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This is a preliminary contract assessment for the 6S Trust Structure. Overall, no critical issue was found but the contractual documents might deviate significantly from what one could have understood last year.
We want to have a law firm review those contracts but this might take a while. Therefore, here is a preliminary assessment to provide early answers.
Some definitions for this document:
Delaware trust = the Trust, RWA Senior Lending Trust
Cayman entity = RWA International Ltd, Tax Favorable Entity (TFE), Trust Sponsor, Depositor
Trustee = WSFS, Wilmington Savings Fund Society
The Trust Model assumes that the trust is managed by a respectable and regulated trustee which acts as a third party. In this case, it is WSFS.
This is mitigated by the fact that the Trustee (on behalf of the trust) doesn’t sign a lot of the contract and doesn’t get notice of much of what is happening anyway.
Actually, the Cayman entity is running the Trust and making the calls.
While presented as a purely administrative piece of the proposed project and of no importance, the study of the documents shows that the Cayman Entity is the centerpiece of the whole scheme.
The Cayman Entity is the beneficiary of the Delaware Trust and makes most decisions of the Delaware Trust. Most (all?) Trust contracts are signed by the Cayman Entity as the Trust Sponsor.
More specifically, all powers fall on a person called “Maarten”, which is presented as @maarten
It is unclear at this stage what would happen if Maarten disappears.
It is unclear if the Cayman Entity owners (Crestbridge Cayman Limited) would accept directions from anyone and specifically from MakerDAO. And if they would accept direction from a third party, what is the limitation of the directions they would accept from this person?
It should be noted as well that the Trust Sponsor can be changed by MakerDAO, but that seems to require an act of the Trust Sponsor.
Per MIP21, a secure conduit is created on the blockchain that funnels the DAIs from the Maker Vault to the Delaware Trust. The secure conduit has one hop to an address owned by the Tax Favorable Entity (in Cayman Island). The process is gated so the DAI can’t go outside of the conduit at this step. This was called the secure conduit which was on-chain.
This is no longer the case after inspection of the contracts provided. Indeed, there is now an Escrow agreement between the Cayman entity and the Delaware trust. Genesis (the DAI<->USD broker) will transfer the converted DAI to the escrow account of the Cayman entity located at WSFS.
The Cayman Entity is needed to trigger the money movement. MakerDAO has no control over this entity.
While it seems unlikely at this stage that the money can be transferred to another third party, the money might get stuck in this escrow account if the Cayman Entity fails to act.
There was a signal request to set up a group of Maker Representatives. They had some special rights and a duty to monitor the lending, described as follow:
No trace of those Maker Representatives exists in the documents. Those actions will probably not be done by the Trustee but by the Cayman Entity and, more specifically, “Maarten”.
During the risk assessment, we agreed with Matthew on the following part.
Notice that there is no need to have documentation for that. If there is a breach or no willingness to satisfy it, the Maker Governance can simply shut down the vault.
RWF can’t monitor something without having access to underlying information and should not be expected to if this is the case.
It seems to the author that there are more similarities than not between the Trust Model and the Centrifuge Model.
In the Centrifuge model, the SPV is managed by the asset originator This can cause a conflict of interest, which is why we have a legal audit and will add Independent Directors. The financial audit is done by the RWF Core Unit off-chain (using an audit right letter). The Tinlake pool enforces the flow of money.
In this Trust model implementation, the Trust is managed by the Trust Sponsor which is chosen by the Asset Originator. The Trustee is some kind of guardrail. The Maker Representatives will have some audit rights (while no contract is signed, Maker can shut down the vault). The escrow account and the verification agent enforce the flow of money.