While the focus is currently to onboard up to 4 Centrifuge-based collateral for the June, 11th executive, we are also working on a standardized version of the Trust model. This post is giving you news on where we are heading and let you provide feedback if needed.
The high-level idea we have can be represented by the following schema:
The underlying assets will be managed by a Delaware Trust or a Collateral Agent. The main difference is that the first one is a legal entity but not the second (but is more expensive).
In both cases, the flow of money passes through the Cayman Islands. This is due to tax issues as it is unclear how you can deduct interest expenses on a DeFi loan. As Cayman Island doesn’t have income taxes on foreign revenues, that solves the issue.
The problem with Trust and Collateral agents is that they don’t want to take any decision. Someone needs to tell them what to do and take the possible liability. This is quite sensitive when the decision is whether or not you should accept to make a loan or liquidate the collateral. In the 6S scheme, a Trust Sponsor has the capacity to do almost everything so the Trustee is quite useless.
The Trust Sponsor, the Cayman Orphan SPV, is a Trust. The same issue as the Delaware Trust is present, they don’t like making decisions and risking a liability. This is why you have Maarten in the 6S case. We are working on how to make this decision process secure and defending MakerDAO interests. We consider two cases:
In most cases, we need someone to trigger a simple predefined action, i.e. transferring the money from the Cayman Entity to the Delaware Trust.
In some cases, this might ask for a judgment call. Should we trigger a liquidation of a defaulting note? Should we accept a specific note as collateral presented by an asset originator following some framework?
Those are not the kind of decisions where we want to engage Maker Governance.
Having 3 Maker Representatives and the need of 1 signer (triggering predefined action) or 2 signers (more complex situations and adding a new signer in case of a default of one) would bring enough safety and redundancy. Having many signers disperse the liability as well (if any).
Those Maker Representatives could serve on the Cayman Orphan SPV and/or the Wyoming DAO. As the Delaware Trust has access directly to the funds, we don’t want the Maker Representatives to any power there (they might still instruct the Trustee or the Collateral Agent).
I would expect Maker Representatives to be Mandated Actors (RWF, Legal, …).
While having a Verification Agent can be one way to enable modification from the MakerDAO Governance, another path could be to use a Wyoming DAO. This legal entity recognizes the smart contract decisions as legit.
This might be useful when we want to change significantly the design or windup an investment.
For tax reasons, no financial operations are done in this legal entity. This entity is not an incorporated version of MakerDAO. It is merely a subsidiary to enable Governance decision-making for Real-World partners.
We are in the process of hiring a Cayman law firm (which will analyze the 6S “Cayman-part” as well). We are getting late on the US law firm as well (internal processes on their end to work with a “DAO”). This will lead to significant expenses on the RWF end (the 20k per month from the budget will be eaten for sure).
The Wyoming DAO part will probably come in a second stage.