The case for Clean Money

Clean Money

MakerDAO is in the position to use the most powerful tool ever invented to fight the most challenging problem ever faced - all it takes is the will of a community.

With the Maker Foundation dissolving, I’ve had a chance to reflect on the future of the project. We have come incredibly far, and today the DAO is buzzing with an amazing amount of governance and protocol activity. But I believe that there is still a fundamental opportunity to rethink how we approach Maker Governance to make it even more vibrant, more focused, and more decentralized.

To truly reach its potential, Maker needs to become a purpose-driven DAO. Most importantly, our decentralized community needs a compelling vision. One that is powerful enough to act as a north star, reducing distractions and aligning the community to focus on execution and results. At the same time, this vision must also appeal to non-crypto natives by showing the world the transformative potential of Maker and Decentralized Finance.

From the very beginning, the goal of Maker has always been to use the power of blockchain technology to provide actual benefits to people and society. Our approach so far has been to focus directly on financial inclusion, and we’ve already had success with Dai adoption in Argentina, and the Cambrian explosion of DeFi proving that there is a lot of demand for unfettered access to finance.

Along the way we have also learned that Maker really excels as a backend infrastructure protocol, while also experiencing the limitations of how much a DAO can do to physically bridge the last mile and provide the kind of user experience that will actually result in direct, mass financial inclusion.

As an example, today almost half of all Dai generated from ETH comes from just 5 vaults, and at least some of these 5 vaults are CeFi companies that offer regulated loans with a focus on UX and compliance to retail or institutional users. Similarly, the biggest and most scalable opportunities that exist in real world assets rely on extending large scale lines of credit to regulated institutions that can then funnel it into the broader economy. The recent governance proposal by Societe Generale - one of the world’s largest banks - proves how Maker has the potential to impact the deepest layers of finance as a new financial backend.

This realization of the role Maker is really beginning to play today leads us towards its true potential, not only as an end user focused DeFi protocol, but as a financial infrastructure that can help reshape other financial institutions that use it. From this position, Maker can help to fix the broken core of the global financial system itself and the bad incentives that’s driving it towards its own demise.

Climate change and the collapse of industrial society

Everyone knows climate change is bad - the harsh reality is making itself more apparent every day in the form of floods, wildfires and countless other disasters impacting people around the world. The IPCC has provided us irrefutable proof that business as usual can only last another 10 years, a message that has been shared over and over again by scientists around the world.

The biggest problems are the climate tipping points that, once passed, will lock in irreversible and devastating changes through positive feedback loops… and we are almost there. One example is the melting permafrost, an event caused by global warming which then itself emits huge amounts of greenhouse gasses at an ever accelerating rate, comparable to an entire industrialized country.

There are many other similar phenomena: Wildfires, forest dieback and ice melt. All are devastating positive feedback loops that accelerate the trend of global warming and make it irreversible. In practice, to prevent it from becoming catastrophic and impossible to mitigate, humanity has to aggressively accelerate emissions reductions according to the graph below.

Sadly, the kind of globally coordinated and systemic change that is desperately needed simply isn’t happening - despite all the natural disasters that should be raising the alarms in favor of climate action. Both China and the US - the world’s largest emitters - are still accelerating fossil fuel use, and most of the developing world continues to fundamentally rely on expanding fossil fuel capacity to drive growth and help their people escape poverty. Society continues to debate the credibility of the threat of climate change and the global financial system is still prioritizing destructive short term gains - often with very negative ecological impact - over longer term, more sustainable profits.

The reality is that the planet as we know it will dramatically and irreversibly change, and that change will have a very real economic and societal impact. What happens when huge swaths of agricultural land become barren or when billions of people are displaced because their homeland becomes inhospitable? It will cause unthinkable pressure on existing governments and force a dramatic shift in geopolitical power.

This map helps paint a picture of how bad it will get if nothing is done.

Some more precise data:

Instead of treating climate change as the systemic threat and existential risk it is, when it first became apparent in the 80’s, society’s primary response has been to kick the can down the road, and even today most politicians will deflect the issue and point to “technological solutions’’ that surely will appear due to human ingenuity and resilience to solve all of the issues.

This silver bullet fantasy invites mass complacency about the fact that our economy and way of life will fundamentally change - No amount of innovation that can change the impact of the laws of thermodynamics over just a few decades.

At this late stage, there remains only one option that can rise to meet this existential risk. We must harness the most powerful and ancient tool of our species: the power of money.

What can we do?

What does Maker and DeFi have to do with climate change? At its core the climate problem is actually a financial and capital allocation problem. The root cause is the inability of the global economy to plan for anything other than the very short term and deal with the entrenched corruption that exists in its centralized and opaque infrastructure - that’s why it allowed itself to reach world-destroying levels of pollution and continues to channel billions in capital towards it, despite the irrefutable fact that this will be its own undoing.

DeFi exists to deal with exactly this type of problem.

Bitcoin, which started the blockchain revolution, was created as a reaction to the 2007 financial crisis, a crisis that is very similar to the climate crisis - just on a much smaller scale. In both cases we are seeing the fundamental inability of the system to look beyond the very short term. The party must go on, and nobody has an incentive to care about what happens when the music stops.

Transparency, stakeholder governance, carefully designed incentives, decentralization and the ability to turn future long term value into present day cash flows is what the world needs, and that’s exactly what Maker, Dai and DeFi can deliver.

By tapping into the fundamental features of blockchain we can develop verifiable processes to ensure all Maker collateral is in sustainable and climate-aligned assets that consider the long term impacts of financial activity on the environment. This will unlock Dai as the coordination tool the world desperately needs - a way for people and companies to band together to directly create a realistic impact right at the core of the issue.

The crisis is so severe, and in such a late stage, that the global response needs to be nothing less than “total war”. Every aspect of the global economy, the business model of every company and the life of every individual will change, either proactively by working together to avert disaster, or involuntarily by inevitably suffering the consequences of inaction.

An old idea whose time has come

The Sustainable Finance principle which espouses backing Dai with sustainable and climate-aligned collateral, is a concept which was originally ratified by the Maker community as a part of the 5 Foundation Principles in the first ever Maker Governance vote in 2018. It’s not a new concept, it’s an old idea whose time has come.

But it’s not as simple as just making sure some of the RWA collateral is in Solar and Wind assets. To be serious about putting up a fight against the end of the world as we know it, the Maker community will have to truly adopt the principle of Sustainable Finance at the core of Maker’s culture and entire collateral strategy. Climate change will have a greater impact on financial stability than anything else for at least the next 50 years. This time period, and especially the current decade, is also the critical window of opportunity where the outcome of the crisis will be determined.

Having a focused collateral strategy provides significant benefits to Maker. One of the most obvious is reducing horizontal governance complexity and information overload by defining a specific, bounded scope. It also allows for a proactive approach where MKR holders decide what kind of risk they want exposure to.

As a part of the Clean Money initiative I propose a collateral strategy based around a core portfolio with a trifecta of “flagship collateral”.

Sustainable collateral

Maker and Dai can coordinate the global build-out of sustainable energy pathways by funneling billions of dollars into senior credit positions for projects that will build solar farms, wind turbines, batteries, recharging stations and other cost-efficient renewable energy solutions, as well as their supply chains, sustainable resource extraction and recycling.

Renewable energy alone isn’t enough to achieve a sustainable economy, but it is an area that Maker is well positioned to deal with, as it allows Maker Governance to build up specialized expertise for risk assessments within a well defined market that is commoditized and highly scalable.

Today we already have everything we need to begin scaling our RWA exposure to hundreds of billions of USD and beyond, securely and in full compliance with financial regulation, by using the trustee-based model of real world assets that the community developed over many years, which was recently launched with 6s capital, and other projects on the way.

A unique advantage that makes renewable energy and sustainable collateral a strong fit for Maker is that the positive externalities created for society can be indirectly capitalized by Maker in the form of social and political capital that reduces political uncertainty, if the proper steps are taken to support the endeavours with strong marketing and communications and also more exotic approaches like NFTs.

Resilient collateral

Secondly, we need to ensure a big portion of the collateral behind Dai is provably resilient collateral that will resist the impacts of climate change.

The positive perspective of why climate resilient collateral is critical for Makers future is the concept of so-called “Climate Alpha”. Most assets today are mispriced as climate risks are not factored in by our current capital markets because - repeating myself here - the system is unable to consider anything other than the very short term. Grasping climate alpha early is likely the largest economic opportunity that will exist over the next decades because of how bad things are getting - like discovering bitcoin in 2010 but at the macro level.

No matter how much effort we, or anyone else, put into the cause of preventing catastrophic climate change, we need to prepare for a future of partial global collapse where many nations and entire regions we take for granted today will struggle as fertile lands get scarcer, extreme weather events wreak havoc, and social tensions keep growing.

There is also a real possibility that these endless economic shocks will result in the hyperinflation of the USD and other world currencies. In such a situation it is vital that Dai is prepared with climate resilience, even if other currencies fail to do so, so that if the worst case scenario occurs, Dai can stand alone and fulfill its potential of becoming a free-floating currency.

This kind of resilience can be achieved by broadly diversifying the bulk of our long term RWA collateral into the countries that are climate resilient and socio-politically stable.

These places will become humanity’s strongholds against the effects of climate change, and will provide Dai with the strength it needs to survive on its own even as other financial dominoes start to fall. Channeling capital to the climate resilient countries is also important because they urgently need to be developed to have the food production, shelter and jobs available to accommodate the climate refugees that will immigrate there over the course of this century, especially if climate change is not well mitigated.

There is a serendipitous overlap between the few climate resilient countries that exist, and the few geopolitically independent countries that have political systems fit for housing large amounts of DeFi collateral with minimal regulatory risk. The countries where these two categories overlap can be considered “Super Countries”, and they should provide the bulk of the real world asset exposure of Dai.

Examples of what I would consider Super Countries are: New Zealand, Canada, Switzerland and the United Kingdom.

Decentralized collateral

Finally we need to double down on our roots of decentralized collateral, in particular solidify our fundamental commitment to and reliance on Ethereum and the ETH token. The Ethereum blockchain is built for human coordination and resilience. As the world is forced to deal with the impacts of climate change, Ethereum will enable financial markets to coordinate on mitigation, and it will continue to function even during large-scale disasters.

Importantly, once the upgrade from proof of work to proof of stake is completed, Ethereum will become a highly energy efficient blockchain, and ETH will become a sustainable contender to Bitcoin’s current role as the primary cryptocurrency.

The Maker collateral strategy should prioritize accumulating more ETH as collateral across various combinations of risk parameters, and accumulate more collateral derived from ETH, such as LP tokens or ETH collateralized assets. Holding ETH directly as protocol reserves can be also considered as strong method for Maker to both directly support, and directly benefit from its ecosystem.

It is likely there will be a long term transition towards using staked ETH in DeFi, and Maker should spearhead this to prevent it from creating an opening for others to capture ETH collateral from Maker. Since staked ETH needs third party solutions to be usable in DeFi, it is critical that Maker ensures that adoption of staked ETH in DeFi doesn’t compromise the decentralization and security of the network.

Another avenue is to rely on the broader DeFi ecosystem to generate Dai backed by decentralized collateral using Direct Deposit Modules into platforms like Aave, Compound and Yearn, which can generate high yield with moderate risk, and can help improve the market position and availability of Dai in the DeFi ecosystem.

Stablecoins are what they eat

A Dai stablecoin backed by sustainable and climate resilient collateral is one with a powerful climate aligned brand. In a world that’s critically challenged by the climate crisis, demand for Dai will grow in line with the growing success and relevance of its collateral. The climate crisis is beginning to have a profound impact on people’s identity and personal lives - in particular the youngest generations - as exemplified by this recent study showing that more than half of young people believe humanity is doomed 56 Percent of Young People Think Humanity Is Doomed

Would you rather use Clean Money or Black Box Money?

With Dai operating as a Decentralized, Sustainable, Resilient stablecoin, backed by assets that serve each of these purposes, we can honestly and confidently call Dai “Clean Money.”

  • Clean because it’s playing its part in saving the planet from pollution and negative externalities with sustainable collateral.
  • Clean because it transparently adapts to long term impacts to its stability from climate change and global instability with decentralized and resilient collateral.
  • Clean because its governance and operational infrastructure operates fully in public.

If Maker can realistically deal with the most relevant issue in the present day, we can catalyze a new era of mainstream awareness of DeFi and blockchain and the positive benefits they provide society as coordination tools, while also drawing attention to the problems with the current model of black box finance and money.

The monetary and financial system of aggressive short term growth is at the core of why the climate crisis exists in the first place, and to this day the Federal Reserve’s and the European Central Bank’s Quantitative Easing programs do not perform strict Environmental, Social, and Governance (ESG) screening, so they are actively funneling unfathomable sums of the public’s money directly towards fossil fuel projects that are eroding their economies.

By showing easily digestible evidence to the world such as pictures of actual wind turbines built with funding from Dai users, and accompanying it with scientific reports of impact data, we can prove to people that there’s finally a realistic option for climate action where individuals can help tip the scales at the core of the problem.

The more capital we allocate towards sustainable activities while supporting it with large-scale, high quality marketing and PR activities, the more positive climate impact our projects can have. Verified results will strengthen our brand, leading to more powerful adoption funnels and cheaper cost of capital. This then enables an ever increasing amount of impactful investments, feeding a virtuous cycle of hypergrowth.

Additionally, the mainstream awareness and relevance of Makers climate impacts also manifests itself as political resilience. If Maker can deliver undeniable real world benefits, regulatory risks in countries with climate on the political agenda will be much less likely.

The supporting collateral

I already mentioned the three categories of flagship collateral, but there’s also two additional categories of supporting collateral to consider.

Backbone collateral

The first is the Backbone collateral. This category is extremely important as it provides the backbone of Dai stability, in particular in situations where there is a massive influx of Dai demand. The Backbone collateral works by having RWA infrastructure that can absorb very large amounts of capital into safe, productive and climate aligned assets. The perfect vehicles for this are corporate bonds of top rated ESG corporations held in trusts protected by world class trustees located in the Super Countries. They pay good yields, they strengthen the Clean Money vision, they are safe, they can be held in politically safe jurisdictions, and they can be relatively liquid.

Maker will need to review the different ESG frameworks to determine which frameworks are genuine, and which are just greenwashing, and then throw its weight behind supporting and improving the genuine ESG standards - if Dai grows large enough then this could have a real, positive impact on the ESG ratings ecosystem.

Liquidity collateral

In addition to the Backbone collateral we also need Liquidity collateral, which mainly takes the form of popular centralized stablecoins. To make it impossible to single out Maker for blacklisting, we can hold most of them with a “DeFi shield”, such as deposits to Aave and Compound - this way we will also earn yield on them.

Another potential source of Liquidity collateral is liquid, safe and flexible exposure to global financial institutions and banks. The recent tokenized bond experiment by Societe Generale shows how banks may be willing to provide Maker with this kind of exposure. Diversified exposure directly to institutions can be a useful counterbalance to centralized stablecoin exposure, and could reduce US exposure.

Dai will need a huge amount of readily available stablecoins to ensure confidence in the peg cannot be broken, at least 100s of millions, and more as the total outstanding Dai grows. To increase the growth of Dai, and to make it possible to properly compete with centralized stablecoins, the spread on the PSMs should be reduced to 0 so that Dai becomes a proper stablecoin with no problematic UX friction. The lost income from not charging a spread is made up for by returns generated by the Backbone collateral.

A decisive solution to the USDC exposure

My estimate is that if we align on the course of action now, within a year we can allocate 3 billion or more of our USDC exposure into ESG corporate bonds protected by a world class trustee in the UK or another Super Country. We would also be able to implement DeFi shielding on the remaining stablecoins in the PSM - together these measures remove almost all of our US exposure. This will be a tremendous achievement, but is actually relatively easy to execute given everything Maker Governance has accomplished and grown into today.

We will then have achieved a massive sustainability transformation where billions were channeled into ESG assets, while the protocol will start to earn a good yield enabling the restart of the DSR to begin the hypergrowth phase, and we will have diversified exposure out of the United States which currently has an unpredictable environment for DeFi, and removed the ability to specifically target Maker with stablecoin blacklists.

In my opinion, the main type of exposure we should have to the US while the political climate is still uncertain is sustainable collateral flagship projects which help showcase the benefits DeFi can provide.

Unleashing the DeFi Superpowers

With this comprehensive plan, we give Maker a purpose that matters. By making Maker a tool for global climate action, with much increased decentralization and resilience, we create momentum, focus and an opportunity for hypergrowth of both Dai and MKR adoption.

Let’s be real. For this to have the impact the world desperately needs it to have, it needs to be made very profitable to participate.

We need to align the public benefit of allocating capital towards sustainability and developing resilience, with the individual motives that drive capital markets.

Conventionally this has been considered impossible. You either save the whales kumbaya style as a nonprofit and eventually fizzle out, or you reap your profits through ruthless capitalism by burning the earth.

But in the world we live in today, it IS possible to align the long term value of society with the short term value of individuals, by turning to the DeFi “superpowers” that have been recently innovated, including tokenomics, yield farming, token issuance, and NFTs.

These are all economic mechanisms that make it possible to take abstract value that exists far out in the future, given the positive outcome of a coordination problem, and turn it into hard cash flows today. How to practically implement this forms a core part of the Clean Money initiative.

The Sagittarius Engine

The latest wave in DeFi has been driven by creative use of advanced tokenomics and economic flows that fuel it. The central element I propose for Maker to make the Clean Money initiative possible and highly valuable is a tokenomics system called the Sagittarius Engine. This system would mostly replace buy and burn as the destination of protocol surplus, and significantly innovate on the value model of MKR, drawing from the experiences learned in the DeFi ecosystem over the course of DeFi summer and the ensuing boom in advanced tokenomics.

The main value proposition of the Sagittarius Engine is that it gives a tangible benefit to MKR holders who lock up their MKR into governance for long term periods. The primary incentive to do this is the ability to borrow from the pool of Dai accumulated from protocol surplus in the Sagittarius Engine, using the locked up MKR as collateral. This borrowing opportunity would be is at an extremely attractive rate (equal to the DSR) and with very lenient liquidation terms (grace period of at least 1 week).

The Dai borrowed with MKR collateral will not cause a buildup of tail risk in the system, because it is “normal” Dai that has been generated through standard collateral, and is only lent out by the Sagittarius Engine after the protocol has earned it as surplus.

The name Sagittarius comes from the location of the supermassive black hole at the center of the milky way galaxy, Sagittarius A*, which holds the entire galaxy together, keeping it in a stable equilibrium.

The engine is designed to create a similar effect of a “capital black hole” that sits at the center of MakerDAO and holds it together in powerfully aligned equilibrium. The main mechanism for this is to provide an extremely strong voting and participation incentive through directly funnelling benefits to active community members that put skin in the game. At the same time the model doesn’t leak capital, meaning that once capital crosses the “event horizon” and is funneled into the Sagittarius Engine, it can only grow over time, even though Sagittarius users get to directly benefit from it at the same time.

This has some extremely powerful long term effects that means that once it hits a large enough size, it will forever continue to attract large amounts of MKR that will be locked up for very long periods of time.

To complete the circle, and truly supercharge the potential of the Sagittarius Engine, we need to execute large scale MKR token issuance. MKR issuance is already happening today with Core Unit MKR vesting modules that directly issue new MKR to pay bonuses. I think we have an opportunity to both tap into the power of large scale MKR issuance to drive growth of the protocol and benefit MKR holders, in the same way newer DeFi protocols have been doing since DeFi summer, while also then close the door on potential infinite issuance by setting a new upper bound at 3 million MKR that prevents Core Units from issuing new MKR, but instead directing them to tap into the protocol treasury for any MKR expenses.

The issuance schedule should happen over the next 50 years, strengthening and working together with the Clean Money vision by providing the fuel necessary for Maker to become a global force for climate action. By providing a long timeline that corresponds to the purpose of the project we can engineer an Ice Age, a concept which means a period of time where governance can be less random and focus more on patient execution of a long term, reliable plan, rather than new creative proposals and pivots. The Ice Age concept will be described further below.

To further improve the positive benefits the Sagittarius Engine can have on Maker Governance, locked up MKR has a voting power multiplier of around 2x (although this needs to be carefully debated in the community). This means that voters who are willing to commit to the long term success of the protocol, and put more skin in the game, will have a greater say - this way a smaller holder that is more committed than a larger whale could still potentially still have more effective votes and more influence.

Combined with the issuance of large amounts of new MKR, the Sagittarius Engine has the potential to usher in a new era where Maker Governance will see a significant influx of new blood by allowing a huge amount of new small and medium sized holders to enter the ecosystem and have a big say in future decisions as the project executes on the Clean Money vision.

Incentivizing the reduction of MKR in circulation through MKR issuance

The new MKR that we issue with the Sagittarius Engine should be distributed in various ways, including directly putting it on dutch auctions, as well as distributing to users of decentralized collateral types via yield farming-like programs that result in MKR being distributed across the market and an influx of cash to the Maker Protocol.

This cash then gets funneled into the Sagittarius Engine’s capital pool, to enable more MKR-collateralized low-cost borrowing. This will then drive demand to lock up most of the newly issued MKR, plus significant amounts of the MKR that is in the market today.

Because the net effect will likely be less MKR on the market overall in the short term, Maker Governance will have the ability to tap into this cash flow and divert a part of it towards Core Units and other expenses, such as building up long term reserves that allows for more ambitious capital deployment strategies that can make the difference when it comes to having an impact on climate change.

Impact NFTs: a new sustainable primitive for artists

In order to try to directly tie the tokenomics together with the vision, and to enable MKR holders to capture value from the positive externalities they fund, the Sagittarius Engine will have an NFT component based on the concept of Impact NFTs. The basic idea is that each vision-aligned success story the DAO achieves is saved in an NFT and then distributed to Sagittarius users in a token-weighted lottery. Specifically this would mean tokenizing the “status signal” component of each wind turbine, each block of Solar capacity, each battery unit and other sustainable flagship collateral projects, and these NFTs would then have social value to the extent society values those who contribute towards the public good.

These NFTs could use the Maker Oracle network to have live statistics about the scale of the impact, such as how much clean energy has been generated, how much carbon has been offset - in some cases with creative interpretations such as displaying the equivalent number and size of trees grown, and other innovative ways to try to make the social impact and positive externality created more tangible and relatable.

The DAO can use a modest budget to fund up and coming NFT artists and developers to develop artwork and gamification features in these NFT’s that enhance their value, and add to the uniqueness and historical significance of the underlying flagship collateral projects and their climate impacts. Over time many different approaches can be tried out, all with the common element that the NFTs are tied to an actual real world climate impact.

The more value the Impact NFTs have, the more they help the cause of climate action by drawing more MKR into the Sagittarius Engine to participate in the lottery. Additionally having a “royalty fee” on trades of the impact NFTs would mean if they are traded, a part of the price can be funneled towards charity projects like mangrove reforestation - that themselves can then be used to create rare and exclusive impact NFTs.

In addition to just creating impact NFTs with relevant artwork and statistics, there are also some more advanced trends that exist today that Maker could adopt. Currently there are at least two staple “primitives” that have emerged in NFTs, that both may be relevant to adopt and provide a climate impact spin:

  • Generative profile pictures like cryptopunks which aim to incubate social media communities.
  • Gaming primitives like the Loot project that build a basic building block and then count on others building on top of it to continuously increase the dimensions of gamification as long as there is an engaged user base.

Over time more trends like this may emerge and Maker could continuously aim to adopt those that are a good fit for the impact NFTs.

Most art is inspired by and closely tied to nature and our physical world. Enticing others to collaborate with and build on top of the impact NFTs could help catalyze a lot of new artwork and give artists a way to make their creations have a direct positive impact on the fight for climate change.

By MKR holders, for MKR holders

With a powerful vision that resonates with what the people of the world need, and increasingly want, combined with equally powerful tokenomics and crypto superpowers to support it, everything is in place for Maker to grow at light speed over the next decades.

Almost.

There’s a final crucial piece of the puzzle that needs to be just as strong as the vision and the tokenomics: the internal bureaucratic structure that executes and regulates all of the mechanisms, and continuously adapts to the new world during and after the hypergrowth phase.

Only by credibly being able to handle such large scale growth and importance in the global economy, will it ever be possible for Maker to get the public to buy in to the vision of Clean Money, and thus tap into the future value of the vision in order to drive growth in the short run and kickstart the process over the next years.

We need to evolve the Maker governance process, culture and political dynamic to be extremely decentralized and efficient even at massive levels of growth and over very long time periods, with high levels of churn and changing environments.

We also need the Maker Governance process to be fundamentally MKR holders first, and this way encourage much greater levels of grassroots activity from MKR holders than what is seen today. MKR holders hold the power to vote and are the final guardians of the integrity of the protocol, but that only works if they are also empowered and informed adequately to act as the backbone of the decentralized community. The Sagittarius Engine will already go a long way to achieve this, but the rules, frameworks, and bureaucracy of Maker Governance have to also be fundamentally designed from this perspective.

Maker Governance must evolve to become by MKR holders, for MKR holders.

If we’re able to align the success of the vision of Clean Money, and the public good that it can create, with the self-interest of MKR voters, then it will be possible to maintain a stable and self-regulating governance equilibrium that is ultimately enforced and driven by individual self interest of MKR holders - in particular those locked up in the Sagittarius Engine.

The Age of Sagittarius: The next Generation of Maker Governance

A “Governance Earthquake” is a situation where a community does not have norms, rules or processes of either a high enough quantity or quality to deal with its external environment, and as a result it leaves a void that enables a high rate of new proposals that are likely to pass and change the status quo. The high rate of new proposals then itself normalizes rapid change as well as a critical view of anything established - meaning rapid change in one area of governance can result in rapid change across all areas of governance.

A “governance ice age” is the opposite, it is a situation where the quality and quantity of governance frameworks is enough that “all bases are well covered”, meaning for any given situation there are already norms and rules that handle them well. In such a situation, there’s rarely a need for new ground breaking proposals, and when they’re made they are heavily scrutinized and changes to the status quo are done slowly and carefully to ensure it causes minimal disruptions. This then normalizes and reinforces minimal change, creating an environment where proposals are rarely made and almost always rejected.

The concept of a Governance Ice Age can be roughly compared to the concept of “Governance Lockdown” that exists in other, simpler DeFi protocols. But instead of focusing on a technical lockdown, which is impossible in Maker due to its complexity, the focus is on a political and bureaucratic lockdown.

Having governance ice age based on norms and rules that are well made, and that are still relevant to the external reality is incredibly beneficial, because it brings the stability that an economy and business environment needs in order to attract large scale development and investment. Since a governance ice age should always eventually lose relevance on a long enough timescale, it is natural that there will be long periods of ice ages until the external reality has changed enough, broken by short governance earthquakes that adjust to the new reality and trigger the conditions for a new ice age.

In Maker this dynamic is not yet well developed, and we have been in a drawn out earthquake since the Foundation started dissolving. However I don’t think there is a clear path towards an Ice Age yet. The original MIP framework tried to somewhat plan for how to achieve an Ice Age with MIP1, which spells out various areas that should be covered by MIPs, and then once that has been done, the MIP process would become more strict and slow, but it was too early in trying to predict what Maker Governance would need to function, and was forgotten.

The biggest issue in Maker governance today is the domination of the Core Units and lack of transparency standards, which has fueled a general perception by the broader and less informed MKR holder community (e.g. what you’d find on reddit, twitter, or regional social media) that the Core Units are inefficient and even corrupt. This is of course wrong, the vast majority of people working in the Core Units are among the top professionals in the space, and they have already delivered huge amounts of value.

However, none of that matters if MKR holders don’t see the value, and feel frustrated and left out of the process.

Despite the shortfalls and negative perceptions, it is a miracle that the Core Units were able to grow to the size they are today and take over and run the protocol well, providing an incredibly strong foundation for the next step in the evolution of the Maker Governance bureaucracy.

It is time to take the next logical step, and move the center of gravity back into the hands of MKR holders by deliberately designing a governance Ice Age: the Age of Sagittarius, that can act as a north star for the next 50 years as MakerDAO grapples with the climate emergency and undergoes hypergrowth.

I’m suggesting the Governance Ice Age is named after the tokenomics engine that will be boosted by MKR issuance for its duration, as I believe tokenomics are the strongest possible force in a DAO. By clearly aligning tokenomics and governance mechanisms we have the best possible conditions for a stable equilibrium.

Crafting a political and bureaucratic equilibrium

The Age of Sagittarius fundamentally means putting the internal structures in place that will support the external vision of Clean Money, with a bureaucracy and political dynamic that is resilient enough to overcome all challenges and credibly produce an environment of long term stability, while still having the necessary flexibility to adapt to changes or unforeseen events as they happen over the next decades.

I propose to craft this new reality by starting from the governance politics perspective, by having MKR holders and delegates self-organize to create groups in a decentralized, transparent and politically powerful structure that I call Decentralized Voter Committees (DVC). The DVCs would be permissionless in that anyone can create them, and there’s no strict definition of where the line is drawn on what counts and doesn’t count as an “official DVC”, but generally follow guidelines that ensure they maximize their potential for having an impact and working on behalf of MKR holders interest

  • Keeping all critical communication and decision making fully transparent in open calls that can be joined and observed by anyone
  • Proving the amount of voting power they have available to make it possible to assess how serious a committee should be taken and to what extent they can actually sway votes
  • Be self administered through an internal, independent decision making process
  • Focus on particular areas of expertise or interest that they can reasonably analyze and comprehend at levels approaching the Core Units
  • Receive no compensation and have no direct special privileges in the governance process beyond their interests as MKR holders. The Sagittarius Engine should help with bridging the gap by providing a strong incentive for MKR holders that have a long term lockup to actively participate in governance to protect their locked MKR.
  • Take a separation of powers approach as counterparties of Core Units and Private Actors in the ecosystem, recognizing that these groups, while working for or with the DAO, ultimately have different interests and incentives than MKR holders and that needs to be kept in check
  • Excluding Mandated Actors, or Private Actors that receive funding through Core Unit Budgets or make money from governance access like collateral onboarding in order to keep the decentralized Voting Committees focused on considering MKR holders interests
  • Interact with Mandated Actors and Private Actors in formal settings by inviting them to join calls in order to get them to share information, provide input or recommendations, with full transparency while being mindful of separation of powers.
  • Monitoring and publishing information about the political and power dynamic of Maker Governance
  • Monitor the performance, track record and potential for retention or churn of facilitators and consider potential replacements
  • Generate governance recommendations and MIPs
  • Generate opinions about existing MIPs
  • Generate opinions about facilitator proposals and Core Unit budget proposals
  • Analyze and publish information about positive and negative accomplishments in different layers of the Core Units and governance process

With Decentralized Voter Committees in place, it will then be possible to begin work on fundamental frameworks that can create the Age of Sagittarius. I plan to personally be directly involved in DVCs for at least a year, which the amount of time I believe it will take to finish the Governance Earthquake Phase, and then as we begin to enter a Governance Ice Age I will pull out of deep involvement in Maker Governance after helping to incubate DVCs that can then become a force for keeping the eyes on the goal and ensuring the different layers of the bureaucracy function as they’re supposed to in the Ice Age, and ultimately take action if they don’t.

At the highest level is the World Map. The World Map is a concept of having all processes, rules, norms, requirements, frameworks etc listed in a single place that covers everything Maker Governance needs, end to end, to function and operate within the scope of Age of Sagittarius Ice Age to deliver on the vision of Clean Money and provide a stable framework for the next 50 years.

Another critical decision that has to be made is to establish a bounded scope of future major technical innovation that will be added to the Maker Protocol, so that technical work can begin to focus primarily on upgrading and deploying existing innovations rather than inventing new ones.

One of the most important aspects of designing a Maker Governance that is “by MKR holders, for MKR holders” will be to get the Core Unit bureaucracy under control, by enforcing very high levels of transparency of those who hold significant trust and power vested in them by Maker Governance.

This can be achieved by comprehensive frameworks like a Separation of Powers framework that ensure decentralization of the layers of the governance process and a Decision Impact Assessment framework that can standardize the level of detail required of KPI and prioritization processes and related disclosures for Mandated Actors.

Both of these mentioned frameworks are concepts that I believe the community needs to publicly discuss and adopt versions of.

To do this in a way that wouldn’t disrupt all the good work that’s being currently done, it would require both an increase in the overall budgets available to Core Units, and the creation of new types of governance infrastructure, including empowering delegates to professionalize with competitive salaries and budgets, and creating “meta-Core Units” whose role are to professionally support and analyze other Core Units to help bridge the gap between governance and the work being done on the ground by for instance, reporting and providing data to DVCs and directly to the community on the forum or social media. All of this will require a lot more resources than is being used today, but it would also result in higher overall efficiency, for a net effect of significantly more value generated.

A strong vision that can inspire community members and market participants to engage with the project, and powerful tokenomics that can help turn this into reliable cash flows will make it possible to increase budgets in the short run to complete the circle by then providing resources necessary to evolve the governance infrastructure and create exponential growth and returns, delivering on the vision with concrete results in the real world. This will be a self fulfilling prophecy if the community believes something this ambitious is actually a realistic next stop from what we have today, and can align around taking decisive action.

Ultimately it is only possible to create a reliable and stable Ice Age that provides the conditions for awareness-driven hypergrowth if the entire community of MKR holders comes together to discuss and decide on the optimal solutions given the knowledge we have available today, and then commit to it.

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Holy shit @rune I am going to have to sit and really take some time to digest this.

I completely agree a sustainble, resilient, decentralized, fully transparent model is required to drive a new and better future for everyone. This includes not just building the financial models, and making hard choice commitments, but also building on strengths of new transformative ideas and ideals. These have to have a strong focus on community and relationship building with partners who share the same goals and views with a strong commitment towards achieving them together.

Everyone is a stakeholder in the future of planet earth and all that lives here.

It will probably take me a few weeks to months to formulate a reply and honestly I am going to have to take a few hours to sit and read and make notes before I even formulate one.

One thing I am going to post here because I felt it was relevant was my reaction to building solar farms on greenfields. There are so many brownfields and building top areas that could be converted it isn’t funny and a complete disregard for a well thought out and well presented Solar Grand Plan now what 12+ years ago in Scientific American still mostly ignored by politicians in the US. We spent Trillions to just pay people to survive Covid - we can’t find $1T to execute this solar grand plan.

Which led me to ask the DAO whether we should apply suitability metrics to projects poll which got virtually no traction (even though 10 people were a unanimous yes).

I wanted to thank you for taking the significant effort to put the above post together and I hope everyone will take the time to read and comment to the thoughtful input presented.

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Thanks for putting this together.

I`m quite keen on getting opinions from more experienced users here regarding the newly planned issuance. While I do understand that we need to take a bold step towards new innovations to ensure the future success, this proposal and the suggested changes are quite dramatic, especially for Maker.

Is this something Maker holders are going to decide or is it already set in stone?

Cheers,
Dan

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Maker Holders would need to be on-board. There are multiple actions here than only token-votes can execute.

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Words not only for Maker, words for the human race.

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This is wonderful. In the centralized organizational world there is no auditing of environmental & sustainability data. Here, Maker provides integrity, responsibility, and empathy. Characteristics that many centralized entities lack.

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Is the idea to get these corporate bonds tokenized on-chain and then have them collateralize them DAI via vaults and PSMs , or take some unused USDC from the PSM, and place it in these bonds held by trustees on behalf of MakerDao?

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My original message:

If anyone can explain this Sagittarius Engine, that would be awesome.

But I went back and re-read it. Here is my understanding.
The Sagittarius would be a place where DAI earned in stability fees would go once Maker has paid all its operational expenses.
Once there, MKR holders could stake MKR and borrow DAI against their MKR at a low interest rate. Plus they would get double votes in governance.
Meanwhile, MakerDAO would deploy Curve-like MKR yield farming, where people are rewarded for making vaults in the vaults where the DAO most wants capital. MKR would be used to drive growth in key vault areas.
Those new vaults would drive more stability fees, which would mean more DAI going into the Sagittarius Engine.
As more DAI is in the engine, more people will want to stake MKR to borrow there, growing the long termism within MakerDAO.
Is that basically right, @rune? Do I get it?

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The new MKR that we issue with the Sagittarius Engine should be distributed in various ways,… as well as distributing to users of decentralized collateral types via yield farming-like programs that result in MKR being distributed across the market.

Does this mean paying people with MKR for generating DAI using ETH basically?

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I really like the idea of NFTs representing your carbon offset or in general how much you helped fight climate change.

Gamification + bragging rights on this combined with cool looking badges could be a very big incentive for a significant amount of people.

What’s more once they start bragging/showing off it’s kind of a domino effect that could push others towards doing the same and ultimately helping towards fighting climate change.

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This is the kind of visionary thinking that drew me to Maker.
I support Maker becoming a major force for urgently course-correcting to a sustainable economy.
Thank you, Rune.

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Yes, this is also my understanding.

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So right now we would have $2.5B MKR competing to borrow $50M

My napkin math leads me to believe we’re gonna need a lot more surplus $DAI…

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@rune, congratulations on presenting the first serious and concrete strategic vision / proposal I’ve seen from anyone in the Ethereum ecosystem on the possibility of actually leveraging the world-changing potential of our ultra-sound money vehicles [MKR] to powerfully address and hopefully mitigate climate chaos! as a life-long climate activist, economist, and MKR holder, I am inspired to contribute and participate in this and any similar efforts emerging in other spheres, really–in my view–our last best hope for humanity. I will definitely be engaging with the MKR community to develop this conversation into something powerfully real.

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Literally sounds like you want to kill it with green idealism, horrible idea

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Wow, I will read this multipel times! I am excited for The Sagittarius Engine, as a MKR holder and a Makerdao enthusiast I am strongly for The Sagittarius Engine, can we make this work?

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This post was flagged by the community and is temporarily hidden.

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“Where there is no vision, the people perish.” - Prov. 29:18
“Go big or go home” - Eliza Dushku
“It’s good to see you again” - Whitesnake

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Thanks everyone for the great replies. I plan to follow up with a lot more content soon, including:

  • A more detailed description of how the Sagittarius Engine and MKR issuance could function - this can then be the starting point of public discussions that I will help bootstrap
  • A description of what I call Separation of Powers, which is a framework and perspective on how you should subdivide the different pieces of governance into manageable bites, where you then enforce these pieces to interoperate through transparent and decentralized processes, overcoming tyranny of structurelessness and decentralization theater
  • an estimated timeline for how I view the different phases of locking down governance and how the future could unfold if we decide to follow this path
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