I wanted to give an update on where we stand on risk and governance for the weeks leading up to MCD launch, and the few months afterwards too. I know communication has been a little lacking lately, so hopefully this makes up for it.
- Last week on the governance call we began to discuss the migration strategy. The migration is well planned and should go smoothly, but just to be extra cautious we are going to focus the bulk of our efforts from now until launch on this. On this week’s call we can dive a little bit deeper into strategies, and present some potential risk parameters. Hopefully the following week we can formulate a written proposal out of it, and submit for a governance poll.
- These migration risk parameters will (pending governance approval) be the initialization parameters for MCD. These parameters are heavily influenced by the monetary policy shock that would result from the migration of ~80 million Dai. The proposed strategy is really quite simple. Let’s start the DSR with something low but meaningful (we are thinking 2%), and let’s start the MCD stability fee 2-3% below SCD. This should minimize overhead for governance on our end, and hopefully we can see a large migration occur in the weeks post-launch. We will have to do a bit of work managing monetary policy since the DSR and migration might temporarily de-stabilize the Dai peg. I don’t anticipate anything severe (and, hey, MakerDAO survived 2 months of weak Dai back in March. This should be much cleaner).
- Unfortunately, this means that our fancy collateral risk models take somewhat of a backseat in the meantime. All of the work we have done to evaluate and quantify collateral risk premiums is simply dwarfed by the relative weight of the migration supply shock. Reviewing 30 pages of materials to find out that the risk premium of a token like BAT is x% is just not significant at this stage of the game. Let’s ensure launch safety, and then we can immediately dive into specific collaterals.
- That being said, we still are intending to launch with one collateral type other than ETH, namely BAT. The goal is to launch with ETH, BAT, and Sai, but use migration-specific risk parameters. It’s important that we launch with at least one additional collateral type because a) it’s important to test out this functionality as part of launch, and b) we’re excited to be able to support multiple assets.
- The risk team is still planning on releasing documents for community review/discussion. In early November we’ll release some general documents regarding fundamental analysis and quantitative models. This will outline all of our motivations and methodologies for how risk should be conducted in an otherwise equilibrium state. We just probably won’t have time to discuss them on the governance calls prior to launch, and that’s okay. We expect the migration to take several weeks anyways, and so between launch and end of year we can spend time discussing the models as the migration is happening in parallel.
- Assuming everything goes according to schedule, we can hold our first official non-migration governance cycle starting in January. This is where we can present our risk reports on ETH and BAT (or we’ll probably release those in December, too), vote on asset priority polls, discuss centralized assets, DSR etc etc.
- We should probably spend one of our remaining weeks discussing auction parameters. Auctions are a new aspect to MCD, and can be a bit confusing at first. There’s some documentation on auctions here that could be good as a pre-read, and then we can dig into the mechanics and potential initial parameters on the governance call. https://github.com/makerdao/developerguides/blob/master/keepers/auctions/auctions-101.md
- There are a few new security modules that need to be discussed as well. Most people already know about the OSM, the 1 hour oracle delay. But there is also the governance security module, as well as the emergency security module which both require some tiny discussion. This can maybe be appended to the end of the auctions call.
Tl;dr: Focus on migration between now and launch. Launch MCD with ETH, BAT, and SAI with special migration parameters. Between Nov 18th and Dec 31st we can discuss risk models while migration occurs in the background. Jan 1st we can start official governance cycles.