Team funding experiment - RWA objectives and cost structure

Introduction and Motivation

The work of the Real-World Assets (RWA) workforce is currently financed by the Maker Foundation under the Collateral Onboarding Grants. Those grants have limitations and aren’t expected to last forever and, even if the exact ending date remains unclear, the DAO needs to start thinking about viable paths to finance these efforts and ensure it’s continuity. In the specific case of RWA, a lot of monitoring and coordination work needs to be done on an ongoing basis to successfully onboard these assets.

The objective of this document is not to provide a framework for the DAO to finance and structure the domain teams. Another working group is working on that. As discussed with the autonomous working group, the idea is to start somewhere in the continuation of the DAO operating budget (which is more targeted at unexpected things than financing domains). The discussion and the results of this experimentation will then feed the work of the working group.

On a personal note, having visibility of fewer than 2 months is not ideal. Especially as I have a client willing to take me back on a yearly basis for higher compensation. I also find it difficult to onboard people without being able to give them any visibility.


Those are the objectives that I think the team should address in 2021. Governance can change them and it sees fit if needed.

Increase RWA loans to 300M DAI

Currently, the amount of loans originated from RWA is zero. Considering collateral types that are quite advanced in the onboarding process (6S, New Silver and ConsolFreight), we might soon achieve $22M in loans (in Q1 2021). Once those first targets are hit, the processes ironed, and the Community finds itself more comfortable with these assets, those vaults can increase significantly (6S is targeting 100M after 12 months of operations, New Silver has room to grow as well). Moreover, we are already exploring new partnerships with various asset originators (PaperChain, BlockSquare, Uprets, Peoples Company, …). Therefore, $300M of loans seems like an ambitious but achievable target with the current deal flow momentum.

At a 3% average SF, that would correspond to $9M revenues on an annual basis. The number of vault types should be between 5 and 10.

Set up the monitoring infrastructure

RWA collaterals are a portfolio of assets managed by a third party: the asset originator. Being outside of any regulation, for the most part, we need to ensure that our assets (DAIs lent to asset originators) are used soundly.

We are currently working with asset originators to have access to their loan tape and building the infrastructure to monitor everything. We also expect to use third-party services to have independent updated valuation (real estate prices, credit ratings, …).

Find the best investment conduit for RWA

Currently, we are exploring the Centrifuge model and the Trust model. We also need to explore how we could set up a legal subsidiary.

Finding the best way to invest in RWA is of prime importance to scale safely.

Define a good solvency model for RWA

Currently, MakerDAO uses risk models at the collateral level and doesn’t define solvency at the MakerDAO level. The uncorrelated nature of RWA makes it a strategic advantage to be able to define solvency at the MakerDAO level. Indeed, if we want to compete with real banks, we need to have the same tools (and exploit some of their limitations). This is also including balance sheet manipulations.

Having a good solvency model will be a wonderful tool to earn more revenues while keeping the risk in line.

Diversify, diversify, diversify

Corollary to the solvency model, RWA aims to enjoy a strong diversification. RWAs are naturally somewhat uncorrelated to crypto-assets but, within RWA, we should also aim for diversification. The best target might be new kinds of assets, unserved by banks, with good growth prospects (Paperchain, for instance, that use big data and machine learning to safely advance money on a future invoice). Nevertheless, established asset types are more likely to provide higher debt ceilings in the medium term.

While it is likely that we will mainly work with small businesses/startups, we also need to work with more established players even if that means lower revenues.

Cost structure

To achieve this strategy, the following cost structure is proposed to MakerDAO. It is meant to be a max limit and not what will really be spent.

Top-down approach

From a top-down approach (starting from revenues), we can expect 725k annual revenues with the first three collaterals at the initial debt ceiling (see table below). RWA should be profitable so we suggested that costs are hard-capped by revenues.

Moving forward, with RWA loans increasing, the cost ratio of servicing the RWA collateral should be decreasing. As the target for end 2021 is $300M of assets, that leads to a $9M annual revenue stream at a 3% stability fee. The aim would be to keep costs below 10% of the revenues (costs below $900k on an annual basis).

Bottom-up approach

The bottom-up approach starts from the current cost structure and the need to define the cost structure evolution.

Current team composition

The RWA team is currently (or more precisely might be composed at the end of January) of:

Sébastien (application as risk facilitator): full time
William: full-time risk contributor
Phil: Part-time, our real estate expert
Jan: Part-time, our finance expert
James: Part-time, our farmland finance expert for P1-DROP
Rayan: Part-time, our finance laws expert

Adding some external cost (software, data feed for collateral assessment), we might end up with a $300k cost structure. My personal compensation would be $8k/month. I will let the working group define how compensations should be evaluated. Nevertheless $8k/month is the minimum that makes sense in my situation.


By merging the top-down and the bottom-up approaches, we end up with the following 2021 budget. Initial debt ceilings are expected to be filed on March 1st and the team cost grows from there.

Month RWA Revenues Team cost Cost/Revenues
2020-01 0 25,000
2020-02 0 25,000
2020-03 60,417 25,000 41.38%
2020-04 129,375 26,667 20.61%
2020-05 198,333 28,333 14.29%
2020-06 267,292 30,000 11.22%
2020-07 336,250 31,667 9.42%
2020-08 405,208 33,333 8.23%
2020-09 474,167 35,000 7.38%
2020-10 543,125 36,667 6.75%
2020-11 612,083 38,333 6.26%
2020-12 750,000 41,667 5.56%
2021 Total 3,776,250 376,667 9.97%

Based on those expectations, the 2021 budget line asked for by the RWA risk team is $400k (lower if Collateral Grant continues in 2021). This amount can be operated using the Keg or the suck function into a multi-sig wallet managed by mandated actors. All actual draws on the wallet will be documented.

Let me know what you think of it, so I can adapt it or move it to the next step.


Good Stuff Seb. Have you given any thought of bonuses, assuming your team does help the DAO achieve the stated goals of image

What about incurred expenses, such as traveling, lodging etc. is that cover in your budget? I’m assuming one day COVID will be a distant memory and the RWA Team will be able to visit a RE borrower facility and so some due dilly…

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Haven’t thought about bonuses, but not a big fan of those. I let @juan and his working group settle on that for all domains to be treated equally. My personal opinion is I want the best for MakerDAO. If the best means stopping RWA, I don’t want any financial incentive to do otherwise.

The only incentive that could make sense is an option on MKR to be bought for $2k in 3 years. But even there, there are pros and cons.

For expenses, I’m a big believer that people always find a way. Regarding RWA, we are going from 0 to 1, who knows. It’s like predicting the price of Oracles for 2021. Good luck, all depends on ETH. One thing is sure, put some lawyer fees in the equation and you can bet the budget is wrong (actually some legal work is included).


How do you see the RWA revenues being impacted by the DSR?

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The DSR will clearly hit the net interest margin (NIM) of RWA … but of all assets as well. The NIM of PSM-USDC, USDC-A, PAX-A will be negative.

As MakerDAO progresses those questions will have to be worked on. But, hey, the DAO solved the peg issue. Nothing can stop the DAO.


I personally don’t see a huge issue with DSR equaling or being higher than rates being charged on RWA assets if we make sure that RWA borrowers don’t put minted DAI in DSR and earn the spread. This was the usual case why we couldn’t allow DSR > SF, but in RWAs case I think this can be mitigated. And then keep in mind that only part of DAI is in DSR so the net cost of DSR is actually much lower and fees from RWA would only be net positive for the system. In other words, with or without RWA loans, DSR costs may be more or less same (unless you allow for the exploit mentioned above).

The issue is that when DSR is being increased, we might want to increase rates in general as well, but this isn’t simple for RWA loans so Maker will need to know that monetary policy is limited by making changes to RWA loans rates.

Dsr should be equal for all Vault types.

The only way to fix it is with third party derivatives

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zero issue from a tracing point for 6s’ borrowers, we will have closing statements and the papertrail to show where the money goes. my number one concerns for rwa for maker is keeping maker competitive compared to the traditional world. Thus if the DSR increases and the Maker —> LendCo rate stays the ~same, then that concern is mitigated…

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Do you expect your fellow lendcos to enjoy the same terms from Maker? And at scale?

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