The Undiscovered Country
MKR Holder DAI-gest: Week 12 2020
Governance Recap Week March 20, 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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Big 3 Take-aways for the week:
- We don’t know what we don’t know: current activities are focused on system health and stability following a very serious black swan event. It is important that a full understanding of system parameters are realized before more changes are made. Keeping cause and effect on easy audit trails is critical now more than ever as learning comes from a never before imagined scenario.
- Eye on the Prize: Don’t let the cycle of urgency and apathy invade as crypto market prices stabilize and the black swan grows more distant. There are important governance and risk discussion and decision making that has been precipitated from recent events that need to be seen through.
- See something, say something: all ideas, input, and skillsets are relevant to the Maker ecosystem health. Speak up if you have an idea or concern. Contribute your skills and/or learn new ones. Stop by the Community-Dev chat channel to say hello. Hello.
Recapping Last Week’s Events
A huge cryptocurrency market drop in prices triggered a mass liquidation event in which auction keepers were able to bid on collateral auctions at a price of zero or very low Dai. Ethereum blockchain congestion due to market panic slowed updated price information from oracles and imposed very high gas fees on all transactions. This made it impractical or impossible for diversified auction bidding and allowed single zero/low bid auctions to be won. This perfect storm of events caused a system debt of around $5 million Dai. The Maker platform was functioning as intended, there were no technical malfunctions. To reconcile this debt the system is set to generate flop auctions. A flop auction is where a larger amount of MKR token is sold at auction, at a slightly reduced price, to generate Dai that pays down the debt.
The Undiscovered Country
The Maker community rallied this week with their nose to the grind to produce some corrective actions very quickly. The overall state of the Maker platform is HEALTHY. The “down-to-business” atmosphere in the forums and on the Governance calls has sparked very creative, thought-provoking, and polarizing questions to be answered. MakerDAO is a decentralized finance platform. It is economy created through the community. Anyone can participate in a variety of ways. Being a Maker token holder gives the right to vote on system governance and risk directly. Dai holders bring stability and legitimacy to the platform through saving, spending, and holding the Dai stable coin. Furthermore, third party integration’s of Dai such as cDai (compound Dai) and other variants have been created based on the Dai stable coin. Vault holders initiate an automated smart contract with the system to which Dai is generated through held collateral.
The beauty of this system comes from the diversity of the whole group, the ability for anyone to participate, and the ability for anyone to contribute ideas or time. Monetary policy is set by the Maker holders weekly Executive Vote. Blockchain technology keeps the financial network public, encrypted, and widespread. Attackers are hard-pressed to gain access to any part of this system, as it is virtually impossible. Because the blockchain is hosted by hundreds or thousands of different individuals (anyone can host a node) it is impossible to bring the system down.
There is no central bank that decides policies affecting everyone. There is no behind the scenes authority or power that leverages the Maker platform for their own greedy motives. This is run by the people it directly affects. People like you, like me, all are welcome. All can benefit.
That being said, this does bring the “Undiscovered Country.” The events of last week formulated a perfect storm for which no imagined case could practically be thought up prior to happening. Cryptocurrency and defi are new technologies. Platforms like MakerDAO are pioneering this technology. Not all scenarios have been imagined. Not all risks have been realized. While the MakerDAO community strives very hard to anticipate all risk vectors, there are just those pieces of emerging technology that “we didn’t know, we didn’t know.” To that end, here is a summary of this weeks governance and community happenings in response:
Community Team Work in the MakerDAO ecosystem far outshined this mob of mall cops on segway’s
Governance Polls and Executive Votes
Passed on Mar 16, 2020, 22:56 UTC. Executed on Mar 17, 2020, 02:58 UTC.
- It allows users to open vaults with the USDC stable coin.
Opened on March 19, 2020
- Lower the Sai Stability Fee from 7.5% to 3.5%
- Lower the Dai Stability Fee 0.5% to 0%
- Keep the Dai Savings Rate Spread at 0%
- Note: This will set the DSR to 0%
Polls that ran March 16–19, 2020 are the current parameters up for vote in the current Executive opened March 19, 2020.
There have been daily governance and risk calls about all of these issues. The YouTube link to the recordings can be found below. This section is grouped together by subject which may have evolved over multiple meetings.
The stable coin USDC joins the ranks of eligible collateral for opening vaults. This comes as Dai liquidity is scarce, but needed for auction bidders to claim won lots. During the crypto price fiasco, many people have turned to Dai as the harbor in the storm, and thus driven demand to very high levels. The inflated peg price has also incentivized the use of Dai elsewhere other than auctions. The necessity for a stable coin in the collateral portfolio is a certainty. Some of the characteristics of USDC, however, bring questions and concerns.
USDC is a stable coin that is issued by Circle. It is a fiat-backed coin that is subject to regulations and monitoring like that of the actual U.S. dollar. This is contradictory to decentralization. The primary use case for the collateral is solely for auction participation at this point in time. A higher collateralization ratio (~125%) is a hopeful deterrent to other uses of the coin beside auction liquidity. A modest stability fee that is competitive with other exchanges is one option so as to bring the bulk of around 7 million Dai back to the Maker platform. This amount of Dai is locked in other exchanges, and it is a “would be nice” action item to draw the bulk of that back to Maker. A policy change on other exchanges could trigger mass liquidation which is undesirable. A modest debt ceiling for USDC will minimize exposure to the risk of this collateral. The biggest risk: blacklisting. If Circle detects nefarious use of USDC funds, they can blacklist specific addresses. The whole of the collateral is stored in a single address adapter and could potentially invalidate the value of collateral if the unlawful actions of a third party were traced to the Maker platform. Visit the forum thread for details . Here’s another USDC forum thread
An overview of the flop auction mechanism was given. This is the auction used to reconcile system debt. A starting bid of 50,000 Dai at 250 MKR (-3% discount) starts the bidding. A winning bid can close the auction in 6 hours or the 3-day maximum length of the auction can close the auction. Zero bids will re-trigger a new auction with an addition of 30% MKR for the same 50,000 Dai.
auctions.makerdao.com is the new user-friendly site for becoming an auction keeper. It is currently only in use for flop auctions, but will soon be implemented for all auction types. You no longer need to be a rocket surgeon to participate in auctions.
A bug was discovered in the deployment of flop auctions on Thursday. This caused 8 or 9 auctions not to go live but rather reserved them to be eligible for repayment only through surplus or stability fees. Governance is able to override this. The severity of the bug is minor and does not present a direct attack vector. The community feels strongly about not moving too quickly to correct it, but rather work to fully understand the issue. In this climate of very dynamic system parameters, it is crucial not to change too many parameters without fully understanding the impact of these changes. #theundiscoveredcountry
Additional Collateral On-boarding
Discussion around adding another stable coin to the collateral portfolio is hot. There are those that are in the thought camp that diversification of stable coin collateral can minimize risk. There are those that are in the thought camp that the current stable coin addition has a specific use case which will disappear when the system debt is corrected. USDC, while not the most savory option for a defi platform, is doing well with Dai peg arbitrage and providing liquidity for auction keepers to bid. To get details or weigh in with your opinion: To the Forums Jeeves
Discussion and questions have come up regarding protocols for unifying and disseminating information from the community as “one voice.” A mechanism for the DAO to speak authoritatively and officially is the protocol to be defined. Defining this is no small order. Look for forum discussion and further discussion on calls.
Emergency Shutdown Criteria
This is a huge subject. The community wants to define the threshold events that should trigger an emergency shutdown. Reflection on this past black swan event is a perfect starting point. Should emergency shutdowns be triggered for purely technical malfunctions? Should they be a circuit breaker for monetary loss? Who are the key stakeholders in determining the loss threshold? What are the itemized steps to be taken to perform an emergency shutdown? What is the procedure for a system redeployment following an emergency shutdown? Many questions to debate with few answers as of yet. Emergency Shutdown Forum Thread
Sai (SCD) Shutdown
The shutdown of Sai is on the horizon. While a definitive date is not yet decided, it will be soon. Debt ceiling to be lowered to equal supply.
Forum Activity and Signaling
Trending issues not mentioned here include:
- Compensating zero Dai bid vault holders
- SCD Shutdown
- TUSD collateral on-boarding
- Venmo style payment app
Weekly Governance and Risk Meetings
- YouTube Video EP. 78 3/17/20
- YouTube Video EP. 79 3/18/20
- YouTube Video EP. 80 3/19/20
- YouTube Video EP. 81 3/20/20
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.
- 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.
- May 7, 2020 Ethereal Virtual Summit Online
- June 16–18, 2020 Money 20/20 Europe 2020 Amsterdam, NL
- Dec 9, 2020 Paris Blockchain Week Summit Paris, FR
- Autumn 2020 Copenhagen Fintech Week 2020 Copenhagen, DK
- MakerDAO Community Events Calendar
- Weekly Community Development Meeting — Tuesdays 09:00 PST
- Weekly Governance and Risk Meeting — Thursdays 09:00 PST