The case for Clean Money

Thank you @rune. Count me and my MKR holdings in! Wonderfully articulated. I look forward to your coming proposals and plans, and will look for a way to get involved.

@mrabino1: I enjoyed your response. Your prompt “what will your contribution be”, alongside this manifesto for climate investment, questioned my past free-riding participation with MKR. Also, I’m not ready for money to be on the back burner (maybe someday), however, I am a new father (8 month year old), and my hopelessness for their generations future sure has a lit a fire in me.

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No, the DAI that will be given with MKR collateral will be part of the surplus previously earned from other loans. Meaning that DAI is already backed by another collateral. If MKR loses value worst thing that can happen is part of that surplus is lost.
That’s why there isn’t any death spiral situation like there would be if MKR was directly used as a regular collateral.

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Except capital is there for all kinds of risks and capital has a cost.

So you can be fine by wasting 55M (the current surplus buffer) on MKR-backed loan losses, but then you have no longer the capital to take the losses on the rest of the portfolio. If the portfolio is risk-free, why on earth do you keep such capital in the first place?

The proposal is also to provide cheap loans on MKR (DSR so currently 0.01%). So having capital (which has a cost of at least 15%, probably more as we are in crypto) allocated fully as a buffer of MKR loans that generates 0.01%. It’s basically asking MKR holders to subsidize those who will take an MKR-backed loan.

If you have 100M in capital, would you rather finance 1,000M of solar farm loans generating 30M in annual revenues or 100M of MKR-backed loans generating 0.1M of annual revenues?

Not saying I understand fully the proposal, but giving a framework to understand implications regarding the allocation of capital.

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@rune thank you for reminding us, the developers, creators and thinkers why we got into this space in the first place - to improve the current system, introduce new solutions, break ground and learn along the way - what a treat! I’m stoked to be involved with a project whose end goal is not to increase its balance sheet but to try and help those who are working towards healing the Earth.

“The story of climate change, energy and development of developing countries has to be one of the same.” - paraphrasing from a mini doco on oil (and its unfortunate projected usage increase) that I’ve seen recently.

One thing to ask, do you think a version of this Vision can be created without the Maker jargon to be shared with those not familiar with the project at all? In my opinion, the narrative for the purpose of “crypto” has largely been missing and this paints a clear picture of the technology’s great possibilities and drives it home nicely.

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My read was that we would only send DAI currently destined for burning MKR into the Sagittarius Engine; i.e., the Surplus Buffer would remain as it is, to be used for its current purpose.

We aren’t currently financing anything with profits generated by the protocol; we’re buying and burning MKR. I think the question is, instead, whether we’d rather burn 100M of MKR or provide 100M of MKR-backed loans exclusively to MKR holders. Both mechanisms serve to make MKR more valuable.

I’m not sure which one I’d prefer, but just trying to clarify the mechanics.

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I’m all about the social impact, but the thing that will make this effective is by aligning social good with self-interest. So, question:

Burning MKR reduces the total number of tokens in existence, and therefore increases the proportion of profits, assets, and governance power that each remaining MKR controls. This increases the value of each MKR token in a straightforward way, and is a big part of why MKR holders have historically liked MKR.

Incentivizing people to lock their MKR within the Sagittarius Engine with low-cost collateralized loans doesn’t do the above, even though you can argue that it “takes it out of circulation”. The total number of tokens is the same, and owners are still entitled to their share of profits. A low-cost collateralized loan is nice, but I can get comparable loans elsewhere (especially if the DSR increases). So what is the mechanism by which the Sagittarius Engine increases the value of each MKR token?

Things I can think of:

  • Rather than a traditional collateralized loan, where I can borrow up to (for example) 6,000 DAI against 10,000 DAI worth of MKR with an LR of 60% — instead, each MKR token should be entitled to avail itself of its share of the total funds we’ve sent into the Sagittarius Engine, irrespective of the price of MKR.

    For example, in the early days if there are 10M DAI in the Sagittarius Engine and 1M MKR tokens extant, then each MKR token can borrow up to 10 DAI. Not great, but it solves the problem of ◈2.5B of collateral chasing ◈100M in available loans. It also doesn’t matter whether MKR price fluctuates — there’s no risk of liquidation (excluding dilution and interest, which we can consider later).

    Much later, after 10B DAI have accrued in the Sagittarius Engine and if 1M MKR tokens are extant, each MKR token can borrow up to 10,000 DAI (even if MKR is valued at 2,500 DAI). This would have the direct effect of increasing the value of each MKR token.

    It’s sort of like MIP 49: Staking Rewards, but has the best of both worlds: cash is, effectively, returned to holders (like rewards/dividends); yet without a tax hit (like burning/buybacks).

  • By reducing the chance of a governance attack with borrowed MKR.

  • Locking MKR in the SE gives 2x governance power, but eventually that should mostly even out, so I don’t see a big benefit here.

Not sure if any of those are what you were getting at with “a much stronger and much more immediate effect” @rune but would love to hear specifics on what you have in mind re: what is the mechanism by which the Sagittarius Engine increases the value of each MKR token?

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Exactly what @someone said. I don’t think the surplus buffer is going anywhere. It just changes what the protocol does with the excess of DAI over it.

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Wouldn’t the DSR already be funded by the stability fee from the vault that originated the DAI? If so, why do we need a rate equal to the DSR on the new, MKR-backed loan within the Sagittarius Engine? Couldn’t we have an interest rate of 0? Or do we need a positive interest rate to ensure it’s considered a loan and not a dividend?

I like this a lot, but why ‘borrow’? It should be a dividend which I have all rights to have and spend (and never return):

The above image, from makerburn even shows the P/E as if this was indeed a dividend, corresponding to 1.49% of the value of each MKR.

1.49% returns/year

is not huge for crypto, but it is a real profit working today (without farming, or other tricks) and would ground the current price of 1MKR = 2500 USD on a solid reality.

My intuition: We should allow a MKR holder to either,

  1. get out their share of DAI (1.49%/year, as of today) when they want, or
  2. not get it out, but somehow borrow with leverage (i.e., more than their share of 1.49%) by locking their MKR, as in the SE idea of rune.

Both options should be allowed.

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Actually, that’s not true. We are expanding the surplus buffer (mainly) so we can lend more while keeping the same risk profile. And most of the Surplus Buffer is accrued interests on loans not yet repaid.

Sagittarius Engine or Surplus Buffer, it’s all MKR equity. I used the 55M of the SB as it’s the only capital we have yet.

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@rune A purpose and path forward, here is what was missing for Maker. We were becoming too bank-like but without a goal. Thanks for making the effort putting this forward. Count on me for joining the part with strategic execution. Living in one of the “resilient places” on earth, I take that as a personal duty to assist in the transition for the rest of the earth.

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When I said “profits”, I wasn’t including the Surplus Buffer; I view the Surplus Buffer as essential operational funds, not profits. I meant only DAI being diverted to the flapper as “profits”.

Do you consider funds that are currently being burned as “equity” for MakerDAO? Or if MIP 49 had passed, would you consider the rewards that were distributed to MKR holders as equity for MakerDAO?

My read is that the Sagittarius Engine is an alternative to those two as profit distribution mechanisms; and so is categorically different than the Surplus Buffer, which are funds that the DAO (not individual holders) still controls.

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It feels to me like this would introduce an issue of fungibility between MKR that have withdrawn funds and those which haven’t; or, at least, it would introduce a challenging accounting problem.

Instead, I would prefer to reduce the interest rate on the MKR-backed SE “loan” to 0, unless there’s a legal reason not to.

Ok I understand. I’m in favor to use the profit to increase the capital stack of MakerDAO so we can grow our lending, any alternative is bad for growth. But assuming we have to “distribute” those profits, I fail to value Sagittarius Engine significantly. You get an MKR-based free loan of what would otherwise be a dividend. After 3% years, I can either borrow 5% of my MKR value (assuming current profitability and price) or get 5% in DAI.

Maybe it’s a way to get non-taxable dividends?

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at first i thought this too xD, but even if you dont believe in climate change and all that stuff(i dont), you cant deny that most of people around us do believe and care about that kind of stuff, thats what put tesla where it is right now for example, so i dont believe in global warming but i do like this idea of positioning mkr as an organization that is trying to save the world lol, but then marketing is gonna be really really important here, and he is not talking a lot about marketing here, in my opinion it doesnt make much sense to support all this green causes if you are not gonna advertise it as good as tesla does for example

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Fully agree. I didn’t touch on it much in the post but it is a critical piece of the plan that we should begin to ramp up real world marketing to onboard new people into crypto through Dai and MKR.

If we have a low, but decent DSR, and we have the infrastructure and real world examples in place that proves money placed in Dai helps finance the sustainable revolution, we have met the conditions for a high powered real world and online marketing campaign positioning Dai as better money that provides the user with a lot of benefits, while also doing their part for the future.

Additionally we can market MKR as a more exotic crypto asset that has significant utility because it provides access to extremely cheap, decentralized credit and is exposed to the success of Dai - and buying MKR is an even better way for someone to play a big part in trying to turn around the system towards sustainability, and even means you can get rare NFTs for doing so.

This marketing should IMO initially focus particularly on the climate resilient, english speaking countries like Canada, Ireland, UK, Australia and NZ, as well as the rest of europe. We should avoid the US both to avoid their regulatory aggression, but also because the US is pretty much the only place in the world with climate change deniers in 2021 lol.

I believe that if we are ready to significantly increase the budgets of the core unit bureaucracy to also include structures for self-optimizing checks and balances, we will be able to launch massive marketing campaigns that are both aligned when it comes to brand and messaging, but are parallelizable and highly scalable all thanks to the potential of the Core Unit bureaucracy that the community has bootstrapped.

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The case for the Ocean Economy! Expected to grow to $3Trillion by 2030: Ocean Economy

From Alt-seafood to Marine-Renewable Energy. After all, the Ocean makes up more than 70% of the planet’s surface :ocean:

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There is definitely a lot to unpack. Coming from the social impact community, I think it is really difficult for one community to move the needle on the Climate Change cause. However, taking the essence of what’s proposed, the real impact and needle for change this community can push is to lay the financial infrastructure for a system that’s more aligned with sustainability of the planet. The real impact here is the systemic change of this community and an influence on how people within this community make decision to support things beyond their own finance. Maybe also lowering the barrier for people to support other projects outside the crypto ecosystem and relevant to social goods.

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@rune We at SolarX Group are very happy to be one of the first climate impact strategies collaborating with Maker and its RWF team lead by @sebventures.

Much more on the way from us as well: solar development pipeline of more than 1 Gigawatt, industrial real estate (i.e. warehouses) solar retrofitting, single family homes renewable retrofitting (reduces electricity bills up to 100% + increases home values), and climate impact/carbon offset tokens.

The US Department of Energy estimates that approximately 39 percent of the total energy consumed in the United States comes from the residential and commercial real estate sectors. The aforementioned is just a part of our plan to combat climate change via multiple investment strategies and initiatives. We appreciate Maker’s support in all that we are doing.

“The amount of sunlight that strikes the earth’s surface in 1.5 hours is enough to handle the entire world’s energy consumption for a full year.” - U.S. Department of Energy

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I’m really excited about what I read, I learned, Rune, you are a great man!