Ep. 28 Mar 28 - 2019¶
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| # / 00:00:03 | Richard Brown | Hello everyone. Welcome to the March 28th edition of the scientific governance and risk meeting. It also coincidentally is our 28th meeting, so that's a lot of meetings. We've gone over a lot. I think that we're in a good place, so I continue to look forward to these all week. I think there's some interesting stuff that we're going to be able to tackle today as well. |
| # / 00:00:23 | Richard Brown | Preamble of course is that we are very, very, very interested in soliciting as much information as we can from the community. You guys are all enormously smart and plugged in people. We need to get your feedback. So if you have a question or you have a comment, don't wait for an opening, just type it into the chat, if you don't have a microphone, or interrupt if you do have a microphone. |
| # / 00:00:47 | Richard Brown | The conversations are heating up a bit, very energetic, very passionate. That's great. Also, one thing I want to do is that if you're having, if you have a question you want have answered or you want to become part of the greater discussion and you ask in the chats, we'll make an effort to bring that into the main conversation because I want to try to avoid a situation where we have furiously interesting debates happening in the chat while there's a furiously interesting debate happening in the same call. So I want to try and sync those things up so we're all on the same page. |
| # / 00:01:19 | Richard Brown | So if you have something to say, make sure that we know and one then we'll either ask you about it or you can have the opportunity to tell us about it. I think that is it for my preambles today. I'm sure I'll remember something in the next five minutes, but that's all I got. So Stephen, I'm going to hand this over to you so you can set the set the agenda form. |
| # / 00:01:38 | Steven Becker | Sure. Firstly, welcome everybody and thank you very much for for joining this call. Also an expression of gratitude with so many folks in the community that are actually contributing towards the analysis, contributing data. It is very much appreciated. So please keep that coming. |
| # / 00:01:56 | Steven Becker | To that end, I just want to reiterate a few things. The first is the themes that we want to cover in these meetings. As you know, the first one is the demand and supply [inaudible 00:02:07] what do we think about that? How do we measure it and what are the considerations? |
| # / 00:02:12 | Steven Becker | The second theme, which we'll obviously start getting into either today or even a later time is collateral types, the collateral portfolio and obviously the parameter adjustments and calculations around that. And then the third theme is basically exogenous risks. These are the three themes that I think we should continually try to focus on as they actually do cover the broad spectrum of the decentralized risk in the scientific governance principles. |
| # / 00:02:41 | Steven Becker | Now. So the theme today that we're going to obviously remain focused on surprise, surprise is the demand, supply and balance. And we're going to have a look at the metrics around that and see what sort of insights we can gather from that, but please remember this is a decentralized scientific governance and this is a discussion about the stability fee, which are basically considered and facilitated by the MakerDAO Foundation, which is just yet another community member and more so a nonvoting community member. |
| # / 00:03:13 | Steven Becker | And what we ultimately want to do is put these things forward so that the decision can be made by the MKR governance. |
| # / 00:03:20 | Steven Becker | Again, also keep in mind about continuous approval voting. The essence of this is that you always need to be aware what's going on, so please be involved as much as possible. That being said, I'm going to end my short monologue and hand it back over. |
| # / 00:03:39 | Richard Brown | All right, thank you, Stephen. We have, we're in a situation where we could talk to risk. We have a few speeches and stuff, but I want to make sure that this conversation stays as targeted as it possibly can while giving everybody in the call an opportunity to sound off a bit more than we had in the last few calls because there's been a lot to go over. So I'm not going to monopolize five or 10 minutes of the meeting. I want to hand it off to Cyrus almost immediately to give us the update from the risk team. Have him talk about the state of the peg and anything else of interest, and then I want to start digging into some of those things. He also has a special presentation for us today, which I'm sure most people here will be very interested to see. So sorry, I want to take it over. |
| # / 00:04:23 | Cyrus Younessi | It's not a special, not a special- |
| # / 00:04:25 | Richard Brown | Oh, it's going to be amazing. It's going to blow everybody's minds. [inaudible 00:04:28] All right. |
| # / 00:04:27 | Cyrus Younessi | So are we, sorry, are we jumping straight into the, into the risks, into the peg stuff? |
| # / 00:04:36 | Richard Brown | Yeah. |
| # / 00:04:37 | Cyrus Younessi | Okay, cool. Let me do a quick screen share. |
| # / 00:04:39 | Cyrus Younessi | All right, one sec. Okay. Yeah. All right. |
| # / 00:05:04 | Cyrus Younessi | So in terms of the Dai price, obviously we're not still quite at a dollar. I mean in some respects, not even close. We're just still hovering in the 97.5 to low 98 range. Pretty consistent. I will say that one thing that we noticed this week was less variance, although not technically at the price that you'd like to see. You saw a lot less volatility and a lot less kind of trader panic or whatever or speculation as you might want to call it. And you know this is not surprising. It's actually something that at least slightly we are happy to see in the sense that we obviously we raised the stability fee to 7.5 percent and it definitely had impacts in other areas. |
| # / 00:06:02 | Cyrus Younessi | I'll flip back to this chart in a moment, but main thing that we saw this week that I want to highlight are these pink bars over here, which is we saw some significant, you saw some significant CDP closures, the total Dai supply, you know, reduced from an all time high of 95 million down to its current 88 million. |
| # / 00:06:27 | Cyrus Younessi | There's a few different things we can glean from this information. First is that this effect is still going on. I would, my opinion, we haven't really seen the effect fully play out. We saw some decent wipe activity in the last few days. So you know, this was obviously a larger than normal increase in instability fee. |
| # / 00:06:57 | Cyrus Younessi | Yeah, I mean 7 million is a fairly large amount of Dai that was wiped down. Very informal chain analysis revealed that if I had to guess it was basically market making activities from box or whomever that was maybe taking advantage of kind of cheap capital to deploy strategies at 7.5 percent stability fee. Not entirely likely that they were able to turn a profit in their estimation. So we saw a few very large CDPs close, I think about a million each. |
| # / 00:07:45 | Cyrus Younessi | So yeah. So what does this mean for the Dai price? You know, the Dai price is obviously not at a dollar. As far as I'm aware, general market maker inventories are roughly the same. I'll have Joe chime in and a bit on that and whoever else. But you know, I think it's important to note that there was still a positive impact in other senses, namely that the liquidity that you might've expected to stand in the way of a rally back to a dollar is now significantly lessened. |
| # / 00:08:27 | Cyrus Younessi | When we finally start to see more retail CDP start to repurchase Dai to close out their CDPs it will see much more rapid appreciation to $1. What this all means for the stability fee going forward, obviously an open question and something I'm sure we will be discussing that for the remainder of this call. So yeah this is more of a longterm picture kind of over the last month. I mean it's not entirely clear from this chart, but we definitely saw significantly lesser volatility in the Dai price in the last week compared to what we'd seen early on in March. All right. That's it for now. I'm going to pass it to Joe if you want to say anything or any of the other market makers. |
| # / 00:09:28 | Joe Quintilian | Thanks Cyrus. Yeah, I'm just talk about one thing. The volume and volatility are down tremendously and I think Cyrus, you're 100% right on that. I have seen some solid, when we moved to 7.5%, saw a lot of market makers come in with solid bids and felt more confident in the bidding like 98 cents, 98.5 cents, this is over the counter. But still a lot of, especially on the exchanges, these decentralized exchanges, there's still not, the volume is falling off a cliff. So it's also overall volumes in terms of the mark- in terms of ETH pricing, volatility, that volatility is coming a lot too. So I think we made the right move so far and we'll see how this effect happens over the next week or so. |
| # / 00:10:26 | Richard Brown | I guess I want to jump in with a question. So I think I'm still wrestling with what do people do with Dai and it seems like an elementary question, but I'm looking for any kind of an indication here. And so Cyrus, you said that it could be assumed that the people that are most immediately hit by this kind of thing are market makers with bots, people that are running bots and with the decrease in volume, is that, does that support that theory? That these volume numbers we've been seeing in the past are largely related to bots on the chain? |
| # / 00:11:03 | Cyrus Younessi | I mean maybe orthogonally in the sense that, I mean, the Dai market makers aren't impacting overall crypto volume one way or another. But in terms of which exchanges we saw the Dai being pulled from, I wouldn't be surprised if we saw less Dai volume on those particular exchanges. Does that make sense? |
| # / 00:11:27 | Richard Brown | Yeah. Interesting. Aviv, you had a few comments? Did you want to say anything? |
| # / 00:11:33 | Aviv Milner | Yeah, I find that right now, there's 70 something million Dai, 80 million Dai out there, and there are such amazing interest rates being offered. I understand that if you hold Ether and if you have a CDP, you are on the speculator side. So you are essentially paying interest to continue speculating and to get access to more leverage. |
| # / 00:11:58 | Aviv Milner | But for a lot of people, I think that not enough selling is being done on the idea that holding Dai and earning these incredibly good interest rates is a very lucrative thing to do in a much, much less risky way. So right now I'm just gonna throw out some stuff. You know, Dharma Lever is offering 6% Compound finance is offering 3 - 4%, Expo trading, they were keeping a lot of their interest a secret, but they can't find enough lenders so they can't find enough people that are offering Dai, they're going to raise their interest rate for the next contract that opens in two days and it's, look, it's going to be 10%. 10% interest APR on Dai. |
| # / 00:12:43 | Aviv Milner | And they're maxing out right now at about 200,000 Dai being lent. So they can't find enough lenders- |
| # / 00:12:48 | Richard Brown | Is it a locked in rate or is that variable? |
| # / 00:12:51 | Aviv Milner | It's locked in, locked in for 28 days. And there's another company that just came out, which I forget their name, but they're doing exactly what dYdX is doing. Someone wrote about it and the Maker chat. So I feel like there needs to be an entire kind of like speculation page, but for people like myself who are trying to find the best interest rate and who are trying to capitalize on the fact that interest rates are going up. So I'll throw up the link for Expo right now in the chat. It's expotrading.com/lend. |
| # / 00:13:22 | Richard Brown | That's interesting. It's something that I think that we're just waiting for somebody to find that niche, right? I think that LoanScan might be moving in that direction to find out, to just be a marketplace for the best rates. And it also reminds me of something Mateo has been writing some excellent articles. And so I'm not sure whether as a journalist you're comfortable with being a part of the conversation that you're reporting on, but you mentioned in your last article on the blog about a DIPOR which I think kind of aligns with one of the things that Aviv is talking about. Mateo, did you want to tell us about that event? Or did you want to sit this one out? |
| # / 00:13:57 | Matteo Leibowitz | Sure. Can you guys hear me all right? Great. So yeah. DIPOR is this term Decentralized Inter-Protocol Offer Rate. And it's a kind of riff off of libel. And the idea is that on these government schools you can actually use DIPORs as some kind of reference metric to assess the effect that a stability fee hike or decrease has had on the wider Dai economy. So if DIPOR is relatively low, the borrow rates are relatively low, then that might signify that the stability fee needs to be hiked because there's still a lot of supply on the market and conversely, once DIPOR starts to rise, you can tell that the stability fee has has had its effect. Possibly it might be worth then reducing the stability fee. |
| # / 00:15:03 | Richard Brown | Yeah, I think that's an amazing concept. I'm probably amazed because anybody who isn't familiar with traditional finance would not be amazed, but from come from their technical space. Yeah, this seems like a great idea. We should do it. Everybody else has been doing it for the last hundred years or so. |
| # / 00:15:18 | Matteo Leibowitz | And one of the problems right now with using DIPOR is just that is these lending markets are still pretty illiquid and not too efficient. But over time as we start to see more liquidity and more aggregate liquidity across these platforms, it could be a pretty powerful metric, and a metric that would accompany something like a market maker inventory as well. So just help us make these kinds of informed decisions. |
| # / 00:15:48 | Richard Brown | Yeah, I love it. If anybody else has any comments about the DIPOR idea, speak up now or we can move on to some of the other questions, but I really want to start seeing that reference [inaudible 00:16:00] I think that if we could, if we could map that back and overlay that onto one of these charts that we're looking at for stability fee impact, we might see some interesting correlations. Obviously the crypto space is not rational and there's a delay between cause and effect that I still haven't wrapped my head around, but it would be very, very interesting to see those two lines compete with each other. |
| # / 00:16:26 | Richard Brown | All right. Vishesh did you have graphs that you wanted to share with us again today? No, I think we just lost him. All right. I might have missed some of the other interesting questions in the chat. I'm scanning them right now. If I have, speak up. Otherwise Cyrus, maybe you can show us your slide deck? |
| # / 00:16:52 | Cyrus Younessi | Sure. It's going to be, I mean shifting gears for a bit so, but happy to shift [inaudible 00:16:57] is kind of run through this and then with the remaining time we can talk about whatever. |
| # / 00:17:02 | Cyrus Younessi | So basically as we approach, I mean there's more to MakerDAO now than just the monetary policy, right? There's this huge section of collateral risk, which is actually for those of you who have been around for a while, was kind of the primary focus of this call week in and week out, up until a few months ago when the Dai peg started to kind of take precedence. It's a more pressing manner. So I think going forward we're going to try to maybe either divide these calls into two parts or maybe just devote a little bit of time to talking about each section. Over time we may even see these calls kind of split up into two, one for collateral risk, one for monetary policy type of stuff. |
| # / 00:17:55 | Cyrus Younessi | We'll see. Kind of a work in progress there. But for now I think every week we're just going to spend just a little bit of time kind of iterating our way towards how we expect Maker risk teams in the future to handle collateral risk. |
| # / 00:18:13 | Cyrus Younessi | And so I think just to start for today's, I think we're just going to do a bit of a refresher on kind of a high level overview of risk, especially for a lot of the new participants who kind of did not listen to calls one through 20. So let me just do a quick screen share again. |
| # / 00:18:33 | Cyrus Younessi | All right. Yeah. You see this? |
| # / 00:18:49 | Richard Brown | No, I do not see that. Unless your first slide is black. Okay. There we go. |
| # / 00:18:55 | Cyrus Younessi | This works? |
| # / 00:18:57 | Richard Brown | Yeah, that's cool. |
| # / 00:19:03 | Cyrus Younessi | Okay, so this is kind of just a mental model of the MakerDAO risk function. Some of you may not be familiar with this term, the decentralized risk function. So this kind of embodies how we are approaching risk as a Dao. And the keyword here is obviously decentralized and what does that mean? How do we achieve it? How do we go about it? Great question. |
| # / 00:19:38 | Cyrus Younessi | So the goal of the DRF Decentralized Risk Function is to have kind of various multiple diverse risk teams that are working cooperatively but also competitively with each other. And sorry, I'm going to jump around. |
| # / 00:20:04 | Cyrus Younessi | And this offers a few benefits. One is, the main one in my view is specialization. I think it's not feasible that one risk team can manage the entirety of the system. If you can imagine the kind of work that goes into deciding the monetary policy, dealing with various collateral assets, managing risk parameters, kind of maintenance in the system overall, not really feasible that one team can kind of handle everything. So I think the longterm goal is to see specialized risk teams that they have a particular interest in a particular asset class and they will be coming in and working on a specific aspect. |
| # / 00:20:47 | Cyrus Younessi | Another benefit of having a structure is that we can sort of get rid of any subjectivity. If you have multiple risk teams looking at, for example, what the stability fee for [inaudible 00:21:00] should be, then you can start to think maybe we can take a blend of the recommendations from different risk teams or obviously can hope to get rid of any biases. |
| # / 00:21:18 | Cyrus Younessi | Decentralized risk teams will obviously kind of ensure that hopefully someone is always working, someone is always watching over the system and working towards managing risk. And I think there'll be somewhat of a competitive environment in that there'll be some sort of reputation or status to be earned by being the risk team that will ultimately be chosen for submitting risk parameters. So I imagine that there will be some compensatory advantages of being a good risk manager. |
| # / 00:21:52 | Cyrus Younessi | So let's go back to the overview. So there's primarily three kind of broad aspects of risk. In my mind the main one is the collateral portfolio, which comprises of a qualitative framework where you dig into the asset, its qualities, the team, the organization, the technology, everything that has to do with the qualitative side of things. |
| # / 00:22:19 | Cyrus Younessi | And then there is quantitative aspect to it where we'll be looking at basically the trading profile, liquidity, exchanges, things that factor into how we would determine its suitability for collateral auctions. Obviously, illiquid assets for example, would have to be dealt with differently. Second big class is monetary policy, which we've been doing for the past few months now is very data analytics heavy, teams that are proficient in statistics, econometrics, all that kind of stuff. And then finally we have kind of |
| # / 00:23:01 | Cyrus Younessi | Then finally, we have kind of a class of technical risks in relation to oracles options, integrations, that kind of stuff. Interesting thing that a lot of people don't think about for auctions, for example, is the length of these auctions. Right now for single collateral we just have the 3% mark down, but obviously for multi collateral we'll be shifting from an option structure. I'm sure there's, there's very deep game theoretic considerations behind auctions and different assets with different liquidity profiles would require a different structure. So you know, I could imagine just a ton of risk work being done just purely on auction structure. |
| # / 00:23:58 | Cyrus Younessi | For today's call, I kind of want of just ... or at least for the rest of this presentation, focus on the qualitative framework and what that entails. I imagine over the next few weeks we can kind of be jumping in to the rest of these. |
| # / 00:24:14 | Cyrus Younessi | Okay. So what are the goals of the qualitative framework? These are kind of what I've pegged to be the most important things that we'd like to see coming out and make our risk teams. Number one is that it is comprehensive, that we leave no stone unturned. Basically for anyone who's spent any significant amount of time investing or trading in the space it's just a never ending grind to figure out what's really going on behind a lot of these organizations. There's always some interesting edge cases when it comes to examining the crypto space. We have a principle here being scientific in our, in our governance obviously logical reasons, sound explanations, something that is hopefully not just opinion based. You want to keep this framework standardized so that as different risk teams kind of compete to be chosen as the lead risk team becomes easy to benchmark teams against each other. |
| # / 00:25:33 | Cyrus Younessi | The final two are, so I mean, eventually we're going to have to tackle the notion of how we're going to scale, just adding parameters. If we have hundreds or thousands of collateral types being added, there's going to need to be some sort of some sort of queue, some sort of filtering mechanism where we are able to kind of prioritize which collateral types we want to see in ASAP. So qualitative framework can kind of help filter. |
| # / 00:26:08 | Cyrus Younessi | Finally, I mean, obviously, the MakerDAO protocol does not recognize any notion of qualitative metrics. So we are going to have to score these collateral types and to numerical data that can kind of wiggle their way into the stability fee. So yes, I mean this is, this is an enormous amount of work. This is not easy, so definitely if anyone on this call was interested in working on qualitative risk or have any interest in being a risk team in the future, please reach out. There's definitely a lot to talk about here. |
| # / 00:26:56 | Cyrus Younessi | Couple more slides. I think it's a sensible approach of dealing with the risk is kind of looking at things from a top down and a bottom up approach. Top down is classification of assets, utility tokens versus work tokens versus money tokens or whatever. Basically we need to understand what these tokens look like, what they represent, in order to understand the risks behind them. A very standard example, utility token and some tokenized security it's not going to have the same risk profile by any means, you know? So once we've done a broad classification, we can then, obviously, dive into the, the core of the organization and everything that it represents. |
| # / 00:27:58 | Cyrus Younessi | That's about it. Any questions? Sorry I kind of sped through that. |
| # / 00:28:13 | Cyrus Younessi | How will risk teams be compensated? Great question. You know, I think I'm going to let Steven answer that question. I feel like he would do a better job answering that than me. |
| # / 00:28:28 | Steven Becker | All right, so the question is? |
| # / 00:28:32 | Cyrus Younessi | How will risk teams be compensated? |
| # / 00:28:35 | Steven Becker | Well that's part of a bootstrapping mechanism where we basically first got to get this thing decentralized. Obviously it starts with the concept of what is this contribution? How long does it take? How much effort does it take? Then effectively start looking at framing that from a cost point of view. |
| # / 00:28:54 | Steven Becker | Then, obviously, taking a cost point of view and juxtaposing it on the the the stability fee that's earned by the system and how that balances out because we still got to get your point where it actually does make complete sense to have a clear cut model in place that looks after the compensation of these risk teams. |
| # / 00:29:20 | Steven Becker | The other thing we need to keep in mind as well is, that there are risk teams that support and there are risk teams that submit. So that's also another categorization we need to look at. |
| # / 00:29:33 | Steven Becker | I believe if we just start from the first idea of collecting like what we're doing now, the necessary contributions from community members, we effectively, we'll start slowly growing what is effectively first a decentralized function, which then gets split up into the teams. From there each one of those teams can give a good sense of what that the costing would look like for themselves. So it's kind of a bespoke thing that eventually becomes almost like a little market unto itself. |
| # / 00:30:07 | Richard Brown | I've been trying to imagine what the future looked like as well, which is a bad idea in the crypto space, but would it be sort of a combination between a team comes to us and says, "Hey look, we want to write this report. We have these [inaudible], we've done it before and this is how much it's going to cost us to provide you with this data." So it'd be like a sort of a one off kind of thing or it's going to be more of a subscription type of deal? Or is it, I guess it doesn't have to be binary, right? So maybe people can sell us models or they could offer us a monthly subscription, offer the foundation of monthly subscription or even act as sort of like a separate business unit that's just constantly feeding us data. [crosstalk 00:30:48] |
| # / 00:30:47 | Steven Becker | Kind of like the freemium model where you've got as an example, a risk team that specifically is pretty good at collecting data and reproducing that data collection and data cleaning very clearly to the point that everyone in Maker governance decides these guys do a great job, we'd like to include them as a risk team. The data that they provide for the other risk team members can also be vetted by them. So in the beginning I can imagine them saying, "Well we've done this work, here it is for you." It's either something that is just a small subsection of what they do in general or it is something that perhaps they focus their entire team on. Given that kind of scenario, you're looking at it and saying, well what did it cost you to do this? |
| # / 00:31:42 | Steven Becker | What is it that you want to be compensated for? How is it that you are appropriately motivated by the profit incentive to actually contribute appropriately? They've got to also keep in mind that because we are in this bootstrapping phase that there is, what? 80 million Dai in circulation right now? It's not going to be a complete economic or business model, but it's one that's going to have to bootstrap along with the system. So being here first, getting a good sense of what's going on and being able to support this, this function, appropriately is going to be beneficial because when you do crack that big number, when you do go through that massive ceiling of supply, that's when it's going to be very clear as to what can possibly be compensated and to what level. |
| # / 00:32:33 | Richard Brown | That's the other, to through another spinner in the works that there seems like there's this room here for an organization that has significant Maker holdings would be doing a risk type functions just simply to protect their own investments, because it's in their own best interest to make sure that the community has the the clearest and most accurate information. So it'd be a start about pro bono thing at that point, right? Like it's just? |
| # / 00:32:59 | Steven Becker | What's interesting here is if you take a couple of steps back, you're going to quickly realize that a decentralized risk function is going to create pretty much its own sort of economic activity, its own economic world. The same way that governance can create its own economic world as well. As to the CDP users and Dai users, we keep forgetting the fact that this economic growth is not just something that happens on chain but actually happens on each side of all the stakeholders that contribute to MakerDAO as well. |
| # / 00:33:31 | Steven Becker | So MakerDAO does not only just provided the protocol on which you can literally facilitate the growth of the economy, but it actually has in itself these sub-economic systems that literally help facilitate growth of goods and services as well. So there is this wonderful integration that if a risk team can see and contributes, they will know that once you get us to critical point, a critical juncture, you can go from your sort of free model into your premium model. But you have to obviously be integrated and purposely work in forward with community in order to achieve that objective. |
| # / 00:34:16 | Richard Brown | I'm probably going to, I think I caution this last time, but I'm going to mangle this name, [Marsan? 00:34:20) / [Marsan? 00:34:21] Has an interesting observation. There's a danger of the team with the most effective communication can win over team better research. So do you guys think that that's a risk? |
| # / 00:34:31 | Steven Becker | Typical not really, but Cyrus go for it. |
| # / 00:34:34 | Cyrus Younessi | Well he also asked earlier what will the communication platform be for risk teams? Also a great question. I'm particularly a fan of kind of Augur system. They have a separate dedicated champ work for this called, reporters.Chat. |
| # / 00:34:52 | Cyrus Younessi | Even the Ethereum community has several, separate chat groups or they just solely dedicated to research conversations. I mean, unless there's something I'm missing, I think it's great to have like a separate forum where people can discuss, Maker risk specifically that doesn't get kind of clogged up with everything else that's going on with the project. |
| # / 00:35:20 | Richard Brown | Okay, cool. So the, to the second question, do the people that can sell their models the best are going to be the ones that win? |
| # / 00:35:28 | Cyrus Younessi | I mean, I think as long as we do our best to discuss kind of the scientific governance aspect of things, communication shouldn't really matter who's providing the research. |
| # / 00:35:41 | Richard Brown | I think I agree that if there's any demographic in the world it's less likely to be bamboozled I think is probably the risk teams themselves. So that would be and opportunity. [crosstalk 00:35:52] |
| # / 00:35:50 | Cyrus Younessi | I mean I imagine. |
| # / 00:35:50 | Richard Brown | Each other. |
| # / 00:35:53 | Cyrus Younessi | Yeah. I imagine, I mean these risks calls these weekly risk calls would be a place for us to kind of congregate and aggregate the research that's been done and kind of critique them and review them objectively. I mean, if that process fails then sure. But I mean we have a pretty clear mandate to the view these very objectively. |
| # / 00:36:16 | Steven Becker | Yeah. There's two aspects to this that we need to keep in mind. The first is that we are using a risk tooling that is in the traditional space. In the traditional space the breadth and depth of it is massive, so it's not like you can come out and decide that we're going to use the astrological process of the stars to dictate what collateral we're going to use. Even though it might be a wonderful idea, and I know there's some traders that do that unfortunately won't fit into that sense of scientific rigor that has been formulated appropriately in the traditional space from which we're borrowing. So there is going to be a very clearly defined necessity for not only rigor but reproducible research as well. That's something I need to emphasize. To be able to say, this is the model and these are the parameters we get. |
| # / 00:37:02 | Steven Becker | "Trust me" is not enough. It's more a case of these are the models and making it publicly available. That's where I've got the data from. This is how I did my calculation go ahead and do the same thing. You should get exactly the same figure. That allows us to sidestep folks who wanted to scream the loudest about how good their models are, or it also sidesteps the issues that you might have folks that have very complicated models and they're very hard to digest and it's very hard to reproduce, but they may be entirely correct. |
| # / 00:37:34 | Steven Becker | We have to also make sure that there's attractability there that is understood clearly in terms of its practical use in the system. So there's various aspects of this that is very open to a critical debate in terms of its usefulness and this especially benchmarked against the traditional world. So we're not coming in from the cold, sort of just devising an all kinds of new methods. We can actually use that which is readily available. |
| # / 00:38:03 | Richard Brown | Great. I'm going to move on to the next question. So Jordan asks, will there be a risk team to make sure all of the collateral pools are playing nicely together? Could the DGX-focussed risk team say, "We think we should do X," but then the foundation says, "I get that's the best thing for you, but we need your team to push the peg up." So this is an interesting question about how does the portfolio interact with itself and the other members of the collateral pool. So Cyrus or Steven, did you want to pick that one up? |
| # / 00:38:32 | Cyrus Younessi | Sure, I'll take a stab at it. Yeah, I think managing the overall collateral pool is a sufficiently complex tasks that it requires its own risk team. So in a certain sense, for example a DGX-focused risk team would do a very deep dive into organization and submit parameters based on its qualitative specifications. But there has to be, there has to be another risk team that is managing the overall pool, making sure that everything plays nicely together and that team cannot also be doing a deep dive into every single organization in the cloud. I mean, if it gets into the high numbers. |
| # / 00:39:15 | Cyrus Younessi | So yeah, my opinion is that yeah. In fact arguably they're the most important risk team in a sense that they're managing the cross-correlations between different asset classes. I mean DGX focused risk team may or may not be aware that there's already a certain level of exposure to gold, for example, elsewhere in the collateral pool. May or may not be in their purview, but definitely should be something that a separate risk team is managing. |
| # / 00:39:52 | Richard Brown | All right. I'm hoping that answers Jordan's questions. This is part of the interesting thing about the risk teams, interesting from the outside perspective because I kind of feel for you guys. The complexity of this thing as it grows over time is sort of mind boggling. The part that I keep on coming back to even managing a portfolio that you have absolute control over the inputs and the outputs is a nontrivial exercise. But in this model, those inputs and outputs aren't necessarily under the founder or the risk team's control. So it's going to be fascinating to watch and I think it's going to be one of the primary focuses of a great number of people just to maintain the assets themselves behind the scenes. I can't wait to see this thing develop. |
| # / 00:40:40 | Richard Brown | I want to open up the discussion here because we have a tendency to do a huge data dump and these things that we have it very targeted discussion over. We turn over a rock, everybody's very interested in, but we don't get deeply into a general Q&A session. So I want to give that a shot today and, unfortunately, sometimes when you try to push these things, it has a tendency to be met with silence, but I wanted to throw out a few different topics we could potentially discuss and if anybody has any comments or questions, please fire them out there. |
| # / 00:41:13 | Richard Brown | We've been talking about debt ceilings on and off for the last couple of weeks. That kind of got lost in the background noise of the stability fee increases and it's also due to the recent stability fee increase, obviously less of a pressing question, but if people are still interested in that, I would love to talk about it. |
| # / 00:41:33 | Richard Brown | Another example of things we can talk about is the way that the governance process works itself because we have this cadence that we've been working on where there's a governance call. We sort of come to some general conclusion and then we continue that discussion at Reddit and then that develops into a governance poll, historically. Develops into a governance poll which leads into an executive votes, our governance poll, which leads to the next call where we discussed the results of that and then on that Friday we have an executive vote. I'd be very interested to hear people's opinions about how well or poorly that system is working. |
| # / 00:42:13 | Richard Brown | The other thing that I want to discuss in these calls to you is what kind of tooling does the community think that we're missing or they would benefit from? |
| # / 00:42:19 | Richard Brown | Another sort of a sub-conversation or some subtext to these calls is how do we deal with voter turnouts and voter apathy? Is voter apathy even a problem? There's some contention about that, which I think is worthy of some discussion. |
| # / 00:42:37 | Richard Brown | Well I kind of want to leave it there. That was a lot and I know that we have lots of super smart people here, so if anybody has any comments, or questions or suggestions about any of those things, now it'd be a great time to get one of them out in front of us. |
| # / 00:42:57 | Matthew Rabinowitz | I guess one of the questions that was kind of brought up before the call and then again we can always know what the supply number is, but I think he's just a general metric on every call. Even if we estimate it, we need to just have what we ... even throwing out a number of thinking that the demand is X and if obviously the more supporting data behind it, the better. But so much of our, how we get to the Peg is derived around the equilibrium of getting supply and demand more or less to match. When one of the one of the two is out of whack, then you know those actions have direct consequences. So it seems like it's a very simple thing to bring up, just a very difficult what the number and how to calculate it. |
| # / 00:43:37 | Richard Brown | Yeah, I agree and I think that the chain analysis thing will get us a certain distance towards that goal [Vashesh 00:43:44] and Mateo, I think, are are on to the second part of that puzzle of this list. Then the second piece that I can see right now is that if we understand what the DIPOR is and we have a clear understanding of usage of the other lending platforms, so if we can see that a stability fee change occurred and Compound was affected thusly and Lever and whatever the new one that we all just discovered XO-something? If they were all affected in a way that's predictable, then I think that we might be onto something. It would help us to understand exactly what's happening. Is that sort of align with what you're thinking, Matthew? |
| # / 00:44:26 | Matthew Rabinowitz | Yeah, I mean at the end of the day, I mean it's really either to get them into equilibria. We either need to increase the demand of decrease the supply or both or both of them are declining but one is declining more than the other or both of them are accelerating and the one is accelerating more than the other. But until we at least throw out an number and quantify it and then have support which will be a work in progress for the next year or years to come to that conclusion. Right now we know that there are 87 million Dai and the number of supply, or excuse me, demand, we know more than likely is less otherwise the price would be higher. |
| # / 00:45:03 | Richard Brown | Precisely and I think that's the question we understand supply because we know exactly where it comes from. It's the demand part that that's still a question mark. Until we understand what the demand is, is the demand levering up? Is the demand collateral-type for a other lending platforms? Then what percentage of that demand is actually organic usage in the ecosystem? Which is still early days. So I think the answer to that question three is going to be depressingly small for the near future, but it's me to figure it out. |
| # / 00:45:33 | Richard Brown | Akiva have brought up an interesting point, are We discussing The Peg today? We did kind of discuss the Peg briefly, but perhaps we didn't come to any kind of a general consensus on that. I think that we've seen the numbers, we've seen some graphs, I think [Vishesh 00:45:50] dropped out right before or, yeah, right before I asked whether he had anything tasty to show us about the health of the Peg? |
| # / 00:45:58 | Richard Brown | I want to get a general sense |
| # / 00:46:00 | Richard Brown | ... before we're done today, whether the community thinks that there's additional steps that need to be taken in the short term, to alter the stability fee or whether the community feels that we're sort of in a wait and see period right now. Maybe we should spend the last ten minutes doing that. |
| # / 00:46:19 | Richard Brown | Vishesh do you want to get on the mic and share something with us? |
| # / 00:46:24 | Cyrus Younessi | His mic's broken. |
| # / 00:46:26 | Richard Brown | Oh, is it? All right. Let's stick with the chat then. So if anybody has any opinions about whether we need to initiate another governance poll, or whether we need to wait to see how the market shakes out, now would be a good time to do some informal signaling. We can continue the discussion in a Reddit thread and hammer it out over the course of the weekend. |
| # / 00:46:58 | Richard Brown | Ben, did you want to say something? Okay. I can read it out for you. Ben thinks we're in a wait and see period. Let the wipes level off, and we'll see how the pay looks afterwards. Jen thinks a raise to ten should be discussed. Genevieve suggests 0.50 every two weeks. Jen, do you have access to a microphone? You want to explain why you think another 2.5 is a good idea? |
| # / 00:47:36 | Richard Brown | Okay, that's all right. I can keep on ambushing people with trying to get them on stage. Not everybody likes to do that. It's something that we can discuss in the chat, and I'll keep on reading it out. Jesse, I know that you have a mic, though. Did you want to jump in with your comments? |
| # / 00:47:52 | Jesse Walden | Yeah, sorry. I just didn't want to get the noise in the background. Yeah, I was just curious if, it seems like if collateral requirements were to be increased, that might be another mechanism by which you could limit DAI supply and, while it's sort of an indirect mechanism, seems like it could help with the pay. Curious if that's been discussed at all. |
| # / 00:48:15 | Richard Brown | Well, yeah, and that's outside of my purview. So, Cyrus or Steven, do you wanna talk about why we focused on the stability fee lever as opposed to some of the other risk parameters we have that are disposable? |
| # / 00:48:28 | Cyrus Younessi | At least from my perspective, I think they achieve kind of a similar indirect impact as a stability fee. I mean, stability fee and collateralization ratio, can kind of think of it as inverses, I mean points on a curve where you can kind of adjust one or the other to get to the same point. As far as kind of user experience goes, I think changing collateral requirements would be much more unfriendly for having the same ultimate impact. That's how I see it. |
| # / 00:49:10 | Richard Brown | Is one of the problems that changing the collateral requirements is a sort of going forward kind of thing, so it's only gonna impact people that are looking for liquidity from this point on, It's not gonna affect anybody that's already created a CDP. Is that the difference between the levers? |
| # / 00:49:26 | Steven Becker | Well, the other thing you got to keep in mind is how those particular parameters are calculated in the first place. As an example of debt ceiling, a way to think about this is imagine you had one single CDP. What is the maximum amount of collateral you'd like to have deposited given that you wish to liquidate it over a given time period. So, that's how you answer the first question about debt ceiling. Then the second one, about liquidation ratio, that is very much related to obviously online volatility of the asset itself. That speaks to what the liquidation ratio should be. Then, of course, you have what's leftover is the stability fee. Now if you take everything else out of the equation then the stability fee would generally be very small because it should be able to cover the economic cost of... [inaudible] |
| # / 00:50:19 | Steven Becker | In the stability fee you've got these components, if you recall. And those components are ... [inaudible] that has a fourth component called liquidity premium. Considering we don't have any maturity periods on the use of Dai, that gets taken out of the equation. |
| # / 00:50:40 | Steven Becker | The tricky part comes in here where the stability fee has this inflation and has this critical component, and if you take that away, you're left with operational component, and that operational component serves two purposes. First, to cover the cost of running an operation, but also at the same time to act as a policy instrument. That's why you wanna use the stability fee specifically. You can, if you wish, change the others and create a policy component in there as well, but then what you do is you create permutations and that creates complexity. |
| # / 00:51:16 | Steven Becker | It kind of needs to first come from the first principal basis of understanding what debt ceiling is truly supposed to achieve and that is always in the context of the whole system is robust. Everything is moving forward full bull and it's working perfectly. As opposed to where we are now where we're seeing things are bootstrapping. As an example, if you have a debt ceiling of lets say, $15 million on token ABC and the whole DeFi space is robust, everything's moving forward appropriately, what you're basically saying is that if you've hit that debt ceiling, you need to go find more collateral types. |
| # / 00:51:59 | Steven Becker | There isn't this option of increasing it anymore because your risk parameters have definitively concluded that anything above that is a risk to the system that we cannot and we do not wish to bear. Where we are right now in bootstrapping, we are slowly getting to these true debt ceilings. |
| # / 00:52:20 | Steven Becker | Keeping that in mind, there is this option to think, whilst bootstrapping, why not just use the debt ceiling as part of this mechanism? You could, but then you're working against the general ethos of why it was there in the first place. If you have a look at the liquidation ratio, then you're basically actually, all you're doing is literally transferring the risk out of the stability fee into the liquidation ratio. |
| # / 00:52:42 | Steven Becker | The risk profile as a whole stays the same to Cyrus' point, but if you start attributing it to different risk parameters, you just create a little bit of a complexity that's very difficult to manage. That's why the stability fee is the best place to deal with this particular risk and to also deal with this particular dislocation, because it aligns appropriately. An increase in stability fee both affects the supply and demand function. A decrease has the opposite effect, both in the supply and demand functions. It does have a coherent and complete functionality that is appropriately incentivized, just by using stability fee. |
| # / 00:53:32 | Richard Brown | Okay, that's clear enough for me. Jesse, did that do it for you? |
| # / 00:53:34 | Jesse Walden | Yeah that's great. Thanks. Just one other comment, we don't need to discuss further, but I think it would be great on the call, to hear from various liquidity providers in the ecosystem. I'm assuming there, Joe is probably and Jeff would be great to see if we can engage them in the call and get their responses since they're the ones that are likely to be most impacted by any of these changes. |
| # / 00:54:00 | Richard Brown | Yeah, that's been an actually a very pleasing trend in the last couple calls. I'm looking at the chats and I don't think Louis is here. Cyrus, do you see any other liquidity provider names? [crosstalk 00:54:16] I don't think think they're on the call, but yeah, it's something that I want to continue, and that's one of the things Cyrus touched loosely on a working group that's been formed and some of the major members of that are liquidity providers. |
| # / 00:54:27 | Richard Brown | We're still wrestling with these issues around transparency, because obviously people have business to run, and they also have competing and complementary incentives to provide the accurate data. We need to, we're still feeling out those complexities, but I think that that's going to be a core component of these calls in the future. Some easy way, whether it's just liquidity providers giving us a thumbs up emoji or a thumbs down emoji, or whether we have a very sophisticated snark space tool where people could submit their numbers and we can try and verify it that way. But yeah, we need to understand who the primary stakeholders are in this ecosystem. |
| # / 00:55:05 | Steven Becker | Yeah, this falls into that notion. I don't know who brought it up about DIPOR, based DIPOR. Basically using the idea of LIPOR in the decentralized space. That is the essence of it too to Jesse's question. We are literally asking all liquidity providers to come in, but you know, they need to be incentivized appropriately to contribute what they know. We're trying to align that incentive by simply saying keep in mind that if you state clearly what your position is, then you can also state clearly what you'd like to see the stability fee as, as a contributing member. |
| # / 00:55:43 | Steven Becker | It's not going to be terribly unclear as to why they want it. If you got what you consider to be high inventory, you may propose a very large stability fee, then it's just a case of going, yeah well we know why you want the large stability fee, but at the same time, we need to just gage how, gage the level that you're proposing. Maybe pull it back a little bit. Maybe control it from everyone else's point of view. That is essentially the premise of this kind of liable proposition where you do have decentralized contributions where you clearly know where the incentives lie in those contributions and submissions. |
| # / 00:56:26 | Richard Brown | Alright. We, I thought we were not going to have enough questions and I was going to have to kill time, but of course we have too many questions and not enough time. Vishesh, you posted some really great graphs, and I'm sorry that we didn't get a chance to view them together, but I'm going to make sure that they're called out specifically in the discussion thread that I'm posting right after this call. I happily have a window in my schedule to do so. |
| # / 00:56:50 | Richard Brown | I'm also going to capture the rest of the chat messages that weren't addressed because there's some good things in there. Aviv, at the every end you, pitched this idea of us doing another poll. I'd like to explore that a bit in the Reddit thread as well, so keep an eye out for that because it's very important to me that people in this call specifically, are engaged with the Maker Governance sub-reddit r/MKRgov, because that's where a lot of the science is getting dropped. There's some really interesting discussions there, so I'm hoping to see people in that sub Reddit, and give them an opportunity to answer some of the questions we didn't get to today. |
| # / 00:57:26 | Richard Brown | Steve, did you want to leave us with a quick- |
| # / 00:57:29 | Steven Becker | Yeah. Yeah. Yeah. What I want to basically just say again is everything that we've considered today as being from the point of view of community members' contributions. Right? Basically, what I want to emphasize is this is exactly what we need to make a decentralized platform work appropriately. |
| # / 00:57:49 | Steven Becker | Also, the other thing to keep in mind is that we are facilitating this as the foundation so that we can gather this information in order to help with this momentum. Please be very clear on this notion that it is this decentralized aspect that is the most important point behind scientific governance. We are contributing to this space, in terms of facilitating this, as quite clearly, the kind of a super user, that's also a non-voting member. This is very critical for everyone to understand so that we can gage clearly who is involved, and how so. To that end, I was looking at the folks on this call. We hit around about 61 to 63. And of those 63, I would say about 80% of the folks were non-foundation members. That really sort of bodes well that we are pushing this forward, appropriately, into a proper decentralized platform. And thank you very much everyone for participating again. Please keep on contributing, and please be cognizant of the governance mechanism, and the voting mechanism, and contribute what you can. |
| # / 00:59:07 | Richard Brown | Well said, thank you Steven. I'm not going to suck the oxygen out of that because that was a great speech. Let's leave it there and we'll have a conversation in the separate. Thanks everybody. |
| # / 00:59:16 | Steven Becker | Bye. |
| # / 00:59:20 | Barron Gati | Hey Rich, I have a quick question about the functionality of the MCD and how that might eventually involve things like ETFs. |
| # / 00:59:32 | Richard Brown | Sure. Was that the question or do you want to get more nuanced- |
| # / 00:59:37 | Barron Gati | Yeah, I mean I was assuming right now that it would be basically all security tokens. So would an ETF have to have the security token in order to be considered? |
| # / 00:59:49 | Richard Brown | This is where things get very theoretical I think. It's no secret that the future of this ecosystem is enormously dependent on securities being collateralized inside a CDP. We need to get out of the trap of being crypto correlated, which was a known risk and that's part of our beta stage. But we're definitely going in that direction. I might be stepping on Cyrus' toes because like I've said numerous times, I'm no expert. It's custody. It's KYC/ AML, and it's recourse that are the major considerations when we talk about these things. |
| # / 01:00:27 | Richard Brown | To put it into a tight little package, MakerDAO can't do any of those things. That's just not our thing |
| # / 01:00:32 | Barron Gati | Right. |
| # / 01:00:34 | Richard Brown | The ecosystem needs to develop to such a stage where some, an ETF comes to us, or we find an ETF that will tokenize themselves in a way that checks all those boxes. We are more than happy to turn that into a collateral type, but we can't handle any overhead involved with it. |
| # / 01:00:53 | Barron Gati | Yeah, that makes sense. But if there was like a widely available token that is ETF or like a gold backed token for example, if it had KYC/AML compliance issues, then it wouldn't be available as an option. But if it doesn't, then it's something that might be available. |
| # / 01:01:15 | Richard Brown | Well no, I think it would be an option. I think that the organization is moving to a place where we're going to be able to support things like that. Or at least our side of things like that. The question is still outstanding of how much MakerDAO can alter its core infrastructure to support securities and how mature the ecosystem becomes to make it so we don't need to right? |
| # / 01:01:40 | Barron Gati | Got it. |
| # / 01:01:41 | Richard Brown | Where in the spectrum things land. I think that STOs are the utility token of 2019, we're kind of hoping that this comes along and saves crypto. We don't know when it's going to happen, and how quickly it's going to happen, and how robust it's going to be when it gets here. The goal of MakerDAO is to be prepared for it as soon as it gets on the radar. Cyrus, am I off base with this? |
| # / 01:02:04 | Cyrus Younessi | No that's, that's pretty much all that I, yeah. That's, you hit it on the head. |
| # / 01:02:12 | Richard Brown | Yeah, and this is something. Actually, it's too much, but predicting what the future looks like in crypto is a lost cause, so we can look three or four months out, you can look maybe eight months out, but after that, who knows. |
| # / 01:02:21 | Cyrus Younessi | I mean, just part of the broader picture, anything that has value and can be tokenized, can be on our end, we'd be happy to have as collateral. You know? |
| # / 01:02:32 | Richard Brown | Yeah, we're actively, anxiously, looking for partners that can provide those things to us right. But the common example is always real estate. Like hey, can I stick my condo in a CDP. The response to that is, probably, if you find an enormously complex and sophisticated, and well run organization that will handle that tokenization. Yeah, we'd love to see that token, but we're not in the business of chasing people down for 1/100th of their condo so we can liquidate their CDP. |
| # / 01:03:04 | Barron Gati | Right. |
| # / 01:03:06 | Richard Brown | It's fantastically complicated. |
| # / 01:03:09 | Barron Gati | I'm not, the risk teams you guys were talking about. I'm still playing catch up a little bit on some of the MCD functionality. What is involved? |
| # / 01:03:21 | Cyrus Younessi | I messaged you back. Yeah. There is a lot involved on that. I have some documentation on the works on specifically what [crosstalk 01:03:31] |
| # / 01:03:30 | Barron Gati | Okay cool. |
| # / 01:03:31 | Cyrus Younessi | ... Maker risk teams look like and what their roles are and how they would interact with the community, the foundation if they need to do that, or compensation, all that stuff. I mean, the thing is, a lot of it is still kind of somewhat of a work in progress. I mean, when I say work, I mean, there hasn't, some decisions haven't been finalized yet on how we think the best way it could go about it. But I mean it really doesn't even matter what we think is the best way. I mean, a risk team ultimately either very unlikely, does work for free, just out of whatever, and they can submit risk work, or they somehow apply with MKR holder. Somehow you could create some sort of communication meeting where they can interact directly with some [inaudible] group of MKR token holders and go through there. |
| # / 01:04:26 | Barron Gati | Yeah, I guess we'll follow up off the call. I'll chat with you to see about what's involved there. |
| # / 01:04:33 | Richard Brown | I think that we're very deeply in the bootstrapping stage when it comes to external risk teams. So I think that part of the process of figuring out how that process works will involve heavy amounts of input from people that are interested in risk teams. I think that for a lot of this stuff, we're going to be looking to people like you Barron or to other people who are interested in eventually spawning off their own teams, and work on that process together. |
| # / 01:05:01 | Barron Gati | Yeah, definitely. I mean I was foreseeing something like we would build an algorithm, approach to assessing risk and collateral parametrization for those risk parameters. That could be something that's developed on chain where people would submit something that we can pull an on chain price history for, look at the volatility, look at things like the [inaudible 01:05:21] spreads and exchange availability, and basically set kind of like, it doesn't necessarily have to be like a machine learning algorithm, but a trained algorithm to assess what those risk parameters, on a very conservative basis, would need to start out as, and then improve over time. So it wouldn't need as much manual oversight and can be done more seamlessly over time. |
| # / 01:05:43 | Richard Brown | I think the most exciting for anybody's who's considering starting a risk team, or taking over some kind of risk function is the fact that there's literally no shortage of low hanging fruit here. So anybody who's interested can jump in and immediately begin to contribute in a meaningful way. I'm kind of, in crypto, every once in awhile, I realize that I'm in the wrong job. Risk is enormously fascinating to me, so I'm super keen on watching how this thing shakes up. |