Ep. 27 Mar 21 - 2019¶
Video | Audio | Discussion
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| # / 00:00 | Richard Brown | Hello everyone and welcome to the Thursday March the 21st edition of the Scientific Governance and Risk meeting at MakerDAO. Today's meeting is going to be following a common theme that we're discussed in our last call. Steven were you gonna get into that, should I talk about themes or did you wanna pick that up? |
| # / 00:26 | Steven Becker | I'll just pick that up if you don't mind. |
| # / 00:28 | Richard Brown | I would not mind at all. So I'll do the preamble then, hooray. For people that haven't heard this 27 times already, if you're a long time listener, we're very interested in facilitating a conversation, that is the point of these calls. We need information from the community, we have a lot of very, very smart people on this call, [inaudible 00:00:47] space we need to know what they're thinking. So, if you have a question, if you have a comment, an observation, please type that into the chat at the side. And if you don't have a microphone somebody will find that and we'll do our best to read these questions out. If we don't get an opportunity to read those questions out, what we've been doing is copying the unanswered questions and then adding them to the post meeting discussion thread in Reddit. And hopefully we'll be able to pick those things up during the course of the week, before our next call. |
| # / 01:18 | Richard Brown | But that post discussion thread in Reddit is a new addition to the proceedings, and what we've been doing is ... The conclusion is that there is far too much going on these calls, but this isn't really the place to make firm decisions or achieve consensus, this is the place to observe data, have a discussion, set the context and tone of what we're up to. And then we will aggregate that data with the recordings and the transcripts and all the rest into Reddit, and then we'll continue with that debate in a text form and hopefully a civilized and restrained manner for the next week or so, and that will lead us to a long term decision making process. But it also creates a historical record, so we can exactly what was talked about and when, and all the rest. So those are for the typed in questions, if you have access to a microphone, feel free to jump in at any time if you have a question, comment or a complaint, and we will address it. |
| # / 02:18 | Richard Brown | So back to the theme of typing out the agenda, I'm gonna hand it off to Steven immediately and then Steven's gonna talk to us about some interesting things in his world and governance in general. Then I'm going to pick it up and I'll have a brief chat about the state of governance that got us up to this point, so what happened in the votes last week with the poll, how that positions us today and what the next steps are. And after that we'll talk to ... Cyrus will tell us about the numbers, so Cyrus from risk will give us a presentation. After that, we'll jump into a Q&A. All right, off to you Steven. |
| # / 02:56 | Steven Becker | Thank you very much. Firstly, good morning, good afternoon, good evening everyone. Thank you for joining us. The one thing I'd like to do is to extend the point that Rich was making. I would like to basically take this opportunity to consider and remind ourselves the two important points. The first is the structure of these calls, and the second is the reason for these calls. It is extraordinarily important we need to consider this because ... Excuse me a sec. It really boils down to participation and the sense of what the participation looks like. So to the structure of these calls. The structure of these calls will be based around one or a collection of the following themes. The first theme is effectively the state of demand and supply in the system. The second theme is with respect to collateral types, collateral portfolio and the related risk parameters attributed to them, and the portfolio as a whole. And then the third theme is with respect to exogenous risk, a risk that is outside of the system that we still need to consider. For example, risk exposed by the Ethereum protocol as an example. |
| # / 04:10 | Steven Becker | These themes are, I would say broad enough to capture the full ambit of what we need to consider in these calls. So for today's calls we'll unsurprisingly focus on the state of demand and supply. But please keep in mind that the main theme of the call can change and is dependent on what MKR governance would like to tackle. So the folks facilitating this call are here to kick the process off and get the conversation and momentum going around governance, but at the same time be very mindful of what MKR holders look to, to talk about and want to get in to. So that being said, I'd also like to remind everyone as to the purpose of this call. This call is a place that helps facilitate and only facilitate a part of the whole governance process. And this process, this whole governance process is the sole responsibility of MKR token holders, collectively known as governance. And it is really up to this to decentralized governance to decide the direction of the system. |
| # / 05:20 | Steven Becker | Please keep this in mind because it is really important to understand that the [inaudible: "owner"?] responsibility is on you as a stakeholder in the system, and it is very much on you as MKR token holder. And we are here to help facilitate this process and to basically try and keep it contiguous and flowing and with a certain amount of momentum that the salient features and the important points are always in the minds eye of MKR token holders, or what obviously we'd like to collectively know as the decentralized governance of the system. So that's my little intro for today, as I said the theme for today will be again on demand and supply. That's where we kick off, but obviously as Q&As come in, we can figure out how we can tackle other challenges as well. So given that, I'm gonna pass back to Rich. |
| # / 06:16 | Richard Brown | All right, thanks Steven, it's good to set that context. Actually, I'm a huge fan of context myself, so I'm gonna do some of my own. Let's talk about how voting has worked in the system over the last seven days. We've seen some interesting things. After the call last Thursday, we brought the discussion into Reddit. We just had a very spirited chat, it was great, the level of discourse in our sub Reddit is constantly a source of amazement to me. I'm not sure if everybody here are active Redditors or not, but frankly Reddit is a sass pool, especially when it comes to Crypto. But MakerDAO's sub-reddits are shining exceptions to that rule, which I'm not sure, entirely sure how that happened or why, but I'm gonna do everything I can to keep it that way. So the debate was excellent, very insightful. It lead to a poll being initiated in the system on Monday. And that poll offered three different selections for voters to choose from, leaving the stability fee at zero percent, raising the stability fee by two percent or by four percent. So there was three options that could have been chosen. |
| # / 07:32 | Richard Brown | We saw some very interesting engagement with the system this week, which was encouraging because last week we talked about apathy and engagement and whether that was a significant risk that needed to be addressed, or whether it was something that was gonna improve over time. And I think that we've seen some numbers that imply that it's going to improve over time. That poll had more active voters than the previous executive vote had. So obviously people are getting out to make decisions when they feel that they have skin in the game, which is a great thing to see. So unless things have changed in the voting portal in the last couple of minutes, I wanna talk about some numbers a bit. We've seen an interesting spread on activity here, so I did some very basic spreadsheeting. I'm not gonna share it because it's embarrassing to expose to the public, but currently for the "Leave Things As They Are" poll, we're seeing one point five percent of the total Maker stakes for that option. For the "two percent raise", we're at 22.9% in support as far as staked MKR, but the overwhelming lead is for the "four percent increase", so we've seen 75.6% of the total MKR staked allocated to the third option of raising it by four percent, which is interesting. I would not have predicted that, but that is governance for you in a nutshell. |
| # / 09:12 | Richard Brown | One of the things that I wanted to look at this time was also the distribution of voters as well. So not just ... obviously the system is based around skin in the game, but there's interesting metrics to be pulled by figuring out how many people were involved, and what the distribution of MKR per voter was. I don't have the distribution numbers ready yet, but as far as voters per option, we're seeing a very interesting alignment. So for the "Leave Things As They Are" option, eight percent of the individual voters selected that one. For the "two percent raise" we saw 17% of people voting for that. For the "four percent raise", 73%. So there's this interesting alignment with not only the amount of MKR that was staked, but the number of people that chose these options as well, which I hadn't really expected. Because when it comes to a skin in the game sort of system, there's always going to be this lingering, either resentment fear or encouragement, so that's the people with the most to lose are the ones that are most active in these votes. And I think that we've seen a fairly good distribution of people signaling their intentions, regardless of whether they are a whale or not. Which implies that we have a healthy system developing right now. |
| # / 10:44 | Richard Brown | So that's where we stand right now. What that means is that at some point in the next few hours, that votes will time-out, in the next hour and 45 minutes. And then we will have our next step presented to us, and the way things are working right no is tomorrow at 5:00 PM UTC, we will be putting the winning poll into an executive vote, which will be a four percent increase too 7.5%, unless there's a last minute shift in the landscape. Which is obviously always possible, and I think that's one of the interesting things that I discovered a few minutes before this call, is that there's been a fantastic amount of movement according to token analysts, in Maker, in the last 24 hours. So it's entirely possible that we might see some interesting shifts before tomorrow. Or we might see that this is just people preparing to reinforce the way that the polls already moved. |
| # / 11:51 | Barron Gati | Quick question Rich. What percent, if you have this handy, what percent of the market capitalization of MKR is staked for this vote, and is there a historical line we could look at? |
| # / 12:03 | Richard Brown | Well, I don't know and no, but here's the good news. One of the things that we've been talking about a great deal a lot is both in these calls and also outside of them, is that there's a requirement for tooling in the system. We need community facing tooling, we need some more sophisticated chart tooling, so those numbers will be coming. I did it last week in the r/mkrgov thread, that recapped the events of that executive vote. And I'll make sure that, that's included on this one as well. So it would be a good number to capture. |
| # / 12:39 | Cyrus Younessi | Richard, I got a question. Do you think it's a good idea to schedule a governance poll so that they end in the few hours leading up to the weekly governance call? Is that something that's- |
| # / 12:52 | Richard Brown | [crosstalk 00:12:52]. It should have, but it didn't, because this is another ... In the interest of radical transparency, let's talk about the problems that are involved with governance. From the outside looking in, it's not a big deal. From the inside looking out, my God, it's hard. We're auditing the entire system right now, and it's our goal to be able to turn around an entire governance cycle in less than seven days. So that includes starting off with a call, making it into a debate in Reddit, giving people time to discover what it is that we're talking about, then going into a governance poll, then going into an executive vote, then going into another governance weekly. In order to do that, we've identified, I think there's 37 or 40 individual steps involved with that process, from writing the spells for the blockchain to making sure that the Reddit post and the Twitter notifications are out there, to having these calls. There's a significant number of stakeholders involved as well. So we're very, very energetically attempting to optimize that process and audit it as much as we possibly can. |
| # / 14:03 | Cyrus Younessi | Yeah, [crosstalk 00:14:03]. |
| # / 14:03 | Richard Brown | [crosstalk 00:14:03] it will be over. |
| # / 14:05 | Cyrus Younessi | I think one thing that would be good to get feedback from the community maybe right now, is the length of the governance poll. This week's was only I believe three or four days, I think it went up Monday, whereas I think the previous one was a full seven day cycle. I'm just interested in hearing what people think about the length [crosstalk 00:14:25]. |
| # / 14:25 | Barron Gati | Sure. |
| # / 14:27 | Cyrus Younessi | Did it feel like it was enough time for people, or ... |
| # / 14:30 | Barron Gati | One thing that would be useful when those numbers that I asked about and you said were coming would be useful, is to look at rather than setting a time limit, looking at a market cap and user limit. To being like, once we get this amount of quantitative participation, then we're comfortable with the outcome kinda thing. |
| # / 14:51 | Cyrus Younessi | Yeah. |
| # / 14:52 | Richard Brown | That's an interesting way of looking at it. The other thing that we've been thinking about is the commitment drop off, so as over time ... let me collect my thoughts. So if we see that there's less than X percent of MKR stated over the last six hour period, then we can assume that people have petered out their level of interest. But it's very, very difficult to create arbitrary ranges on these things, and it might be more useful just to simply publish the fact that, "Hey, there's a poll, you have two days to make your voices heard." And then that's the end of the story. |
| # / 15:28 | Barron Gati | Yep. |
| # / 15:29 | Cyrus Younessi | Well there's pretty deliberate reasons for not using a quorum, right Rich? [crosstalk 00:15:35]. There's all sorts of attack factors with something like that. |
| # / 15:41 | Barron Gati | Okay. Thank you. |
| # / 15:41 | Richard Brown | Yeah, and there's some ... We haven't really gotten into the weeds in voting yet, because ... and I don't wanna clear, cloud the discussion yet. We're gonna get to these things, but there's all kinds of risks involved with these things. And there's collusion, there's vote buying, there's ... Well, I don't wanna list them all, but yeah, there's a lot of reasons why on chain voting might be fraught with peril. And I think that as these discussions continue, we're gonna start to identify those and modify the system as required, but for now this is what we have and it seems to be working fairly well. But we're gonna have a Q&A session at the end of the call, and that's why I'm talking so quickly and hoping to move things along. |
| # / 16:24 | Richard Brown | I wanna get to risk and have Cyrus review the current state of the system and then after that I wanna open up the floor to just any question at all, including governance questions. Cyrus, I'm gonna hand it off to you. |
| # / 16:37 | Cyrus Younessi | Sure. Let me do a quick screen share. All right so, as most of you are aware, we did not see any significant strengthening of DAI price this last week. Early on I think, right when the governance poll started, we saw ... or right after the governance call last week, we saw a slight increase. Things were recovering for a bit, and then as the week carried on, just receded back down. We saw a fairly flat ETH price, we saw fairly flat inventory levels. I'm fairly sure that our inventory levels remained unchanged. I'm not sure about other market makers, if they wanna chime in they can. We are also in the process of working on some plan to proof of inventory from various market makers exploring a process from a technical level. In terms of other statistics, here we can see some CDP stats. We did see significant DAI wipes yesterday, about almost a million and a half in the past 24 hours. We did see a slight drop off in the DAI supply, which is a positive sign. One of the few positive signs we've seen. |
| # / 18:22 | Cyrus Younessi | This is likely ... this happened when the result of the governance poll was determined. It will be interesting to see if that trend continues when the executive poll is run. In terms of tooling, as Rich mentioned, we are working hard behind the scenes to get this process streamlined better, better data visualization, statistical measures. We will be open sourcing data, and our models. The eventual goal is to create some sort of risk dashboard that we can all convene on, that |
| # / 19:00 | Cyrus Younessi | ... compiles all the data that we just keep talking about week after week. It's a work in progress, and it will be coming soon hopefully. Let's see. That's it for data. In terms of some other minor things. I think for the governance polls, the increments we used last week seem to have been ... were well received. The zero, two, and four offered a few extra choices for people. The increments of 2% step sizes also seems like it was well received. So I'm hoping that that's the beginning of a template for now. |
| # / 19:48 | Cyrus Younessi | I think that's it for me. Debt ceiling, obviously there was some concern that we would be hitting it, that never happened, and the DAI supply for now is trending back down. |
| # / 20:09 | Alex Evans | I have one question for you. Oh, sorry. [inaudible 00:20:12] you might actually answer this, so I'll let you go first, because it pertains to market makers. |
| # / 20:19 | Louis Aboud-Hogben | I was actually going to ask a question. So we had the DAI flow fall by a few million pretty much in the last 24 hours, but we haven't seen much volume on Bitfinex or Coinbase. It was a question for Cyrus, or maybe even Joe, or whoever might know the answer, if there was any buying volume on a different market that I'm not seeing? |
| # / 20:45 | Cyrus Younessi | Yeah, I definitely noticed that volume did not hit any of the screens that I was looking at, so I was curious myself. I don't know if Joe, would you know? Joe's not in the call right now. |
| # / 20:58 | Joe Quintilian | I'm here. I'm here, yes. Sorry I missed that. What did you say? |
| # / 21:03 | Cyrus Younessi | There was a significant reduction in DAI supply in the last 24 hours, about a million and a half, but we didn't see any corresponding volume across any of the major exchanges. Do you happen to know anything about that? |
| # / 21:15 | Joe Quintilian | No, it's been fluctuating right around here for supply the whole entire way. There's no ... there hasn't been any major, major volume, like five million, six million, like it has in the past. So I don't think ... until we get this thing done, I don't think we'll have that much effect. |
| # / 21:41 | Louis Aboud-Hogben | I think the other possibility is that somebody went to an OTC desk that had a bunch of inventory, but yeah, that was not us. |
| # / 21:56 | Alex Evans | My question had to do with ... Cyrus, you mentioned that inventories were flat despite the fact that we drift back, we drifted back down even slightly below where we were prior to the last stability fee increase. That on its own would be surprising to me, as you'd expect there to be accumulating at that lower price, though if inventories are flat, that could tell us that they're not accumulating additional inventories potentially because they're saturated. Is that something that you've heard from other market makers? Do you have a sense for why that might be happening? |
| # / 22:34 | Joe Quintilian | I think a lot of the inventories are saturated right now. All the market makers are all complaining that we have way too much DAI. I think every other market makers are on here want to chirp in to confirm it, but from what I've been talking about with everybody, everybody agrees. |
| # / 22:49 | Alex Evans | So that could be potentially worrying if there's no additional support coming and potentially we see ETH rally or something like that. |
| # / 22:59 | Joe Quintilian | I mean, there's people who know that eventually it will come back up will keep on raising until it goes through. There's outside capital come in, so I know that there's some major market makers that all coming in and buying this 96s, but it's not going to go below ... the major money's at 95, 96, and hopefully we can get this thing up. I'm not worried. I know that's a worry. Some people have said, "Oh, it could go down to 85." We have some extra cash, just like emergency fund if that happens, but I don't foresee that ever happening. |
| # / 23:37 | Alex Evans | Makes sense. And we are about to undergo a 4% increase. I guess my question had more to do with whether there's a feeling, Cyrus and some of the other folks on this call, or whether that's too conservative at this point. |
| # / 23:53 | Cyrus Younessi | So I may have misunderstood your question, but it sounded like you were saying that the reduction in DAI supply was somehow in relation to the market maker inventories was not a good thing, but I think that's a very positive sign. |
| # / 24:08 | Alex Evans | No, no, no. What I was saying is, I was looking at the scatter plot that you showed earlier, and we saw we were drifting down, DAI price was drifting down, but market maker inventories were staying flat, and I asked him what Joe was saying was, okay, that means they're saturated. They have enough DAI. They don't want to buy anymore because they feel like their exposure is [inaudible 00:24:28] they're not comfortable accumulating more. So that was [inaudible 00:24:33]. But yes. |
| # / 24:41 | Cyrus Younessi | Okay. Cool. Rich? What's- |
| # / 24:46 | Richard Brown | Well, Vishesh posted a link to his repo again with some interesting graphs in there. Vishesh, I don't know if you have access to a microphone, do you want to walk us through those essentially? |
| # / 25:01 | Vishesh Choudhry | I basically just did an update of what I shared last week. So the one thing we did notice is we DAI ... the trade volume on Oasis and 0x, it did sort of hit another new low, and is kind of continually been dipping, kind of coincided to this small run up in price, and then starting to run right back down to where it is now at about 96. |
| # / 25:32 | Cyrus Younessi | Do you want to do a screen share? |
| # / 25:34 | Vishesh Choudhry | Sure. |
| # / 25:47 | Vishesh Choudhry | Sorry. So I was just talking about this graph here. So essentially, what we saw was, about three, four days ago this dip in ... sorry, that was around March 14th. Dip in trading volume, that immediately followed this tiny run up- |
| # / 26:12 | Alex Evans | Can you clarify which line is which? |
| # / 26:15 | Vishesh Choudhry | Yes. So the blue is the volume, and orange is price. So what we saw was essentially around March 8th, when we last kind of talked about, oh, DAI price is improving. It started to run up to almost 99, and then there was a big dip in trading volume and the price sort of continued to fall, and then volume started to fluctuate again. So I'm not sure what exactly happened, but it seems to me that there was something happening during that run up, and then people essentially started to sit with their inventory again, and the price continued to fall. |
| # / 26:58 | Vishesh Choudhry | The other thing that was sort of minorly notable was on Compound, the borrow volume dipped a little bit which ... that's the red line here. That doesn't happen very often, so it's kind of stayed steady and slightly improved. I can graph this on a different axis next time so it's easier to see, but you see that supply volume had been coming down, but now borrow volume has also taken a small downturn. So these are not great indicators, and honestly a little bit confusing given that we increased the stability fee, which should theoretically have reduced the oversupply and improved both of these metrics, but we've actually kind of seen a little bit of the opposite of what we expected. |
| # / 27:43 | Vishesh Choudhry | So I'm not sure if that's a case necessarily for just a stronger increase. I mean, it doesn't seem that there's any reason not to, but it is a little bit atypical from what we expected I think. [crosstalk 00:27:58] presenting them. |
| # / 28:05 | Richard Brown | All right, well that's fascinating information and I think that raises a few questions, because looking at these graphs, it's always the natural inclination is to try to create a narrative to explain things that we don't understand, which is risky. But I'm sort of tempted to do it anyways. I wonder if it might be an interesting thought experiment to try and figure out what some of these confounding variables might be here. |
| # / 28:29 | Richard Brown | So we obviously there's ... ETH prices are obviously a big deal. We have seen a fairly flat market in the last couple weeks, which is potentially removing that from the contenders. There's also been a lot of discussion about just simply the other rates in the market. So competition is a big issue for us I think, and looking ... somebody presented recently the DAIbor, I think that's what they called it. The centralized metric DAIbor? Sorry, Cyrus did you see that? |
| # / 29:06 | Cyrus Younessi | Yeah, I remember. But I can't remember where I saw that. |
| # / 29:09 | Richard Brown | Yeah, so trying to figure out what the average interest rates that are being offered by lenders in this space, and trying to figure out exactly how stability fees would match up with that is an interesting metric to look at as well. |
| # / 29:26 | Barron Gati | One thing could be even if the Ether price is flat, getting that sense for how many CDPs are changing, trying get a sense for what the demand for leveraging Ether is from this community, compared with the rest of the Ether usage community. So if there's a way to break that out in some way, looking at for example, I don't know, Ether held by same wallets as those held by ... I'm not very technically inclined, but trying to break that out in some way. |
| # / 30:05 | Cyrus Younessi | I think it's important for people to realize that ... in terms of confounding variables, the Ether price plays a somewhat out sized impact on the DAI price because leverage is the primary use case for DAI right now, which is why market maker inventories are extremely important. As the eco system grows, as the use cases of DAI kind of broaden out to non-trading and non-leveraged use cases, we should hopefully see less of a correlation, less importance based on inventories and so forth. But yeah, for now it's super important, but I don't- |
| # / 30:49 | Barron Gati | No I was thinking more along the lines of even if the price is flat. Even if there isn't a move it still could have a potential effect if for example there's a large demand for leverage and the DAI community's impact on that is only X% of the outstanding Ether versus the 1 minus X% of utilitarian use of Ether outweighing that in some way. If there's a small decline of 95% of Ether demand, but a large increase in the 5%, the total price could be flat. |
| # / 31:29 | Cyrus Younessi | Right. I'm not sure if I follow along exactly, but maybe someone else wants to respond to that. |
| # / 31:36 | Vishesh Choudhry | Just one quick thing to add, so if you look on Compound for example, the point that Rich was making about the maker stability fee versus the secondary market interest rates, that gap had been closing for awhile, and we finally sort of met the compound borrow interest rate, or sorry, the lending interest rate. And so essentially that has kind of stayed at about the level of the stability fee, where generally over time, when the stability fee has moved, the interest rates have moved as well. |
| # / 32:14 | Vishesh Choudhry | So that's sort of interesting to note that it's actually kind of held around 3.45, 3.5 even though the stability fee is right there as well. So that gap has closed, but the ETH borrow rate, the interest rate on Compound is actually fairly low. So it's pretty cheap, and I think there's relatively low demand for borrowing ETH. I think we could speculate on what the demand is for ETH, but really the interesting thing is as price volatility of ETH drops, I do think that hurts to some extent the demand for DAI because people are less worried about getting their CDPs liquidated, and so they're less likely to pay back debt. So that's also going to be a natural function of this kind of ETH price stability that's continued. |
| # / 33:08 | Richard Brown | That raises some interesting points too, because this has been sort of a constant source of amazement for me with the crypto space in general is that it flips the script on based on ... compared to traditional finance. Traditional finance you're more likely to know who is doing something as opposed to what they're doing. In blockchain space you know what people are doing, you don't know who or why they're doing it necessarily, and I think that this is ... it's a tricky situation for us to be in because we're trying to anticipate people's requirements and trying to create sort of these game theoretical levers without entirely knowing why people are in this system in the first place, and I think that this is one of the challenges that we have. I'm getting feedback for some reason. Cyrus is that you? |
| # / 33:59 | Richard Brown | Trying to figure out what people are up to and why, and then trying to figure out how stability fee would affect those people can be very tricky, and I think this is a discussion that we've been seeing in a sub-Reddit as well, is that what does it actually take to move the needle here? And create some thought experiments to try and anticipate what that means, because if I'm a large CDP holder, and I'm long ETH, or I am seeking [inaudible 00:34:26] DAI in order to gain interest somewhere else, how does a stability fee actually effect me? And this is something that I've been thinking about for a while too. |
| # / 34:37 | Richard Brown | The mechanisms on which we collect these stability fees are fairly painless and occasionally hidden from immediate ... they don't have an immediate impact on people because you pay these fees when you return DAI to your position. If your position is already fairly healthy there's little incentive to actually spend too much time worrying about the distant future as these fees begin to accumulate. So those are all things that we need to try and consider when we're debating responses, especially when it comes to CDP activity with the stability fee raises. |
| # / 35:15 | Matthew Rabinowitz | Basically, I think Rich what you're bringing up is also a really good point. I mean we're used to thinking of this stuff in a two dimensional world, and you have to start thinking of it as a multi dimensional question of not only 0 to 1, right? And what shade of gray is it, but then it turns into a circle, and then it's a three dimensional circle, and that shape of that completely changes depending on what's the intent of each person, and that's something that's going to change over time as we shift from purely Ether as the collateral base, to other types of collateral. |
| # / 35:47 | Richard Brown | Yeah, I think that [Vern 00:35:48], you suggested something along these lines earlier, but it might be an interesting experiment to actually try it and figure out exactly what people are doing here, because we can make assumptions, we can make guesses, we can do some trolling through Etherscan, but perhaps a chain analysis of precisely what the path is from DAI being created to where it goes, and what people are doing with these things would be ... might answer some of these outstanding questions. |
| # / 36:15 | Barron Gati | Yeah, if those data are available that would be phenomenal. I worry about sample size at this point and robustness of any type of analysis there in, but that's definitely ... even if the cone around the line item that we could draw would be large, it's still useful to just see if there's potential tendency changes on that. |
| # / 36:35 | Richard Brown | Yep, precisely. If we could see a funnel, this is how DAI was created out of CDP, and this is where it landed across a broad spectrum of a market, it might begin to answer some of these questions. How do we influence these things. |
| # / 36:50 | Matthew Rabinowitz | And segregating the data between who has what size position and what's the rate sensitivity. Where's the elasticity of demand? Or elasticity point where it breaks over, where somebody who has an excess, a large ... as the rates are increased, at what point do folks that have a CDP that only has make up a number of 50000 DAI of debt outstanding. What's their sensitivity compared to somebody who has 3 million. I would venture to bet without looking at the data, that's dangerous, but I'd venture to bet the majority of the reason why the DAI price is what it is is not because of the large folks, but rather because of a bunch of small folks that are all exiting into a US dollar off ramp. |
| # / 37:35 | Richard Brown | Actually, that's a great observation. Obviously people that have huge positions are going to behave differently than people who have small positions, and I think we've also seen another variation between the sophistication of CDP owners where some people they see a rate increase and they can break that to a percentage point, and they go, "Oh my god it's gone up 700%. I need to close my $50 CDP immediately because the world is ending," |
| # / 38:01 | Richard Brown | Versus a large CDP holder thinking that, or actually running the math and going, "Okay, well, this actually doesn't really move the needle that much for me, if I'm planning to only hold this thing for another two months, or whatever it is." |
| # / 38:14 | Richard Brown | There's a lot of different perspectives. We can look at CDP ownership, and the activities of those large CB owners, as far as wipes and draws go. There's more when you put it together. |
| # / 38:25 | Vishesh Choudhry | I do want to echo that I think it's great that we're having a discussion about a broader picture of DAI, and the life cycle of DAI, where does it start, where does it end? |
| # / 38:36 | Vishesh Choudhry | I have been looking into a lot of data on this. I think we're not necessarily going to get to a great answer on this call. But I think, for next week, I'll try to look into some of the questions that we've posted here about, sort of, differential behaviors on different sizes of CDPs, for example, and see if we can come up with some interesting insights for next week. |
| # / 38:58 | Richard Brown | Hey, that'd be fantastically useful. We try to also if there's anything we can do to help out here, if you want to brainstorm on that a bit? |
| # / 39:03 | Vishesh Choudhry | Will do. |
| # / 39:06 | Richard Brown | All right. Well, I'm looking at the time here. We got 15 minutes left. We kind of jumped into the general Q&A aspect of the call a little early, which is great. That's what I was hoping to see. But I wanted, kind of, open the floor a bit to just more general questions. I know that they're out there. |
| # / 39:24 | Richard Brown | We have a pile of interesting suggestions in the MakerDAO sub-reddit and be even more in the MKRgov sub-reddit. There's been discussions about debt ceilings as a risk parameter to be tweaked. We have discussions about what a hard/soft peg actually means. There's some interesting discussions about reference exchange rates, and where do we actually information that makes sense to us? |
| # / 39:53 | Richard Brown | Something that I've been personally wrestling with, and I at some point, I'm hoping that somebody smarter than me will explain how we're going to be weighting some of these pairs. Coinbase is a good example of that. If you look at it there, we're kind of using this as an authoritative resource, because we are reasonably sure that they don't engage in wash trading or various other shady activities. |
| # / 40:16 | Richard Brown | But at the same time, the volume there is fantastically low, and so, using that as a primary source of the strengths of the peg, makes me a bit nervous sometimes. What I want to do there is open the floor to more broad-ranging questions. And David, I know that there's been a fairly active conversation happening in this side window here. Is there any questions that you can address as a group? |
| # / 40:43 | David Utrobin | Ah, I mean, early on, I know Viva had the question of whether the 4% increase is too little. But that was way earlier in the call. I know [Mateo Liebowitz 00:40:55] had asked whether the risk team thought about the impact of CDP interest rate futures- |
| # / 41:01 | Richard Brown | [crosstalk 00:41:01]. |
| # / 41:00 | Richard Brown | And the effect that it was [crosstalk 00:41:03]. Yeah. |
| # / 41:05 | Richard Brown | So Mateo, do you have access to a mic? Do you want to ask any other questions that we can get [inaudible 00:41:10]? |
| # / 41:12 | Aviv Milner | How you doing, Rich? Yeah, can you guys hear me loud and clear? |
| # / 41:13 | Richard Brown | Yup, you're good. |
| # / 41:15 | Aviv Milner | Excellent. So my question, just a little bit rephrased here, is: "Typically, the market reacts ahead of the news, right? So if you know something's involved in price, or down in price, people are buying as quickly as possible." |
| # / 41:27 | Aviv Milner | So let me refer you to [inaudible 00:41:29] we're all monitoring the price of DAI. We know the price of DAI's below the peg. There's an open vote, a poll, so everything is pointing to up, raising the interest even further. There's a 90% chance in seven days from now, it's going to be at 7.5%, and yet, we don't see people taking advantage of the discount today. |
| # / 41:51 | Aviv Milner | So my question is, there's a philosophy that maybe that, the interest rate will DAI holders when it kicks in. But what about the philosophy that it should already have a pretty sizable effect? If you knew the interest rate was going to be 20% seven days from now, and there's a discounted day to pay it back, why wouldn't you pay it back today, unless you're comfortable with the interest rate that you're going to see in seven days? |
| # / 42:17 | Richard Brown | Well, that's a great question. Go ahead, [inaudible 00:42:17]. |
| # / 42:18 | Barron Gati | Certainly. There's a difference in looking at the stability fee, and looking at the savings rate, looking at the interest rate that is provided. You make different decisions, like, if you had to take a loan from a bank, and the bank said, "You can take this loan out for five years, and do whatever you want, but the rate is X, and then, at the end of five years, you have to pay ... when you pay it back, when you return this, you also have to give me another 3.5%." |
| # / 42:44 | Barron Gati | That is treated very differently than the coupon payments you would have to make during the loan. So those two things interact differently with market behavior, I think. |
| # / 42:56 | Richard Brown | Yeah, I'd agree, and I think that, to frame this discussion a bit more, there's something that we've been thinking about a lot, too, is this concept of forward guidance. You look at how traditional markets work, and I think that the delta here is that in the real world, people are a lot more sophisticated than they are in the crypto space. |
| # / 43:15 | Richard Brown | We've seen that even though we all live and breathe in this world, where risk parameters are being determined by governance, and this is our daily lives, there's a significant number of people who have no idea that anything has changed, let alone the fact that something is going to change in the CDP ecosystem. |
| # / 43:34 | Richard Brown | So, figuring out effective ways to set this idea of forward guidance, and a lot of people, in understanding that a change is coming, is a tricky problem to solve, and I would love to hear some suggestions in this call about how we can solve that problem. |
| # / 43:49 | Richard Brown | And then, having achieved that goal, the expectations are that people will react in a rational and a predictable manner to that information, I think, is an open question. |
| # / 43:58 | Aviv Milner | Okay, so I'll concede your argument that people are not completely tuned in, and maybe some people don't know interest rates going up. Or they heard that it was 0.5%, and they got excited about it, and they never sort of clued in to the fact that it was going up or down. So wouldn't that argument suggest that maybe the interest rate isn't what needs to be affected, but letting people know vigorously, like, e-mailing and putting up banners, maybe that's the real interest rate that needs to be changed, and not just the percentage. |
| # / 44:28 | David Utrobin | I'm getting ... just to speak to that for a second, I know that the maker of the UX Team was focused ... well, there was some discussion about actually adding a banner to highlight stability fee changes, even before they actually happened, so ... |
| # / 44:44 | David Utrobin | [inaudible 00:44:44] ... So the UX side of it, and actually, doing the informing is important. |
| # / 44:50 | Cyrus Younessi | And there's something to be said about the relative decentralization of how this information is dispersed. Kind of like governance issues with any other crypto system. If you could easily and efficiently reach everybody in the system, it tends to not carry some of the decentralization aspects that we're looking for. |
| # / 45:12 | Richard Brown | Yeah, that's the major risk here, is that we're looking for, we're talking about a pulling versus a push method of communication. And if, right now, we have a pulling method, where people that are engaged in the system are expected to maintain their positions, and understand exactly how that money is being controlled or contained. That requires people to be deeply engaged, and I think that's probably not a fair thing to ask, because I'm not deeply engaged with every single crypto state and organisation that I'm interested in. |
| # / 45:46 | Richard Brown | We need to figure out or come up with some solutions. And whether that's, "Okay, everybody sign up with your username and password right here, and then we'll get you onto an e-mail list." Or whether it's, "We have banners across all the MakerDAO properties, that say a 'A vote is in progress,' this part of the system has been altered. Even then, it has a limited area of effect. |
| # / 46:05 | Richard Brown | So, if people are aware of solutions that we could begin to look at for communicating things on a broad scale, we would love to hear about it. |
| # / 46:16 | Aviv Milner | So, maybe, I can just say a last final thing ... maybe a possible solution is, the CDP portal could have a big banner, when big changes in the fee are set. Because right now, the stability fee, it's as small of a number as almost any other number on the CDP portal. Maybe that's a great place to start. |
| # / 46:36 | Richard Brown | Yeah, that'd be great, Dave, and that's something that we're already planning on doing. The banner idea is coming.` |
| # / 46:43 | Barron Gati | Another possibility would be think using onchain data on wallets, to look at if the ... first, the distribution of MKR, and then, DAI held, in terms of, where are these changes are coming from? Looking at how ... sorry, there's a bunch of ruffling going on. I don't know where it's from. |
| # / 47:10 | Barron Gati | Sorry. Oh, yeah. So, just looking at the distribution of wallets, in terms of the major DAI holders, and major MKR holders, is that movement causing this? Or is it coming from elsewhere, and looking at that participation over time? And seeing if there's just big stores of MKR that isn't really voted, where it isn't really staked at all. |
| # / 47:33 | Richard Brown | Right. [inaudible 00:47:34]. So after we gather this information about exactly how DAI's being used, or how these CDPs are being used, we can more effectively target those demographics, specifically, with information. |
| # / 47:43 | Barron Gati | Yeah, basically. |
| # / 47:45 | Louis Aboud-Hogben | Speaking of onchain data, I think something that would be really interesting to look at is, what's going with Dharma, because their offering DAI at 0.1% ... so it's possible that people that have CDPs are borrowing from Dharma, and then paying back their CDPs, allowing them to maintain their ETH exposure, effectively arbitraging the interest rates. |
| # / 48:10 | Louis Aboud-Hogben | Yeah, I think they basically have run out of DAI to lend, so I don't think the total size they've done is too big. But that would be a way for paying back CDPs, without buying DAI on market, which might explain what we've seen. I'm not sure, but I guess you could look onchain, to see if that's happening. |
| # / 48:31 | Richard Brown | Yeah, that's interesting. I think that we haven't really seen the area of effect for the Lever tool yet. I think that it might be too soon to guess, because the rates, they're subsidizing that rate, and it's obviously not going to be sustainable in the long term. So I'm hoping that after they get into, out of alpha, we'll be able to get some numbers that actually have a direct correlation on what DAI supply looks like. |
| # / 48:58 | David Utrobin | So, can I actually bring something up that's been, that I see in the chat? There is the question of what happens if the ETH price appreciates significantly. If that would cause the need for an extremely high stability fee increase, and so, if anybody has thoughts on that, I would love to hear that, but ... |
| # / 49:21 | Matthew Rabinowitz | Yeah, the answer comes down to what they do with the money, and we don't know that answer yet. When we implement the DAI savings rate, that'll directly, that will immediately help smooth things out. But until we can figure out what people use their loan proceeds for, or what percentage they're used for, it's just a guessing game right now. |
| # / 49:43 | Barron Gati | But can't we track the wallets in some way? Again, I am super not knowledgeable in the technicalities here. But is there a way to actually answer that question? |
| # / 49:52 | Matthew Rabinowitz | We can estimate it. We can guess. But let's imagine right now, Ethereum goes from, I don't care, 130 to 1,000, and everybody on the call's real happy. Right? Odds are, a lot of folks will start taking out loans. Odds are, a lot of folks may even take a loan, and buy a car with it. But that moment you take it off chain, you have an exit off ramp, they start getting into discussion about what we do with price, because it has now directly impacted that equilibrium. |
| # / 50:19 | Matthew Rabinowitz | It's no longer, it's not singular, it's a multi-dimensional game, where it's not only supply and demand, a demand and supply balance of usage in the system. The moment people start exiting the system, you start having another variable in there. What would could we, what would people use it for? It's going to take time for that to smooth out. |
| # / 50:42 | Cyrus Younessi | It's interesting. There are specialized data services that can ... It's a pretty high confidence track, where a DAI going, "What percentage is hitting exchanges, and try and identify various wallets and such?" |
| # / 51:02 | Barron Gati | It would be really interesting to know. As well, I don't know if this is possible to calculate, but the secular, the cyclical leverage generation process of one wallet? You could then look at all the wallets and see, which wallets are cycling it? Like, starting with 1,000 Ether, buying, putting it up, getting DAI, using the DAI to buy more Ether, putting the Ether up, getting more DAI, et cetera, and seeing which ones are actually taking advantage of that, and how big those wallets are, that are actually generating what proportion of leverage. |
| # / 51:37 | Richard Brown | That's a great idea, I think. That's the lowest hanging fruit, right? And that's easiest to identify. We just find out if, is the primary use against your leverage on a significant number of CDPs? |
| # / 51:46 | Barron Gati | Just like, testing our basic assumptions. |
| # / 51:48 | Matthew Rabinowitz | Well, quick question. Like, from those type of chain analyses, does anybody have any idea of how long it takes, how much historical data you need, before you can associate a certain address with an exchange? |
| # / 52:00 | Barron Gati | Yes. Yes. Oh, no, in terms of an exchange? I can answer it in terms of statistical robustness. I can't answer the technical stuff. |
| # / 52:06 | Matthew Rabinowitz | Yeah, because, I mean, like- |
| # / 52:07 | Cyrus Younessi | Matthew, there's, I know that there's enough data to identify [inaudible]. At least, from various data providers I've spoken to, it seems to be possible. |
| # / 52:20 | Matthew Rabinowitz | Fair enough. Because what you want to avoid, though, is kind of like ... doing the supply and demand game for oil markets, where you're, basically the equivalent of driving down the highway, using your rear view mirror, to determine what exit you should take. That's literally how the supply and demand people are almost guessing, because the data's so stale. |
| # / 52:37 | Matthew Rabinowitz | Now, if there's a way to do that with DAI? Well, all the better. |
| # / 52:43 | Richard Brown | Yeah, there's no shortage of, well, amenability here. It's going to save us, right? So there's going to be no shortage of this being exactly what people are doing in the CDP ecosystem. |
| # / 52:54 | Matthew Rabinowitz | But no, we know what addresses are exchanged with other addresses. Now, identifying which of those is an exchange, which of those was a Coinbase off ramp, which of those was a use case ... that's not exactly, I mean, going the same route. |
| # / 53:09 | Richard Brown | Do we actually need to know that, though? We just need to know how much DAI is coming out of a CDP, and how much ETH is going back into that CDP, and how their liquidation ratio changes over time, right? It's not going to be hard to just simply look at our ecosystem, and find out who's a leverager, and who isn't. |
| # / 53:25 | Matthew Rabinowitz | Fair enough. Fair enough. |
| # / 53:28 | Richard Brown | As we take two or three steps away from our ecosystem, it gets significantly, exponentially more complicated, but just figuring out activities on ours is going to be easy. |
| # / 53:39 | Barron Gati | And not only, just who is and who isn't, but how much leverage those weighted average wallets are taking. |
| # / 53:45 | Richard Brown | Yeah. Yeah, that sounds like it's a really good deliverable for either the next call, or the call after. It's a missing piece of the puzzle that we can't ignore anymore. |
| # / 53:58 | Richard Brown | So, I lost track of time, because that was really interesting. We have three minutes left. So what we're going to do now, is we're going to continue the same format as we did for the last couple calls. We will take video of this, the audio of this. A transcript will show up very soon, and we'll post a discussion in the Reddit thread and will continue to debate some of these issues. |
| # / 54:19 | Richard Brown | Stephen, did you want to leave us with a thought? |
| # / 54:22 | Steven Becker | Yeah, just sort of, a simple thought to me. I've been listening very carefully, and this has actually been a truly productive meeting, from all the stakeholders. |
| # / 54:32 | Steven Becker | The one thing we need to consider is, just to sort of close this off, is that we are a part of a broader system that is actually bootstrapping along with us. What is interesting is that we have to consider, what we have to consider, is that we may be slightly ahead of most of the system, but also maybe slightly behind a few of them. |
| # / 54:52 | Steven Becker | But we've got to keep this very pragmatic, because ... to Louis's point, and I think, a point brought by Lev in a previous meeting, we need to be pragmatic about the co-dependencies that exist in a DeFi space. |
| # / 55:04 | Steven Becker | So, basically, in short, we need to consider models, metrics, and the collection of these really cool ideas that we've heard here, in relation to the actual environment, and try and find that intersection that really helps us move forward. |
| # / 55:17 | Steven Becker | And as we get data, and as we get more insights, though I think these ideas are going to manifest into real metrics that are going to allow ... to ... |
| # / 55:26 | David Utrobin | I think, Stephen, you're cutting out, yeah. |
| # / 55:38 | Steven Becker | All right. Well, I want to say, guys, thank you very much, and folks, thank you very much for joining this meeting. I'll let Rich finish it off. But it really has been very productive. |
| # / 55:48 | Richard Brown | Yeah. This has been excellent, and it's precisely what I'm hoping for, and each one of those meetings gets better than the last one. I'm super happy about that. |
| # / 55:54 | Richard Brown | So let's take all these excellent questions, excellent observations. We'll take the chat questions that didn't get answered, and we'll put those into the Reddit threads, so keep an eye on r/MKRgov in the next couple hours depending on my meeting schedule, maybe in a few more hours after that, and then, we'll get ... we'll continue the discussion there tomorrow. |
| # / 56:12 | Richard Brown | Look for the executive votes, and let's make sure that we all get our voices heard in the direction of the DAO. All right. Thanks, everybody, for coming. This was great. |
| # / 56:23 | David Utrobin | Thank, you, you all. It was a great call. Very interesting, so ... |