What is stopping us from investing the PSM USDC?

I’ve seen quite a few discussions of people wanting to invest the USDC we have in the PSM. I was hoping to get a clear discussion going about how to use these funds. The idea being we can get polls going to create action.

Question:
What’s preventing us from utilizing (at least some of) these assets in something decentralized like pooltogether for a non-zero return? It’s over 2B invested in MKR doing nothing…

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One of the cheekier ideas I’ve had is that we use the PSM USDC to buy MKR on Uniswap since it’s MKR that backs DAI anyways… This would essentially make withdrawing USDC from DAI impossible though.

I like the simplicity of it as well since all paths to generate DAI burn MKR.

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I thought the same: why can’t a bunch be used to buy U.S. Treasury Bills (can be bought and held directly and electronically, shouldn’t be a violation of '40 Act), for example. The answer when I asked - no way to own it and no way to control embezzlement. The embezzlement part, I would think one could set up something that required 3 or more people (or smart contracts) to “key” a sale or transfer. The ownership part is a puzzle with an autonomous organization. And I think the question becomes are MKR holders willing to cross the line to have some entity form so that those kind of asset purchases could be done.

Arca Labs was trying to do a tokenized interest in a T-Bill fund, maybe they have been successful, but a fund is not what we would want because an interest in it would lose value as interest rates went up.

Because the USDC in the PSM represents collateral backing DAI we wouldn’t/shouldn’t burn MKR bought that way, it would have to be held, and MKR is a bit (!) more volatile than USDC. Nice idea though - if there was a valid way to burn MKR I’m for it.

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In 2019, Fluidity conducted a pilot transaction using U.S. Treasury securities as the underlying collateral on the MCD system (Kovan test network).

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What became of it?

I believe Fluidity went bankrupt and they split up.

The PSM good points are :

  • demand/supply buffer
  • liquidity

Main problem with bond is :

  • it is not liquid ( probably need 1 or 2 months to get it on chain )
  • low reward 0.1% if you are lucky
  • need to take the on chain/off chain risk which is relatively high/medium for us.

Main problem with other protocol is the contract risk or get the found stolen by the admin.

So due to the high risk of “going on chain to off chain” we are not taking more risk by having RWA around the BB mark and reward are better around 2%.
Basically :
low + medium risk is medium.
Medium + medium is still medium.

Also we can easily archive the 0.1% from the bond , empty the PSM and going into negative peg by changing Eth-a rate to 0.1% but we will lose money on fees. Because it is better to have a 3% on half of our supply than a 0.1% on the full supply.

One solution is to put eth-c to 0.5% and hoping to keep a relatively high level of usage on Eth-a.

I think something also worth discussing is do we need to support DAI => USDC at all? Currently I only see it being useful as a downward pressure; DSR is already strong enough to have an upward pressure on the price of DAI.

The DRS or the rate changes are the bulldozer tools where the PSM is the fine cut. You can’t maintain the Dai price between 1.001 and 0.999 constantly with the DSR or the rate changes.

I believe the PSM has been used wrongly, for some polical reason it is easier to change the PSM DC because we have to than decreasing the rates.

So we need the PSM in the upward and downward because there is no other way to keep the 0.001 range with the other tools.

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Just to add a slightly different opinion to this, if it weren’t for the PSM, DAI would now be at $1.04 or something like that. So we do need a bulldozer tool, namely a rate cut. The PSM’s job is to tune out minor fluctuations but is instead being seen as the only tool to restore the peg. The problem with DAI right now is a clear case of demand exceeding supply and a rate cut is the most sensible option.

I also strongly disagree with the notion that we should take the fees we can get while we can even if it means increasing our existential risk to USDC. For me, it’s not the worst idea to drop all rates to 0% and let the market go wild with vaults. Yes it cuts our earnings but gives DAI supply a huge boost. This is the idea of the Maker summer party but I think it doesn’t go far enough.

The issue we have with playing with rates is that the last time we were in this situation was post-Black Thursday. At that point, trust in the protocol itself had been lost and people didn’t open vaults, even when rates were at 0%. This led to a belief that rate cuts were insufficient to boost DAI supply. I think we are now in a very different situation and would strongly encourage drastic rate cuts, at least on a trial basis for a few months. Yes, it kills our earnings in the short term but that’s a preferable solution for me (as a MKR holder) compared to piling on more USDC in the PSM.

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I disagree I feel I have exactly the same opinion.

I can’t agree more on everything you said.

Thanks for making it cleared.

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Looks like they were bought by Consensys (the folks who do MetaMask). Anyone know if we’ve ever talked to them? Looks like perhaps an alternative to Centrifuge and 6s, so we could spread out our risk, but haven’t done more than peruse their website so far.

Edit: Shot them an email just to learn more about them.

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As I understand it, PSM itself is a form of Vault is a guarantee. Therefore when you exchange DAI to USDC they have the right to exchange it back, but not the exclusivity to do so, as another user can.

Therefore I think you could use the gains, even so the system always uses the gains to burn MKR and now more recently for the UC.

Given that we now have ~10% of all USDC, I wonder if we could just ask USDC to remit us part of the interest they earn on the fiat backing it. I’m sure they couldn’t cough up $2.4 billion if we tried to redeem.

More seriously, it looks like DAI backs USDC’s peg, not the reverse. Let’s change the narrative and get some yield in the process.

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But then if we ask for that money with USDC that we have in the PSM, the PSM has no guarantee of backing.

Also, to which bank account would this money be sent?

I think we’d probably just offer to sell it to someone else who issues redeemable stablecoins (like Gemini) and let them redeem

Actually, they want to pay the general public 5.5% for a 12 month lockup. We should call them tomorrow. It’s hard to think it’s riskier than holding the same counterparty’s IOU for 0 yield. And 5.5% is what we get for ETH-A.

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1 month lockup gets you 4%, which actually seems like an even better deal. Still not sure how the whole interest payment part would work but it’s definitely worth asking about! Making some lemonade with PSM lemons :wink:

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They pay in USDC. Presumably we’d have to ask for more of an informal agreement since the DAO can’t sign contracts. But even 3% rate is a bargain for us

Well, I am not sure, is that means bonds are paying 3% or they don’t back USDC with usd?

Is that explain why they haven’t produced any reports for the last 6 months?