[Signal Request] Raise SF On RWA When Issuers Unilaterally Change Terms

Not if we only hold 5% or 10% of a pool and there’s positive cash flow

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If we hold 5% of a pool and everyone redeems, we get 5% of the cash flow

It would be fine if someone actually took the time to present what the problem really is with a clear step by step explanation of the problem.

You invest in something where there is credit enhancement by a junior investor. He will not want to sell in a hurry and take a big loss because you are stressed. You invest in a “liquid” security (as liquid that can be for RMBS), you sell if you want quickly and take a big loss for doing so.

As per the RWA documentation, “It is assumed that the token liquidity is thin (< 5% of the market cap daily) and that market price can’t be used for liquidation.”

That’s why we are focusing on collateral quality and credit enhancement.

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Yes. Which is why we want the ability to redeem without telling everyone else we are about to do so

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Pretty hard to do with a DAO. I think Seb is stating that redemptions in front of us aren’t really a problem, because as soon as we enter the pool we’ll have pro-rata standing. So even in the event we’re a week behind everyone it’s a marginal impact to our return, supported by the 105% overcollateralization we carry with DROP tokens.

IMO the problem is the event causing us to redeem, not so much the redemption itself. Which is why we need to be selective with our AOs and give them plenty of maneuverability to execute within our agreed upon maximums.

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Pro-rata share of an asset that will return 90 cents on the dollar is a bad deal, if we could have exited early and retained the full value.

There’s a reason you don’t want to disclose that you’re about to exit a position. It can result in millions of dollars of losses. Normally, being the first to see trouble rewards you with saving more of your capital than the people just whistling past the graveyard

Also? Time value of money again. Even if we recover 100%, we want as much of that as possible today instead of tomorrow

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  • 15% of TIN as credit enhancement. And that’s before the equity of the borrower (again check the docs provided in my last post). We don’t sell at market price (as there is no real market anyway). The underlying is a loan with a nominal value and an interest rate. So every day, the value of the loan increase (including therefore the time value of money and liquidity premium).

No, you couldn’t. No loan on the pool is expected to be repaid in June or July (there is some interest payment but not much), so either you can act within an epoch (a day) which the DAO can’t, you are front-run anyway but everyone needs to wait for maturity (the first loan mature in January 2022, will probably be repaid before, but that give you some weeks).

And if it was a bad deal before the new executive summary proposal, how is that different the day after?

Again @PaperImperium , please present an actual detailed case instead of spreading FUD.

If you want to rethink RWA from scratch, there is a thread for that.

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I think the important point is that unless there was a Maker representative able to quietly initiate redemption for us without other creditors running for the exit before us, the DAO would always move slowly and lose money redeeming vis-a-vis those other investors. I don’t see any other potential result given the DROP structure’s contours.

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This request is for all real world assets present or future. It’s also a second-best solution to the twin problems of cumbersome liquidation and borrowers changing terms once they have our money and know they have the upper hand.

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Could you elaborate how a change of terms can lead to such a situation? Especially if we are at our target DC (which at scale should be the case or quite close in relative terms) and assuming the loans maturity is 12M (what it is currently)?

Again, you are spreading FUD by making an unbacked accusation towards the borrowers. As already stated in this thread, if we exit the pool, the AO can’t change the terms until we have left.

So we end up enjoying the initial terms and the AO ends up with an empty pool (assuming other investors feel the same). What upper hand are you talking about?

We have exactly one RWA borrower at the moment. And they almost immediately changed the terms of their issuance — without consulting with Maker at all.

When asked about to avoid this in the future, Centrifuge told us we could take it or leave it. Leaving it would mean telling the world we were going to liquidate a week or more before we do.

That’s a bad structure for a deal, and a bad structure to exit it. This request is a way to discourage using the bad structure so that we don’t have to use the bad exit.

Again, I ask you to provide a clear and detailed example of how this is bad considering what I told you all along this thread. Then we can discuss the case.

This forum is about scientific governance. Let’s discuss the facts.

FACT: Borrowers may change anything in the executive summary with a 2-week notice.

FACT: Our only RWA borrower issued a notice to change terms on/about May 21 via email.

FACT: The new terms went into effect June 4.

FACT: The DAO was informed June 10.

FACT: Four more deals of nearly identical structure have been pushed into a vote before the RWA committee issued a recommendation.

FACT: The borrower who altered their terms in the first two months is asking us to quadruple their financing line.

FACT: Exactly zero DAI have been spent by the RWF unit on a legal review of any of this structure.

FACT: The liquidations of these assets is outsourced to Centrifuge, which is both untested in a real world situation, and does not offer Maker the backstop of a process that quickly and profitability settles bad debt.

FACT: We are still awaiting the audits of the liquidation system on Centrifuge’s Tinlake platform, as requested by the PE unit.

My opinion (not a fact): We need to find ways to leave Maker at less of a structural disadvantage in these deals

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Sorry @PaperImperium but your post doesn’t provide any case where the AO can take advantage of MakerDAO by changing unilaterally the executive summary.

I believe the first bullet addresses that concern, Sebastien.

Also, any ETA on outside legal analysis re Centrifuge?

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The unilateral 3% raise in stability fee on any change from the issuer, who is responding to prevailing market conditions (as discussed in the other thread) feels to me like an inflexible and short sighted move against the RWA space for Maker.

I feel like this issue has many of us a bit stuck in the weeds - there are things that RWA provide Maker that the other asset classes we are dealing with up to now do not provide - mainly the lack of correlation to crypto price fluctuations.

For this the MKR community pays in Risk, which we can control by maintaining reasonable debt ceilings and improving the process.

I’m not sure why we need to take an abrupt and not very nuanced action to meet our end goals, which I think we can all agree include increasing communication between the Asset Originators and the Protocol, and bringing broader liquidity to the system.

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Ok. Let’s assume the AO change the DROP APR to 0%. Everyone exit. The change is delayed until everyone is out. It would be quite similar to having liquidated the investment the day before the notification.

So what is the big deal?

Law firms’ onboarding is progressing but I can’t commit to a date. I would say early results for July 15th but that’s a guess.

I abstain, I love the debate of arguments so far. :eyes:

Haha, you’re joking right? I’m so over it. Can’t wait for @prose11 @LongForWisdom to unpinned this from the forum. Too intoxicating. I wish we could focus more on what really drives Maker and DAI, instead of spreading FUD within the community. Just my personal opinion.

Or, at let’s focus on other FUD that actually plays a role in Maker — like we don’t even care anymore that USDC makes up 55% of DAI — instead we think of ways on how to provide ammunition to folks who don’t like Maker in Crypto Twitter/DeFi—to possibly label Maker as a bait and switch lender, IMO(why I voted no to a 3% hike).

Honestly, If we are going to be a Community vocal about FUD, I rather we focus on other crappy FUD from outside the community — like this Ren FUD:

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