[Signal Request] Increase Debt Ceiling of RWA-02 (NS-DROP) from 5M to 20M

Overview

New Silver has been working with MakerDAO for close to 2 years to bring what we believe are high quality, real estate collateralized short term bridge loans to the community. In partnership with Centrifuge, we brought the first real world asset loan on-chain in April of this year, and are coming close to using up the 5mm DAI debt ceiling initially set by the community. The initial 5M from Maker in combination with additional external DROP and TIN investors allowed us to finance 39 assets with an average financing fee of 6.8%, average loan amount of 216642 DAI and average maturity of 12.2 months. 1 asset has been repaid and no defaults occured to date.

It has been a learning experience for us and we worked hard to improve and ensure the community of our intention to make this a lasting and worthy partnership. We brought on an independent manager (https://citadelspv.com) and strengthened the SPV operating agreement to provide bankruptcy remoteness and strong protection for the DAO (see relevant links [1] and [2]).

At this time, we would like to ask the community to approve an increase in debt ceiling and to bring some of the underwriting metrics in-line with current process and market conditions. This will enable further diversification across more borrowers and loans, and provide the DAO with a stable, high-yielding asset collateral that can continue to grow.

Therefore, New Silver is asking to increase the debt ceiling from 5M to 20M

Pros

  • This allows New Silver to sustainably grow its Tinlake pool and with that increase diversification across the pool
  • It also allows New Silver to offer a competitive product and attract top-tier borrowers
  • It allows Maker to increase exposure to uncorrelated collateral assets through a vetted partner with limited governance overhead
  • It will send a strong message to RWA in DeFi and underpin Maker’s position in the market

Cons

  • Increased exposure to real estate asset class
Should MakerDAO increase the debt ceiling of RWA-02 (NS-DROP) from 5M to 20M
  • Yes
  • No
  • Abstain

0 voters

Next steps
The poll will run until July 8, 4:00 PM UTC ; this will result in on-chain-polls assuming the outcome of the poll is affirmative

6 Likes

There might be other “cons” (which my expertise will not help define properly).

Have all the raised issues been resolved or explained in a way that the experts (loaded word, sorry) are comfortable with this?

cc: @SebVentures , @williamr , @g_dip , @PaperImperium , @omahalawyer, @mrabino1, and I’m sure I’m forgetting some.

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We believe we have addressed the issues that were brought up by the community, we revised the SPV operating agreement and brought in an independent manager. You can review details in this post: Post-mortem - New Silver - Executive summary change - #7 by prankstr25

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Supporting this here. Just one question — are you staying away from Miami? Seems like the entire City has structural issues coupled with the fact that there’s irrational exuberance in said market.

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Not entirely, but enough progress has been made that this is no longer a hill I plan to die on. I feel like there’s a will to address any more current and future concerns, which is very different from how I felt a week ago.

I will be voting “abstain” and leave debate for and against to others.

2 Likes

Thank you @ElProgreso. Yes, we always had a policy of not lending on high-rises, which is what most of Miami is, they are very volatile. We generally finance single family homes in neighborhoods where people live and work, with few exceptions.

@ElProgreso I confirm that I didn’t succeed to make @prankstr25 make at least one investment in Miami for PR reasons (the crypto city is not financed by MakerDAO :disappointed_relieved: ).

@juan The RWF team is comfortable with the setup. @Philinje is the one more following the project and with the most competencies in real estate. The smart contract code (Maker integration) now has an audit (but not an expert here). The legal audit is underway but nothing seems too obvious. It should be done before the end of the Signal Request.

With 20M DC, NS-DROP would most likely generate more than 1% of the protocol revenues with quite a good visibility.

8 Likes

TLDR: I’m planning to vote yes

No, but I don’t think “all” is a very good standard. This whole time I have just been weighing the risk of moving forward versus the risk of standing still, and I think that (structurally speaking) the risk of moving forward is now less than the risk of standing still. As @PaperImperium pointed out, there seems to be a real willingness to continually improve the structures moving forward, which I really respect. My previous concerns were mainly based around the short-term preservation of capital, and these have been addressed. I think we can figure out the medium/long term capital preservation issues as we go. That being said I do have a couple of questions for @prankstr25 that pertain to concerns outside of the structure itself:

  1. Can you give us some clarity into your security practices when transferring Dai from the Vault (or Tinlake) and back? I worry that without a strict protocol in place, Maker could instantaneously lose its principal due to a hack or human error.

  2. Once the debt ceiling is increased, how will you treat the diversification covenants that you agreed to with the RWF Team? Will you meet them at the debt ceiling level (i.e. out of $20M) or will you meet them continuously or somewhere in-between?

Thanks in advance and looking forward to watching your business grow with MakerDAO.

PS - I’m very far from being an expert on this stuff.

EDIT: Just to note, on question (1), I don’t want you to think I’m trying to disqualify reasonable practices. Personally, I think that so long as you’re not drawing more than one loan’s worth of Dai at a time from the Vault, you don’t really need a rock-solid security setup.

7 Likes

I can’t comment on Kirill’s process today though I’m sure he’ll share more details. But one thing that Centrifuge is doing to improve here: we are building a specialized smart contract wallet that allows withdrawals to a limited set of addresses with single user confirmations. Adding of new withdrawal addresses would then require more than one confirmation. This is a reasonable trade-off as it would allow the day to day be managed by a single user without risking loss of funds. Hopefully we can roll this out in the coming months.

6 Likes

Thank you for your continued support @g_dip, it’s been a long road to get here and I believe we are on the right path now, with everyone’s support and input. To answer your questions:

  1. I have been thinking about this as well. Presently, I am the only person that conducts transactions (have been in crypto since around 2013, more active in 2017) and take great care to ensure no errors are made. I use a hardware wallet which has compartmentalized seed phrase backup and all of the security features enabled. We then use a third party exchange to trade DAI to USD. This process is a bit laborious right now because of the manual processes involved in creating the NFT collateral, but we are working on tighter integration with Tinlake so hopefully this will be resolved, leaving less room for human error.
  2. We plan on continuously discussing the covenants with the RWF Team and meeting or asking for adjustments if necessary. For example, the current covenant of 30% per state may not be the most appropriate if we think about large states like Florida - obviously Miami is one market, and Tampa is totally different, same with West Palm Beach, etc. The same can often be said about larger states like NY, NJ, etc.
4 Likes

This :point_up_2:t4: right here!! Raise the DC!

Out of style: DeFi Money Legos
In-style: RWA

2 Likes

More like:
Me: “There can’t possibly be greater irrational real estate speculation than what I saw in '07”
Miami: Challenge accepted.

2 Likes

This is great!

Wondering, what would happen if the dai is lost during the transfer to the USD account.

Is it after the loan or before?

What would happen in this particular case?

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I would assume we could verify this and replace it, but that’s an assumption and I’d love to hear what our “official” answer is, since you know what they say about assuming :man_shrugging:

I believe that would be a commercial thing to do, but it is a direct loss for us. Imagine the dai is recycling into tornado. We still need to account it, so it would be taken from the SB.

In banking, it is easy you just call the other bank and ask to freeze the account, for us it is different.

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I misunderstood. I thought you meant it got sent into a void somewhere it couldn’t be recovered from

We have a legal agreement with the OTC desk, so they have responsibility in the transaction. I believe I addressed the subject of security and human error earlier, but as with most crypto, transactions are non reversible.

So if anything happens after you sign the transaction from centrifuge/vault, it is your responsibility and you are covered via a sort of insurance you have with the OTC desk.

Unfortunately, I’m not aware of any insurance that covers crypto transactions. However, if it’s a result of a hack or breach, we do have a cyber insurance policy that may cover it. We don’t plan on holding DAI for too long in our wallet, goal is to finance and send it to be exchanges the same day.

2 Likes