Signal Thread: SCD Shutdown

With the extreme market changes we have seen in the past week, we have decided now would be a good time to once again engage in discussion about shutting down Single Collateral Dai.

During today’s call, @Primoz presented information on the state of SCD here https://www.youtube.com/watch?v=v_OtobM_Mrg&feature=youtu.be&t=5193. In summary of his findings it became apparent that peg instability and liquidity issues were beginning to hinder the efficiency of the protocol. Liquidations were no longer taking place in an ideal fashion due to cost inefficiencies. This poses a great risk to PETH holders and the overall stability of the protocol. With this new information in mind, it seems prudent to begin advanced discussions on this topic.

Several months ago I began collecting signals on the direction community members would like to take in shutting down SCD.

A summary of the first polls can be found here:

While the latest conversation about introducing a tax to incentivize/penalize CDP users can be found here:

Since both of these threads are now a little out of date I think it best if we reset some of the conversations given the new market conditions we live in.

My goal in this thread will be to foster purposeful and meaningful discussion, and signalling, that moves us towards the end goal of SCD Shutdown. I encourage all community members to bring their ideas to the table in regards to how they would like to see this process play out and what they think are mitigating factors. Once some discussion has commenced we can begin to collect signalling on next steps.

Some questions to begin discussion:

  1. When should we enact ES?
  2. What parameters should we follow to trigger ES?
  3. Should we implement a tax on CDPs to recoup SCD fees? (see Signal Request/Discussion: Should we implement a tax during SCD Shutdown to recuperate unpaid Stability Fees?)
  4. Should we forgive SCD Fees?
  5. How do we find someone to clear out the migration contract before ES?

March 18th Edit

Now that some discussion has taken place, I would like to begin with a few basic polls.

When should we initiate SCD Shutdown?

  • Less than 1 week from today
  • Less than 1 month from today
  • More than 1 month from today

0 voters

Pros and Cons of initiating shutdown sooner rather than later

Pros

  • Shutdown while price/liquidity are stable
  • Less governance/risk overhead in the coming days/weeks/months
  • CDPs may migrate to MCD and provide more Dai liquidity

Cons

  • Not enough time to communicate to CDP users
  • No more MKR fees burned
  • Opens up more ETH onto the market, could cause downward pressure on ETH price
  • Could be bad optically. CDPs that paid fees and migrated to MCD could feel short changed. CDPs that weren’t prepared to settle right now could be effected financially.

If you have more pros/cons let me know and I’ll add them to the list.

Should we forgive stability fees or try and extract fees in another way?

  • Forgive
  • Extract

0 voters

Thoughts on forgiving stability fees versus extracting fees

Technically we could calculate how much each remaining CDP owes in ETH and vote to manually extract that amount from each CDP. This however could look bad optically and would be time consuming for the Foundation. On the other hand, if we were looking to close later than the next few weeks we could signal to the community that a tax was being placed on remaining CDPs who did not choose to migrate and hopefully incentivize them to migrate willingly. All of the options to extract fees in order to incentivize CDP users to make a certain decision are much more time consuming than just forgiving the fees. Unless there is a more elegant solution that has not been brought forth yet.

Forgiving stability fees is the fastest and easiest option. Optics are mixed because remaining CDPs would be happy but I would assume most ecosystem users are using MCD now and may feel slighted at having to pay fees unlike remaining CDP users. The obvious negative to this option is losing out on additional fees in the form of MKR burn which would have helped offset our Black Thursday losses.

Additional Thought

@Cyrus has brought up the point that before we initiate ES, we may need to find a willing party to absorb the migration contract. The reason this is necessary is because the migration contract is technically unbacked Dai and if there is Dai remaining in the contract at ES, it gets liquidated and at 4M Dai currently, there would be a lot of slippage. So in order to safely cancel out this contract, a helpful whale would need to mint Dai, migrate their Dai to Sai for the amount in the migration contract and then become settled in SCD.

March 26th Edit

Thank you to everyone for their input so far. Please go check out @Derek’s post about processes and next steps for SCD shutdown over here:

Now that the previous polls have concluded, we can move on to the final forum poll stage. With “Less than 1 month from today” winning by 64%, we can now narrow our options down to a week in April. With the winner of the following poll chosen to go on chain for MKR holders to ultimately decide. Therefore:

When should we initiate SCD Shutdown?

  • Friday, April 10th, 2020
  • Friday, April 17th, 2020
  • Friday, April 24th, 2020
  • Later
  • Other

0 voters

My plan is to leave this open until Sunday evening/Monday morning so as to move on chain for Monday’s governance polls. If we haven’t received enough votes by then I will keep it open longer. Please remember this is just a signal and non-binding. As we know, things move fast in this space and changes may be necessary. I look forward to seeing the results.

A note on fee forgiveness and clarity

Since the voting was close on the forgive/extract poll, I just wanted to quickly discuss these implications. When inevitably put on-chain, the governance poll may be struck down for a myriad of reasons (shutdown too soon, would rather extract fees, etc.). Therefore it may be necessary to revisit the results of these polls and put together a different package to entice MKR voters.

MKR holders ultimately have the final say and that is to be respected, regardless of outcome. It may even be necessary to redo the extract/forgive poll on-chain for full clarity as well as any other factors that may be uncertain.

Ultimately, I hope that these forum polls have helped guide us in the right direction to passing what the majority of community members voted for.

9 Likes

@Aaron_Bartsch can you speak a bit about this in the Wednesday call tomorrow? Would be cool to have a recap.

2 Likes

Sure thing, I’ll do a summary/timeline of how we got to where we are today in regards to SCD Shutdown decisions. If it can be a little past 12 that would be great.

2 Likes

Bit of a summary of chat discussion on this today.

Some facts. SCD debt outstanding is about 15M CDP 3088 is > 8M of this.
I will add a link but it is looking like SCD auctions are not completing with DAI PEG around 1.03
SCD doesn’t have a GSM so if governance needs to change anything on the SCD we can do it quickly.

LFW comments that perhaps we should shut down the SCD now before we experience another collateral price drop.

Pros:

  • Doing it now we should have a decent SAI PEG so people can move.
  • Gets MKR off the hook for any liabilities.
  • liquidations in auctions - none are below 100%
  • Also this ETH freed might find its way into MCD to provide more DAI
  • Likelihood of more DAI coming into system
  • Can formally close down the SAI-DAI bridge.
  • Better to ES this now than to wait for a market collateral price drop.

Cons.

  • ETH will be freed to come on market to sell.
  • SAI will basically be an option on ETH - SAI holders may end up selling causing a ETH/USD price event.

Issues.

  1. Do we apply a fee. Honestly at this point since it goes to PETH this seems moot. Maker gets nothing out of shutting down SCD.
  2. PR - do we telegraph this or just shut it down. Personally I think at least a PR post giving holders a warning that Maker is seriously considering shutting down SCD for the sake of giving everyone a chance to finally clear out of this system and for Maker to focus efforts on MCD management in these difficult times.
  3. Any development or ‘post ES’ UI work may need to be done. We don’t want people upset they can’t get at their collateral or convert SAI to ETH in the system.
  4. If we don’t shutdown this system we just heap more issues on to MKR holders.

Based on the discussion general consensus of the small number of people participating is that it might be prudent to finally put a time frame on SCD shutdown. Given state of the markets probably better to have this happen quicker. So time for discussion is now.

Total Maker could be on hook for given auctions/liquidation process is stuck is 15M-collateral value which will be heaped on SAI holders in the case of collateral price drop. Right now it would be more likely for SAI to hold a $1PEG for people to clear this.

Remember everyone has been warned multiple times the SCD/SAI system could shutdown at any time.

5 Likes

Yea I am seeing CDPs under 150% CR. Ill add others if I see them. I am trying to verify that mkrtools is correct, but Im blockchain dyslexic. (IGNORE, MKR.TOOLS IS NOT ACCURATE)

https://mkr.tools/cdp/14372
https://mkr.tools/cdp/14509
https://mkr.tools/cdp/138445

UNDER/near100%
https://mkr.tools/cdp/100685
https://mkr.tools/cdp/153517

Few others were a couple percentage points from 150%.

Collateral I am seeing that should be bite: ~800 peth almost approx 400 is in CDPs just under 100%

So it sounds like we need some more information from the devs at some point with regards to how the shutdown of SCD works, and how it will affect MCD through the migration contract. It was touched on during today’s call, but there were multiple calls that we should take some more time to figure out the impacts.

Naturally the Foundation devs are busy. They have indicated that they will have more free time after the FLOP auctions have completed, so we shouldn’t expect anything from them before that point.

Given that timescale, I think it is worth starting some general polls before then (which I will leave to Aaron to setup as he thinks is appropriate.)

On a personal note, I think I would like to see SCD shutdown sooner rather than later. Given the potential for SCD users (both CDPs and Sai Holders) to come out badly in the event of extreme market volatility I think we should try to shutdown SCD as soon as it is feasible to do so.

From a PR standpoint, perhaps we should communicate that this is being actively discussed? That will give users of SCD more time to consider their positions.

2 Likes

A reddit post might be in order. Explaining the situation is hard tho :confused:

1 Like

I think it’s time to shutdown SAI ASAP.

It would sad to see all those 7700 MKR fees go unclaimed, they could’ve helped to lessen the dilution. As far as I understand, it’s just a design flaw and there is no way to force them on shutdown.

Yes I’d like to recoup the fees very much.

I’m inclined to take the L on this one, but we should set future expectations that any system economic flaws are going to be proactively addressed, and those trying to free ride on the system can expect to get burned

We do not want to project weakness, as this is going to lead to economic attacks a la George Soros and the European exchange rate mechanism

1 Like

All that CDPs are shown as liquidated in https://makerscan.com and with 0 debts.

https://makerscan.io/cups/14372/
https://makerscan.io/cups/14509/
https://makerscan.io/cups/138445/

https://makerscan.io/cups/100685/
https://makerscan.io/cups/153517/

Is there any problem with mkr.tools?
How reliable are debt numbers?

1 Like

Oh sweet hope ur links are right. I don’t know any issues but it hasent been updated in awhile. Urs seem right. Once I get back from work I’ll check it out. Edited my post above, I would love to hear from a risk team person about best site for CDP data in scd.

1 Like

Personally I don’t want to vote right now because the specifics of how we close the migration contract seem very important for safe SCD shutdown. From what I understood in the meeting today closing the migration contract has to come first. Currently there is 4mil DAI from SAI.

Another important point that I dont understand/cant find info about. https://youtu.be/AIW7lFg6gBI?t=5271 so in cage there is a function that allows CDP holders to mint SAI once the feed price for PETH is locked? Can we get more details on this? I dont understand the issue exactly. But “No debt ceiling check” sounded ominous…

Also AFAIK there are not interfaces ready for ES either.

I put an very rough notice on reddit linking to this thread.

I am really unhappy with all this running around like headless chickens by the makerdao team.
Clean up your own house without making users having to check their phones every day for your rushed in decisions and calls.
Check makerdao’s market cap… 5M SAI is what you “go after”?! Let CDP each owner manage when they want to migrate.
Last time I checked it was rushing into decisions and not thinking things thru that created all this mess.

Unless this forced migration comes without the stability fee I am absolutely totally against it!

Why should we continue to pay for makerdao’s screw ups?! Again check the market cap.
2 bad decisions don’t make for 1 good.

Calling this DeFi is now a joke.

2 Likes

Welcome to crypto. and then welcome to probably the most complex project in crypto :woman_shrugging: this is an experiment on top of another experiment (ethereum). If you want complete stability go to bond market… oh wait.

Many active people here (including myself) aren’t employed on “the makerdao team”, so we communicate however we do without fear of being fired. “The Makerdao team” has been very professional imo. Anyways It basically requires mania to try to fully understand the protocol on a continuous basis (especially with SCD and MCD both being live and constantly changing).

But staying on topic on this thread would probably be more useful to everyone. My bad.

1 Like

It’s easy to be cool when everyone else is paying the bill except you… That’s how I see how “the team” is dealing with the mess.
And IMHO… Ppl that got rekt above the 13% penalty should go after them legally.

1 Like

Staying focused:
Unless this forced migration comes without the stability fee I am absolutely totally against it!


made a better plot showing how it is very difficult to vote on the tax per second parameter unless we know how many new PETH from non-borrowers will join the pool before settlement. https://github.com/lixwhi/tax_collecting
I say that within 1 month we own our mistake, forgive fees, and shutdown.

100%

3 Likes

Recapping comments from the previous Governance call regarding how to absorb the migration contract;

It is expected that Maker Governance will vote in an executive spell (time=tbd) to cage the system - meaning that it will no longer be possible to mint Sai. This caging activity will also shut down the facility to migrate Sai to Dai, however it will still allow Dai from MCD to be transferred to SCD. We refer to this as a ‘one-way bridge’.

This bridge, coupled with the fact that we have just added USDC to the MCD protocol, puts us in a unique position to allow USDC collateral holders to mint DAI, and exchange this Dai for Sai, thereby draining the Sai migration contract by burning Sai for ETH and returning it back to MCD as Dai used to pay down the original USDC position.

The what (and how) in bullets

  1. Prevent swapping Sai to Dai (by caging the SAI join adapter)
  2. Continue to allow swapping Dai to Sai (by allowing exit on the adapter to continue working)
  3. Call global settlement (call cage on the top.sol contract)
  4. Mint Dai through USDC
  5. Swap Dai for Sai
  6. Burn Sai for ETH
  7. Return ETH to MCD
  8. Exchange for Dai and pay off USDC

The tax/SF dynamic remains an outstanding question that still needs to be discussed based on the outstanding CDPs, as well as the warning duration as a result of the above polls.

5 Likes