[SIXS / RWA-001] Collateral Onboarding Oracle Assessment (MIP10c3-SP18)

Collateral Onboarding Domain Work
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#1

Preamble

MIP10c3-SP#: 18
Author(s): Niklas Kunkel (@NiklasKunkel)
Contributors:
Type: Process Component
Oracle Team Name: Green
Status: RFC
Date Proposed: 2020-11-27
Date Ratified: <yyyy-mm-dd>

Specification

Introduction

This Collateral Onboarding Oracle Assessment has been prepared in reference to Maker Governance ratifying:
MIP13c3-SP4 - Declaration of Intent - Offchain Asset Backed Lender to onboard Real World Assets as Collateral
MIP21 Real World Assets - Offchain Asset Backed Lender

Oracle Data Model

N/A

Oracle Supporting Data Model(s)

N/A

Oracle Address

N/A

Supported Tools

N/A

Remaining Work

TBD

Summary

The unique structure proposed in MIP21 only utilizes certain components of the Maker Protocol while others are vestigial. Liquidations are not conducted through the Maker Protocol’s liquidation mechanism but instead conducted off-chain through a trust. The trust is legally bound with a set of conditions for liquidation, one of which is a signal from Maker Governance to liquidate. Hence from a liquidations perspective, there is no need for an Oracle updated by Feeds to broadcast the price of RWA-001. Instead, liquidation require an Oracle containing a boolean toggle controlled by Maker Governance.

Typically in the Maker Protocol, the price an Oracle exhibits in combination with the collateralization ratio is used to determine the maximum amount of Dai that can be generated against a specific collateral. RWA-001 is handled differently as the value of the tokenized representation of equity and the credit line extended to that equity is ratified by Maker Governance before the collateral is onboarded into the Maker Protocol. Hence from a Dai generation perspective, there is no need for an Oracle broadcasting the price of RWA-001.

As we have shown the price of RWA-001 tokenized representation of equity is not utilized in the Maker Protocol in any fashion, neither in liquidations nor in determining the amount of Dai that can be generated. Instead, the role of an Oracle for RWA-001 as described in the current implementation of MIP21 is exclusively as a liquidation signaling mechanism for Maker Governance.

Due to the complexity of integrating a real world asset into the Maker Protocol, the Oracle Domain Team believes the configuration of legal and technical structures described in MIP21 are a good baseline to build on. That said, The Oracle Domain Team highly urges the MakerDAO community to iterate on the processes described in MIP21 and governing RWA-001 and future real world assets, such that more guaranteed are ensured cryptographically by the Maker Protocol rather than complex legal arrangements. One such area might be the periodic assessment of the value of the underlying equity by a neutral third party such that the MakerDAO community has a clear view of the present-value to inform their prerogative to liquidate.

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#2

I could be missing something, but it is not clear for me which is the economical incentive for the Trust to execute the liquidation or for a “neutral 3rd party” to submit a valuation of the underlying equity?

I’m sure that we could agree that “good will” is not enough to ensure the security of the protocol, we could end with a lot of DAI not being backed in the worst case scenario.

Maybe I’m missing some important forum in this regard (if so please if possible point me to it).

I imagine that we could keep a part of the earnings from the RWA earned interest to ensure on-chain kept valuation of the asset in a monthly basis by any trusted 3rd party (this would be an on-chain number in the oracle only possible to be modified by the approved 3rd parties, more than N needed to ensure greater security). And I guess that the Trust will earn the liquidation fee when the assets are liquidated? or part of it?

I’ll keep looking for some answers to these, maybe they have been handled in other thread.

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#3

You can find more information in [SIXS/RWA-001] Collateral Onboarding Risk Evaluation and MIP13c3-SP4 Declaration of Intent & Commercial Points - Off-Chain Asset Backed Lender to onboard Real World Assets as Collateral for a DAI loan .

In short, the trust should be seen as working in the best interest of MakerDAO as we are the beneficiary. And, obviously, they get pay for that. In case of a dirty liquidation, we can expect a chunk of the recovered money to go to them (contract are not done yet, so unsure what is the deal).

For LendCo to borrow money from the Trust, they need to provide due diligence data (in which there is an third party appraisal). Failure to do so will lead to no loan.

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#4

First, they are paid to be the trustee. Second, their economic incentive is to ensure their business model of following Trust Agreements. Their entire reputation and future economic livelihood revolves around following the agreement (not only the one contemplated in this MIP).

100%. That is why a reputable Trust Company was selected requiring all transactions to be secured in nature and a healthy equity buffer is being used.

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#5

So MIP10c3-SP18 is taken by another Oracle Assessment in Git.Hub (as well as here in the forum). It seems like there are still a lot of questions about how the oracle will function based on the partner and the asset, is there another MIP10c3-SP designation we can assign this one to for prosperity?