The Collateral DAI-lemma: A Deep Dive into Collateral Risk Modeling

Adrian Hacker
9 min readApr 20, 2020

MKR Holder DAI-gest: Week 16, 2020

Governance Recap April 16, 2020

MKR Holder DAI-gest is a weekly Maker governance recap that is written by the community for the community. The best source of Maker Community information is through active participation and engagement. This supplemental publication strives to present all relevant facts and remain free of editorial opinion (Big 3 takeaway excepted). The statements made herein are not the opinions or statements of the Maker Foundation.

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Corrections / Comments / Suggestions / Other:

ADDITIONAL DISCLAIMER: The summary of collateral risk modeling that is presented here is as interpreted by one person and should not be considered absolute, is not advice, is not guaranteed to be correct, and is not any opinion or statement of the Maker Foundation, either stated or implied. Collateral risk modeling comes with the responsibility of due diligence. The information summarized comes from the forum threads and Governance and Risk Call as it is interpreted by myself. I am not an expert. I am not a legal entity. It is the responsibility of any governance community member to seek out and fully qualify the source(s) of information they are using in making governance votes. These summaries may be considered a ‘novelty item’ in some jurisdictions. Not for internal use. Void where prohibited by law. Consult your physician prior to making any changes. Results not typical. These statements have not been evaluated by the FDA. Professional driver on closed course, do not attempt. :-)

Big 3 (+1) Take-Aways for the Week:

  • SCD shutdown is nearing, but not fully finalized for April 24th as previously thought. Proposed: Activate shutdown spell after a considerable time delay following the executive vote. This gives stake holders, integration partners, and other affected individuals ample time to make preparations. This will provide a smooth wind down in knowing a certain date and time of shutdown. The Maker platform should end SCD gracefully, not by surprise, caught off guard, or with unannounced surprises. The mode and mood of the SCD shutdown does have a PR effect on the MakerDAO image and can affect confidence of many players in the ecosystem.
  • Collateral Risk Modeling: A Deep Dive. The importance of this topic cannot be emphasized enough. New and diverse collateral that is prudently risk assessed by “skin in the game” governance is the key to growing MakerDAO. Everyone needs to know, at the very minimum, theory behind modeling and assessing new collateral types. Knowing the procedural in’s and out’s, mechanics, mathematics, statistical analysis tools, putting the pen on the paper, number crunching should be your learning objective. The risk team is presenting modeling methods to be able to evaluate different collateral types for opening vaults. A summary is given below, however, there is no substitute for watching ALL the Governance and Risk calls this week. Be prepared for some pop-quiz items in DAI-gest in the near and foreseeable future.
  • Expect more than one Governance and Risk call per week to become a regular occurrence. A lot of work is happening. A lot of changes are coming. A lot of teaching, listening, learning, asking, and do-ing needs to happen to grow the DAO. We can all help each other and serve the DAO effectively with those kinds of actions, attitudes, and intentions. (- Adrian H — The 1st DAI-Lama)
  • Be sure to read the proposed MIPS for a self-sustaining governance system

Dispositioned Governance Agenda

See an item missing? @adrianh


  • Deep dive into collateral on boarding — Forum and G and R Call
  • Governance and Risk call frequency will increase due to greater work load — G and R Call
  • SCD shutdown with spell activation delay (delay proposal is new) — Forum and G and R Call
  • Data accessibility for collateral types and other analytics: ease of access, availability to the community, turnaround time to obtain, etc. — G and R Call
  • Self-sustaining DAO: MIPS 1–13 introduced — G and R call and Forum activity
  • Governance cycle: MIPS 3 Presented in G and R Call


  • GSM delay — G and R Call and forum activity
  • Dark fix — “
  • Zero bid auction post mortem data evaluation — G and R Call
  • State of the Peg — G and R Call and Forum
  • Ranked choice polling — Poll Results: Yes
  • Compensating Zero Bid Vault Owners — Poll Results: Yes
  • Governance vote cadence — G and R Call


  • DeFi Emergency shutdown consortium
  • Public relations consortium
  • Flip / Flop auction usability
  • Maker token authority


  • MKR Debt Auctions — Completed successfully
  • USDC On boarding

DAI Digits

Governance Polls and Executive Votes

Open Executive Vote Adjust the USDC, Sai and Dai Stability Fees

Opened Apr 16, 2020

  • Lower the USDC Stability Fee from 12% to 8%
  • Raise the Sai Stability Fee from 8% to 8.5%
  • Lower the Dai Stability Fee from 0.5% to 0%
  • Note: This will set the DSR to 0%

Passed Executive Vote: Adjust multiple risk parameters

Passed on Apr 9, 2020

  • Lower the USDC Stability Fee from 16% to 12%
  • Raise the Sai Stability Fee from 7.5% to 8%
  • Lower Sai to Dai migration Debt Ceiling to 0

Current and Recent Polls

Zero Bid Vault Owners

If you are not yet aware, there was a poll conducted asking about compensating vault owners that lost assets on black Thursday due to zero bids. The poll did pass with a “yes.” Be patient as many things are happening in the community in addition to this issue. There are no other details available at this time.

The Collateral DAI-lemma: A Deep Dive into Collateral Risk Modeling


To foster the growth of the MakerDAO platform, and increase security and performance of Maker financial offerings, a diverse collateral portfolio is necessary. The risk team is introducing one method used to evaluate the potential losses and gains that collateral types may offer. This summary will walk through the needs and deliverables of the risk team and governance community to hopefully build an easy to follow road map snap shot, again, as I understand it (@adrian h for feedback, comments, suggestions, and cute cat pictures)

Governance Objectives

Grow the supply and use cases of the Dai stable coin safely. Provide maximum value to Maker holders as credit guarantors. Concurrently provide competitive value to vault owners in support of growing the DAO. Creating a robust and diverse collateral portfolio for system stability and growth.

A Snapshot of Current Collateral Risk Modeling

This is done by the foundation risk team. Currently only three types of collateral are eligible to be used as vault collateral: Ether, BAT, and USDC. The governance community does not yet possess the tools and skills for collateral risk modeling. MakerDAO growth hinges upon the efficient and thorough risk evaluation of proposed collateral types. Governance currently votes to approve or deny the addition of new collateral types but is not involved in the construction of the risk models. Objective models are presented by the Foundation risk team with all risk / reward parameters laid out for voters to make decisions.

To achieve self-sufficient governance and fully realized decentralization with regards to collateral on boarding:

The governance community needs a well developed and diverse tool set for analyzing risk parameters of various collateral. The skills to effectively use these tools are essential. The governance community needs to be able to form multiple risk teams for independent and cross-collaborative risk modeling. The governance community needs a thorough understanding of the monetary policies that can be changed, the risks and rewards of those changes, and how to establish prudent thresholds of those policies to balance system stability and growth potential of the DAO.

More Specifically Looking Like (this list is not all inclusive):

  • Guidance, practice, and tools to evaluate possible gains and losses that could occur, with a high degree of probability, by use of different collateral types to be held in vaults.
  • The skills and knowledge to statistically model the most likely worst case scenario of a collateral type.
  • The skills and knowledge to determine an appropriate DAI surplus buffer and Maker dilution limit with respect to various collateral types.
  • How to evaluate and model asset prices to determine how often and how severely price drops could affect vault collateralization.
  • How liquidation penalty fees, stability fees, debt ceiling will or will not be prudent levers to move or leave alone with respect to prudent system stability.
  • How to moderate the Dai and Maker supplies intelligently and proactively to prevent exposure to excessive risk and keeping optimal liquidity.

The Nature of Risk Management and Risk Modeling (not a fully inclusive list):

  • Is complicated and not an exact science. Can be open to interpretation at times and is…well…risky.
  • Is not an out of the box A to B to C solution. Is not a magic 8 ball or certainty.
  • Is the use of math and stats to evolve a number of scenarios with respect to prudent system safety thresholds. This includes everything from the likely scenarios to the extreme outlying blue moon type of witch craft happenings that no one could have imagined.
  • Is the mathematical modeling of how to anticipate normal operational loss the system will incur and set monetary policies to compensate.

Deliverbales of the Foundation Risk Team

  • Supplement monetary policy by way of statistical analysis, with both qualitative and quantitative analysis templates for the governance community to learn to use.
  • Lay a beginning foundation by way of these templates, but also make clear that there are other tool sets out there and that this is just the beginning in risk analysis.
  • Offer a reference to build upon / audit / spark engagement of further evolving the methods of collateral risk analysis within the governance community.


This last week the foundation risk team presented a template for modeling the risk associated with new collateral types. Most of the risk is associated with the price. Price directly affects how quickly a vault could drop below its collateralization ratio. There are other parameters and mechanisms involved in modeling collateral risk, but goes out of the scope of this writing. A collateral type that has very minimal price jumps (drops) is the kind of collateral that will best serve the DAO. We will start seeing a lot more of these information / training sessions as key functions that are performed by the Foundation start getting handed over to the community. Here is the MIP associated with collateral on boarding for further information.

Forum Activity and Signaling

MakerDAO Community and Governance/Risk Forums

Trending issues not mentioned here include:

Weekly Governance and Risk Meeting

Here is a guide from MakerDAO about becoming involved in Governance. The meeting is held every Thursday, 17:00 UTC. During the postmortem and corrective action phase of the recent crypto market prices and resulting fiasco there has been a daily call. This is expected to drop to two calls over the next week. Please check the forums for information related to ad-hoc governance and risk calls that may be happening.

Governance and Risk Meeting Community Guide

  • Understand the issues that are discussed and governance themes that get explored to build a healthy, secure, Maker Platform.
  • Get info on how to connect by phone or webcam.
  • Explore meeting archives.


  • Apr 22, 2020 Fantom & MakerDAO AMA/Online Meetup (virtual)
  • Apr 22, 2020 DeFi Sobre Ethereum: Maker DAO y sus stablecoin DAI / SAI (virtual)
  • Apr 24, 2020 ETHTurin (virtual)
  • May 1, 2020 DeFi Full-Stack Virtual Summit (virtual)
  • May 7, 2020 Ethereal Virtual Summit 2020 (virtual)
  • May 11, 2020 Consensus: Distributed (virtual)
  • May 14, 2020 Blockconf (virtual)
  • May 15, 2020 PolyFinTech 100 API Hackathon 2020 (virtual)
  • May 18, 2020 Crypto Asia Summitvirtual
  • Sep 22, 2020 Money 20/20 Europe 2020Amsterdam, NL
  • Oct 21, 2020 ANON2020Vienna, AT
  • Dec 9, 2020 Paris Blockchain Week Summit Paris, FR

MakerDAO Community Events Calendar

  • Weekly Community Development Meeting — Tuesdays 09:00 PST
  • Weekly Governance and Risk Meeting — Thursdays 09:00 PST



Adrian Hacker

Cryptocurrency enthusiast and student of life, in Portland, OR