbacked DAIs, not by MKRs.

[Or at least, this is my understanding. I am happy to be corrected.]

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@iammeeoh Agreed, converting all 4MM DAI to MKR would be similar to having no surplus buffer. No DAI buffer. We’d only be relying on MKR minting and selling for DAI to cover shortfalls.

(It is just semantics if you store MKR instead of ‘burning’)

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even if it makes more sense to have the SB in MKR (which i totally don’t think), there is no need to postpone any decision on raising the SB right now. since this poll started the amount of DAI in circulation increased a lot too.

I see what you mean, but I would have to disagree on the SB only being Dai given that 2021 is probably going to be a major crypto bull market. If the idea is that the SB should be maximized for value to act as a buffer for negative events, then a possible 10x across the board for defi tokens in USD terms would make a MKR denominated SB much better in that regard. Governance could then adjust the ratio or define an equation of Dai to MKR in the SB back in favor of Dai as the bull market progresses.

Essentially, speculating on the success of the Maker platform, to protect the success of the Maker platform. Speculating in MKR in good times, and hunkering down in Dai in bad times.

I’ve changed my vote from no change to increasing. Dai supply keeps increasing and SB relative size is getting too small.

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Two points to add in favor of raising the surplus buffer.

Regarding the last OCC note, having an adequate surplus buffer will be key for DAI to be used by financial institutions. While it’s not clear what adequate means, I can bet a lot that we are more at the joke level than at the adequate level.

Being used by financial institutions is the key to go from 1B DAI to 100B DAI. Assuming a 2% interest rate, you can figure out what that means for the $MKR price.

The stablecoin arrangement should have appropriate systems, controls, and practices in place to manage these risks, including to safeguard reserve assets. Strong reserve management practices include ensuring a 1:1 reserve ratio and adequate financial resources to absorb losses and meet liquidity needs

@alexis The crop join is coming soon. No longer we will have idle assets. The buffer the surplus buffer, the higher our safety, the higher also the DAI demand which will lead to more yielding assets i.e. higher revenues.

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If we keep increasing the surplus buffer - do we agree that MakerDAO is not making any money (that can spend at will - i.e. for paying devs, burn MKR, give rewards…)?

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:slight_smile:

1/ crop join is not here yet and what I said still stand - more buffer more usdc.
2/ actually surplus buffer is not a reserve, and I believe it is wrong to assume the surplus buffer is DAI, it is actually a debt position and should be use as it has been designed for. I believe the initial design was to be a buffer in case of lose during the liquidation process as we collect fees before we actually get the fees. Fundamentally we need something different a proper found/reserve.

But as I am still learning about maker, and you have more experience on it, I’ll change my vote again :wink:

@bit I don’t agree with that because it’s not true. If we do a clean shutdown, every MKR holder will have his share of the surplus buffer. So the money is there.

I tried to make an illustration below (data thanks to https://www.mkranalytics.com/ ). The purple line is our leverage ratio (assets, i.e. DAI loans / capital, i.e. surplus buffer). We are currently at 0.3% which is ten times lower than what banks need to have (but we are not having the same assets). If we keep this level it will only decrease (the blue line is a forecast for DAI supply using the last poll on the subject).

Black Thursday didn’t go well with a 0.4% leverage ratio and I’m guessing we have riskier assets now.

If half of the revenues (a bit below $1M per month) are used to increase the surplus buffer we will more or less be flat which is the minimum to be serious.

I’m not against spending money on growth, but you can’t spend what you have used to buyback MKR tokens. I’m fully open to spending $1M per month on growth.

@alexis Thanks for those kind words on the surplus buffer not being filled with DAI :slight_smile: Actually, it is still a reserve, and using something like strategic reserves is probably not the best solution. Still working on that.

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All I’m saying is that we don’t have predictable revenues. It’s like saying I can get 15% APY on my USDC on Compound. I could two days ago for a few hours…

Just a few months ago - we had 4% SF on USDC. It didn’t last long so that “revenue” went from millions to zero in one or two votes.

Now we have 2.5% SF on ETH which is also problematic (it should be lower to increase DAI in circulation and fix the peg without relying on USDC).

Ser the Peg is already Stable: image

We should focus on attracting more WBTC – even the folks at JP Morgan think BTC is a $100K+ Store of Value

A combination of both ETH and WBTC would help predict a nice revenue stream IMO

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Using existing regulations as a benchmark for the adequate leverage ratio should not be done blindly. The initial plan is that MKR dilution will cover inadequate liquidations. This is what occurred after BT (the 0-bid auction winners is a separate issue). I agree that a buffer against too frequent MKR dilution is acceptable (although I also wouldn’t mind no buffer at all and everyone getting used to constant MKR minting offseting some of the burn), but my intuition is that forcing the buffer to play a backstop role for larger and larger black swans would stifle our growth and make us complacent (while regular MKR minting would keep us on our toes).

Compare the amount of DAI loans in existence and our revenue; whether you add none of the revenue or all of it to the SB, you are not significantly protecting the system. On the other hand growth is crucial at the moment and every resource spent to that effect matters a lot.

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Then increase the ETH SF. The stability is just temporary as long as we buy more and more USDC below market price.

ETH price follows BTC price therefore ETH is also a store of value (target: ATHx5=$7k).

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Agree. I believe we need to diversify between ETH, WBTC, and RWAs. Less exposure to USDC is highly welcomed, long-term–of course IMO.

Also Agree. No such thing as a free lunch. :slightly_smiling_face:

I think I get the Maker governance now:

DAI above the peg: increase the ETH SF
DAI at the peg: increase the ETH SF
DAI below the peg: increase the ETH SF

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I would have gone for at least 1% of the total outstanding and even then I think this number is low.

At the time of Black Thursday we lost about 4-6% of total outstanding.
2% of capital backing in surplus is not unreasonable.

As to burning while we raise. I see a lot of people want that but frankly I’d just top up surplus at the fastest run rate possible and then let the MKR flap.

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