I appreciate this @Nadia
I am going to try to compartmentalize my thinking here vs. trying to do CU work on this in a vacuum.
- I really want to see a report of what our competition looks like. This will help me/us get perspective as to the state of competition.
- My biggest issue here is DAI system management against various rate locking scenarios as pointed out in my other post. The 50% SF rate change/6 months forward and trailing (up or down) I think is important. The whole point here is if an institution wants us to commit to them, we need to find a way for them to commit to us.
- After some thought the best idea in this regards comes from revolver terms - shout out to @mrabino1 for helping me understand some of this and apologies if I get this wrong. I am thinking a slashable stake based on terms requested. Think of it this way. A borrower comes to us wanting large vault and 6 months locked terms, and maybe some bonuses because we want them to perform. Well how about a 20-25bps of max DC stake (refundable at end of term or can be carried over).
- Tossing this back at risk and growth with below ideas as food for thought to the CU teams and the Maker community.
So lets apply this to Nexo.
Say they can swallow my 50% SF rate change + bonus as the maximum at 6 months and they want the bonus term on the 5bps/100M usage to run for up to 3 years on up to 1B.
So lets have them put up a slashable stake (based on some deposit, DAI minted minimum performance terms) of (.0021B3yrs = 6M - 7.5M DAI (25bps)) that is deposited in a stake account. There are different ways to do terms here… One is by collateral deposited (say no more than a 50% drop from peak) another way is by DAI minted (not to go below 400M). This is whole performance penalty is the hardest part and I would be tossing the idea at Nexo and seeing what they could come up with. Point here is any terms that run a length of time (bonus, rate change structure, whatever) should basically have a slashable stake that is related to a minimum performance commitment over the term of any of the terms of the deal.
If Nexo goes - well we will take the terms with 6 month option for up to 1B with a new rate to be negotiated at end of term then sign them up and take a 2-2.5M performance/commitment stake… Now if they want that 50% SF rate thing and bonus terms to extend out 3 years well then take a 6-7.5M stake that is slashable at any point during the 3 years if they fail to satisfy terms. If they want up to 2B DC then double these numbers (see ideas below regarding upping them to 2B btw)
The point here is ideally one wants to front load a performance/exit penalty that is refunded or refundable at end of term. The size of this related to the term of the terms and some level of acceptable minimum performance over the term. This is a kind of performance bond, refundable at end of term, not an upfront fee, it is a punishment for unsatisfactory performance or early exit.
I think 200M is a good minimum size for IVs btw. I think we should standardize bonus terms for all IVs at this point to this 5bps/100M up to a maximum of 500M for the time being. As to what size of vault hell I’d give Nexo 2B out of the gate here with that 5bps/100M up to 500M and maybe another .25% or 5bps/200M on next 1B. These terms give a nicely structure 200M-2B first tier IV size btw. Anyone wants above 2B lets think about a 2B-20B IV tier.
I have some other ideas these IV players might be interested in. Nexo may or may not care but why not offer a Nexo Token vault and encourage them to build DeepLiquidity™ via offering them a vault for Nexo-DAI paired in Uniswap V2 contract? Help encourage them to build one deep liquidity pool on uniswap v2 for trading, allow people supplying this liquidity to borrow DAI. Give Nexo some bonus for filling this vault to the 200M level or beyond. Encourage them to basically offer staking rewards in Nexo possibly matched with MKR for people taking this v2 Nexo-DAI vault LP and borrowing DAI.
I want to do the same with Polygon btw. I mean we just gave them a MATIC vault. I think if they get to 200M we should consider offering them a similar IV deal, with same idea of a v2 MATIC-DAI LP vault so they can borrow DAI with MATIC and then pair it with MATIC in v2 LP (to provide price backstop and less slippage focused mainnet trading) and mint more DAI. Deal contingent on MATIC v2 LP use to mint DAI in Maker.
The point of these TOKEN-DAI V2 LP pairings is they have sqrt Token price volatility so it means a LR of 150 on a Token can be 125 on a Token-DAI v2 LP. Means eeffective reasonably safe leverage on the v2 LP vault deposits to 2.5-3x depending. All of this means tons more DAI out there supporting institutional token prices, backed by our ever loved and growing DAI on Uniswap DEX via v2 LP liquidity (which is fully democratic fee sharing, automatically compounded returns, and sqrt price volatility on LP value, with no trading restrictions (yet))
Additionally Maker could also offer in these deals to cross invest to build mutual cross investments in their IV players and these players to be invested in Maker directly as well. Take some MKR and exchange it for Nexo Token, and Matic and then drop those permanently with DAI pulled form SB into the Uni V2 vaults and use the liquidity deposited into Maker to mint more DAI to provide liquidity and earn staking returns like everyone else. Most of these Token-DAI v2’s btw have the potential to easily earn 10% or greater for LP holders just from the uni v2 trading fees. In this way one basically doesn’t just give Institutions access to DAI via vaults, but also a way to access DAI using their own tokens, and an encouragement to build solid trading of their institutional tokens (if they have one) to DAI. And everyone shares equally in all the trading fees, staking rewards, and terms to borrow. Contrary to v3 or any other CES, v2 LP will not allow the price of any token-dai pair to drop to zero.
Bring this kind of approach to institutional investors and we will have lots of institutions holding MKR and delegating it, they will have multiple reasons to not just stay with Maker but help us grow, and in the end everyone wins because DAI and Uniswap V2 LP becomes the defacto trading platform with the deepest liquidity reserves all built and designed against DAI and Maker with DAI the defacto standard of fully liquid, collateral value backed token unit
How many other DeFI players can literally guarantee 100% liquidity on withdraws. Only one I know of (and I don’t know that many sorry to say) is maybe Balancer, Sushi because it basically is a v2 clone, and Uniswap.
Heap in smart contract changes so Token-DAI v2 LPs deposited into Maker can earn not just 1 staking reward from the relevant communities but more than 1, but heap some MKR into the mix as a vault reward against not just being in the contract but borrowing DAI against the LP value and you have a powerful driver not just for institutions to come here, but to bring everything they have and everyone else with them.
I was calculating possible DAI growth from Nexo and Polygon alone with this approach at I figure at least 1-5B DAI alone could come from these players, and the deeply liquid Token-DAI v2 vaults would help provide key price support which would help mitigate against risk generally.