Ep. 32 Apr 25 - 2019¶
Video | Audio | Discussion
| References | Person | Text |
|---|---|---|
| # / 00:00:00 | Richard Brown | There we go. Hello everyone. Welcome to the April 25th's edition of the Scientific Governance and Risk meeting. We have a lot to go over today, so I'm not going to have a big preamble on my side. I'm going to repeat the same thing on repeat every single time that we are enormously interested in getting as much feedback from this group as we possibly can. So if you have questions or comments, please do not feel shy about sharing those with us. Type your messages in the chat if you don't have access to a microphone, or you're at work and supposed to be doing something else. If you do have a microphone, feel free to interrupt us. We do it all the time. It's allowed here. What else do I usually talk about it? Oh. I think that might be ... Oh I'm forgetting something. |
| # / 00:00:42 | Richard Brown | I want to ensure that we continue these conversations in our subreddit. There's lots to go over. We are unable to get through all of it in these calls. And it's important to me that we consider these things. Excuse me, the beginning of a conversation and not the conversation itself. So we have chats here. We should be able to look at data, we talk about issues, we discuss directions for the future. And then we move those discussions into Reddit because these calls are enor- Excuse me, enormously time bound. There North America friendly, they're in English, and they last for an hour, and that's a very, very small window for people to schedule their lives around. So it's important that we use these as a way to kick off new initiatives, new ideas, and then spend the next week or so discussing them and pulling them apart in the MKRgov subreddit. |
| # / 00:01:40 | Richard Brown | I am going to post a link to that discussion in a second. But first, I'm going to hand it off to Steven Becker to give us his thoughts for the week. Then I'm going to pick it up again to have a brief chat about the poll we just had, and then trying to keep my speechifying down enough so we can move almost immediately into risk because the quality of the analysis that we're getting in the last few calls is amazing. And I don't want to monopolize the time. So having said all that, Steven, off to you, |
| # / 00:02:13 | Steven Becker | Thank you. Just to confirm, can you hear me clearly? |
| # / 00:02:18 | Richard Brown | Yep. That's sounds a bit echoey, but we can hear you. |
| # / 00:02:20 | Steven Becker | Yeah, I'm sorry. I'm in one of these weird telephone coffin things. It's kind of difficult to get used to. But anyway. Hello everyone. Thank you very much for joining us today. This is ... I see that the turnout is quite spectacular. One thing I want to do, sort of jump on quickly is obviously, we've had some changes in the organization as reflected by our blog post, and then further reflected by other articles that have come out. And the one thing I just really want to say about it is, if you want to see what's going on, go refer to our blog post, have a look and then you get a sense of where we are. We are effectively going through changes like everyone else. And some of ... |
| # / 00:03:03 | Steven background | May I have your attention please. May we have your attention, please. |
| # / 00:03:04 | Steven Becker | Oh my goodness, |
| # / 00:03:11 | Steven background | We will be starting our annual fire drills shortly. |
| # / 00:03:11 | Steven Becker | They're going to have a fire drill in my ... that's unbelievable. That's funny. Anyway, so what I want to get out of this that, we're going through some of these changes and want to have a look at what they are, please refer to our blog posts that we put out, I think it was about a week and half ago. But importantly and more relevant to today's conversation, I would like to focus on the idea of ... we are all here to facilitates and try to understand scientific governance. And to that end, we need to have a very clear idea as to what that really is. And to emphasize it, well it effectively is make it out as a community trying to govern through the use of scientific principles. Now, I understand that they're just rephrase the same statement, but it allows one to focus on the fact that what we require is rigor around qualitative and quantitative models and methods that give us the ability to put forward proposals and to assess those proposals appropriately. |
| # / 00:04:17 | Steven Becker | Now, the reason why we want to do this through quantitative and qualitative methods and models is that we can contain the level of discussion. We can contain the level of contention so that we don't have subjectivity running a muck. We make sure that the conversation is applicable to the running of the system. We make sure that the ideas are productive, and actually move the system forward in terms of what it wants to achieve in terms of its objectives. So to that end, the idea is to ensure that contention and the ability to create factions through subjectivity is contained within rigor and the ability to reproduce results. Because if you have that ability, then you're always going to have a productive discussion. Folks, men always agree on the particular discussion, but at least it will be productive. The main underpinning of a scientific approach is to ensure that we always consider proposals that are productive and useful for the naked out protocol. So that if someone comes along and decides that they want to turn, make an analogy to an ice cream factory, it's going to become very clear that that is not something purposeful and that is not something we can sort of rigorously defended. So, therefore, it is not a productive proposal. And as such folks will be very clear on the fact that that is something that we should not entertain. |
| # / 00:05:52 | Steven Becker | So in essence, what we're doing is we're moving away from representative and looking at subjective points of view and focusing whole heartedly and the scientific premise of rigor and reproducibility to be able to extract value from proposals that are being put forward so that, that is just my quick preamble into what is scientific governance and making sure that we focus our attention on those tenants that help us create the necessary value. |
| # / 00:06:25 | Steven Becker | But at the same time, please keep in mind that this one hour window that we had is just simply the momentum behind a broader governance process. It's a governance process that is decentralized and requires everyone to continually be a part of in order to get a sense of not only what is happening, but also be able to evaluate proposals being put forward. And in their minds, votes on things that will extract the appropriate value, and it's an appropriate robustness for the system as a whole. So after that bit of a data dump, I feel like the fire marshal's about kick me out of this office, but I'll hand it over to Rich. |
| # / 00:07:09 | Richard Brown | All right. Thank you, Steven. That was a good recap. And I think that it overlaps with some of the things that I wanted to talk about very briefly today. One of them is a tricky subject and it's strangely after this ear to ear reminder that everything needs to be rigorous and well thought out and scientific as humanly possible. I want to talk a bit about sentiment. And sentiment is an issue that we've been running into for the last a few weeks, maybe perhaps longer, but it's sort of coming to a head recently. And sentiment is a tricky thing, particularly in the crypto space. Generally, there's enough criticism and resentment and frustration that can be evenly distributed across everyone in the space, seemingly without being specifically targeted. There's a lot of angry people in the world, and crypto is a great place for them to live. And MakerDAO, I think has been particularly lucky in that respect and that we've been sort of media and crypto darlings for the longest time. |
| # / 00:08:14 | Richard Brown | And it was a good feeling while it lasted, but it was clear to a lot of us that that wasn't a position that was written in stone, and it's always subject to change. And one of the things that we've seen recently is sort of this uptick in frustration levels around the peg. Frustration levels are around the stability fee changes, and those tend to get condensed and distilled in social media for all the attendant risks involved with social media. I don't need to get into that, but Reddit and Twitter, there's a market basically for contrarian opinions in hot tips and being first to market with outrage and shock. And it's very easy for ... that extremely vocal minority to create a sense of panic or artificial urgency. And it's something that we need to take into account when we are coming up with plans in these calls and when we're coming up with plans on the subreddits, and when we are having discussions is that, this is a very dramatic business that we're in. |
| # / 00:09:24 | Richard Brown | It's a very open business there's blog posts and crypto journalists everywhere you go. A few of our favorite are actually in this call, Hello Christine. And it's easy for people to sort of overemphasize things or perhaps a cast a vote for solutions. And that's one of the things. So I'm kind of teeing something up here. So what that does is it can be a little contrary or put some pressure on this idea of a measured scientific governance where we make plans and decisions, and we, as a group, all discuss ideas and then come up with these models, and excuse me, these plans for the future. And these, for example, the stability fee raises, how those things get into the system is a large and fairly onerous process. And the reason why it's an onerous process is because it's designed to be that way. Pulling levers and pressing buttons because you're upset and/or frustrated, and/or nervous, is a very risky thing to do in any business, but particularly in one where people's value is at stake, and that's why there's so many checks and balances built into the MakerDAO system. |
| # / 00:10:47 | Richard Brown | I'm not really heading towards a very specific point to be made here, but one of those point is that, excuse me, that we've seen this in the subreddit where, why don't we do this? Why don't we do that? This gets up-voted a lot and a lot of statements or questions about, "I think we should do this and why haven't you done that kind of stuff". And what I want it to reinforce in today's call is that the likelihood of that implementing any sort of change is very, very, very small. The way that things get altered in this system is, as to Steven's point, through the Scientific Governance framework and it's a series of four documents, and I can post links to them when I'm finished speechifying in the sidebar. But they very kind of clearly outline how changes happen in the system, how they need to be evaluated, what kind of considerations need to be taken into account, what kind of thinking needs to go behind them. And we're all moving towards this model as quickly as we possibly can, where those changes need to be backed up by clean data sets that have been approved by reproducible algorithms that anybody can like download from GitHub and run themselves to validate the assumptions in these proposals. |
| # / 00:12:03 | Richard Brown | We're not there yet. We're getting there very, very quickly. But in the meantime, we need to do as much due diligence as we possibly can. So if somebody wants to see a change in the system, it needs to be a lot more than an opinion. It needs to be, "I want to do X because of Y. This are the implications that we've thought about, here's the risks that have been identified, here's how it could impact these three or four stakeholders in the system. Here's how it can be undone. Here's what the polling process looks like." I'm not a risk expert and I'm not a data analyst, so I can only provide some of these broad strokes. The risk teams can probably provide a list of 50 different questions that need to be addressed. But the point I'm trying to make us that there's a significant amount of due diligence that needs to be performed before changes to the system can be considered. And that I think is where I'm probably going to leave things right now. Chris, I can see you unmuting yourself. Did you want me to do something? |
| # / 00:13:06 | Chris Padovano | Yeah. I guess I just kind of wanted to push back on some of the things you said, specifically around how there needs to be all this redundancy and robust data before MKR Holders decide to vote on a specific proposal. Man, I understand the overarching goal of having better data, but we're in uncharted territory right here, and there've been changes made to the system specifically around stability fees and there've been some assumptions that have been made that turned out to not be true. For example, right, stability fees, not having the effect that, that we'd like them to have. And I just think that it's MKR token holders who truly governed the system and say want to be capricious and just put votes and changes into the system, they probably can. |
| # / 00:14:06 | Richard Brown | Well, sure. Yeah. I see your point completely. And I was hoping that ... maybe I didn't make myself clear enough that we're in a situation where we don't have the robust models, we don't have the clean data, we don't have the approved sets and the repeatable systems that the rest of the financial world had been using for the last X number of 100 of years. We're moving towards that as quickly as we can. In the interim though, the solution to this problem of in the absence of a very clear process is that we need to find this middle ground between opinion and very well reasoned opinion, and eventually moving towards a model, script, code that can prove that assumptions are, or at least back up people's assumptions. The point that I want to make today though is that we need to be in that middle ground, where there is a very well-reasoned, very comprehensive arguments with at least lose data, somebody's data to back up some of these assumptions. |
| # / 00:15:09 | Richard Brown | And I think that's from that point that gives us the foundation, something to grab onto, that to move something forward into our proposal phase. We can't move into proposal phase based on one or two sentences, comments in the subreddit. There needs to be a middle ground where there's a reason to arguments as opposed to an opinion. I don't know precisely what that looks like. I am hoping that we can discover that in the subreddit or in these calls what a proposal would look like, what kind of things people want to have proposals about, and maybe that's a good place to leave it because my hope was that we could start a conversation today briefly about the nature of proposals, but having that framed by the fact that it needs to be very well considered, and ultimately, the goal, the role of the foundation right now is to shepherd the organization through a process of eventual decentralization, right? That's built into the principles and we've tossed around fake numbers. You can't predict how long that's going to take, but it needs to be understood that this is like a year's long process before all of the checks and balances come off. |
| # / 00:16:25 | Richard Brown | So anyways, before, I promised I wasn't going to speechify and it's already 20 after the hour. So if there's any comments or questions or suggestions about how we could facilitate and/or optimize and/or frame the way the proposal process works, add those to the discussion thread that I posted in the side and we can continue those discussions over the course of the week, or a type in your questions now. Otherwise, I think I'm going to hand it off to the risk team because Vishesh and Primoz, I think have something up their sleeves or us today. |
| # / 00:17:02 | Cyrus Younessi | Yeah, let me just do a quick outline. So I think we're going to have a ... |
| # / 00:17:09 | Richard Brown | Cyrus, this is embarrassing. I have to cut you off because I realized I forgot the second half of what I wanted to talk about. I want to go over the poll really fast. That's the whole point of why we're here, kind of. So we saw something that ... I don't think it's necessary to put graphs and analysis about what happened with the poll. I think there's something interesting that we can consider here though. We had an option "leave this stability for where it is". So a raise of 0% all the way up to 4%. We saw a far more of a distribution of votes, uneven distribution, which is good. It shows that there's some kind of signaling at work here. |
| # / 00:17:47 | Richard Brown | This is the surprising thing that happened this week, though was 12,000 MKR was staked at the 4% stability fee level, but 50,000 was staked at the 2% stability fee level. And so there's things we need to think about here because that says, depending on how you want to interpret that data, it could mean a few different things. And I'll probably leave it up to the community of speculate on what that means, but the fact that a pole landed on the midpoints of the available options is an interesting thing to consider. So I wanted to throw that out there. And sorry, Cyrus for wrecking your flow. You can pick it up again now if you want. |
| # / 00:18:26 | Cyrus Younessi | Oh, that's okay. So we'll look at some data from the Vishesh and Primos, and then I think we should spend some time talking about this stability fee in particular as the primary policy tool. I think there's been a lot of contention or confusion about how that works. I think we should kind of just try to have a genuine conversation and kind of bare people's concerns Chris's or whomever else. And then maybe after that, we can discuss alternate policy tools if people want to. But I think that would be a good flow to go with. So I'm just going to pass it over to Vishesh first. |
| # / 00:19:15 | Vishesh Choudhry | Thanks, Cyrus. Let me share my screen here. So I think based on some feedback from last week and we'll continue to iterate on making sure we're showing things succinctly and focusing on the things that people are really interested in discussing, but to start off just what's been going on with the price. So added some ticks here for the stability fee changes. What was interesting was with the last increase, the price is held relatively steady but still below the peg, and I think this is going to kind of be the theme of the past week is we've seen an impact from the stability fee, but it is not necessary to bring up in any like sustained, meaningful way the price above 97-ish level, 0.97 level. What we have seen though is the impact on supply. So what's really interesting now is I feel, and again this was part of the theme of the discussion last week, is how much can we really start to draw patterns and conclusions versus we're just getting a few data points and we need more time and more sample size to really start to draw conclusions. |
| # / 00:20:41 | Vishesh Choudhry | But what I think we're seeing here is that the stability fee, clearly an impact on supply, it may not be enough to purely increase the stability fee to really get the peg back up to a dollar, and I think that's a conversation that we should be having. The other thing that I do want to say, is volume has been very low. So we can sort of take these numbers with a grain of salt right now because that trading volume has been low since a large quantity of trades and wipes two, three weeks ago. |
| # / 00:21:18 | Alex Evans | Hey, Vishesh, just one really quick question, I don't want to break your flow here, but it just seems to me that every time we pull these up at right out immediately after a stability fee change, volume almost has universally always dropped off immediately following that. I mean, at least going back to the past presentations that you've done, is that a trend that you've seen as well? |
| # / 00:21:38 | Vishesh Choudhry | Well, so what I would say is, let's talk about supply because I think the volume is to some extent a function of supply if there's less DAI out there because it's being wiped down. I'm not surprised that there are some slight dips in trading volume. And I would imagine that some of the trading volume around DAI before the increases is people trying to get their hands back on some DAI so that they can wipe down some of that debt so they're not exposed to higher rates in the future. So it's a relative because I'm sure there's a bit of a run-up, at least there was when we started talking about it. There was a big prolonged discussion around this 11.5% increase and so I think prior to that there was people getting their hands on DAI. And since then, I think you do tend to see a drop in trading volume because there is a drop in supply. |
| # / 00:22:32 | Cyrus Younessi | So, I mean, it wasn't part of it also because the executive vote runs on prize, and leading into the weekend, we're going to see lower volume? I also bet that the DAI volume correlates heavily with the broader crypto markets like Bitcoin and Ethereum are doing on those particular days? |
| # / 00:22:50 | Vishesh Choudhry | I definitely don't doubt that last point because, and we'll talk about this in a second. ETH price is again just to me the tried and true driver of what's going on with, DAI price. And I wouldn't be surprised if it has an impact on trading volume as well, so just to kind of show that here, I mean, we're seeing this kind of sustained correlation between what's going on with ETH price and what happens with DAI price. It's definitely, I understand not like a one-to-one, it's not something that we can ignore either because we saw just earlier in April, this run-up in ETH price and that was sort of part of when DAI was really suffering. And then ETH price came down a little bit around the time that we jacked up some stability fees so if you go back to here, this was the 14.5% increase. |
| # / 00:23:45 | Vishesh Choudhry | And so you kind of had this moment of ... We were discussing repetitive fee increases at the same time that DAI price was starting to fall. And I think that led to kind of swerved back onto the road a little bit when we were veering towards 96, 95, 94 a little bit. And so that was, I think an effective, monetary policy change what is interesting though is now that ETH prices kind of a little bit more volatile but still holding at relative levels, I think there's a lot of wait and see mentality in terms of what people want to do with derivative positions, whether they want to lever up further or whether they want to start to ease off the gas a little bit. And so I think there's a depression in volume, partly because of a bit of a wait and see mentality and people aren't sure at these levels, like what's going to happen with ETH price whereas earlier I think people were way more bullish on ETH price and so they were levering up way more on DAI. |
| # / 00:24:48 | Vishesh Choudhry | And so that kind of segways into the DAI supply. What we've seen, I think, and again, I do want to encourage, I think that we have seen an actual impact from these stability fee increases that is clear and measurable, and so that's primarily the outstanding supplies. So we've seen as we increased to 7.5%, there was a lot going on with ETH Price. There was a lot of unpredictability in what was happening with DAI supply. But as we started discussing the 11.5% increase, and then implementing it, and then discussing the further increase, and it was becoming clear to, I think the market, the community, this was going to be a series of increases, that we started to see the DAI supply really start to come down. |
| # / 00:25:36 | Vishesh Choudhry | And so there's been a ton of burns, I mean, a tweeted about this, a little bit about a few specific transactions and we discussed this on last week's call, but that's really not reversed. So I think that's a positive indicator. I mean, it's still, we need more time to really be sure, but it seems that that trend is not reversing. It seems that the increased cost of drawing out this DAI has really been an actual effective deterrent in terms of contracting supply. Although contracting that supply has not purely, saved the price peg. And so that's probably a separate discussion that this group of the community should have was in addition to what's going on with supply. What else can we be doing about the price or is there kind of a equilibrium level of the price like at 98-ish a level? And I know there was a few folks throwing that idea around on the calls. |
| # / 00:26:35 | David Utrobin | There was a question in chat from Samuel Barile asking what other alternatives and options do you think could get us back to the spot-price of the peg? |
| # / 00:26:44 | Cyrus Younessi | David, let's save that for after when we ... |
| # / 00:26:47 | David Utrobin | Yeah, sure. |
| # / 00:26:49 | Vishesh Choudhry | Okay. Yeah, I do think that's a big question that warrants a broader discussion. And then just the last little piece, I don't want to take up too much time, what's been going on in kind of the secondary platforms. So Compound the interest rates. We discussed on the last call that it was finally a more expensive to get DAI from Maker. What's interesting is this has not reversed either. I mean, we see a little bit of kind of a potential recovery, but either that will take more time or it won't happen, which is kind of interesting. The borrow rate for DAI on Compound has not jumped back up to the 14.5% level. And then the supply rate I think has just moved sort of in lockstep with the borrower rate. |
| # / 00:27:39 | Vishesh Choudhry | But when you look at the volume, so I think again, on this theme of like, can we start to draw conclusions. What we do see is when we jack up the stability fee, there is a clear drop in the supply that's being lent on these platforms. The borrow does not appear to me and I can run some numbers to confirm, to be highly correlated with the increases. There are these kind of semi-independent and it's good, I think we should look for independent signals from stability fee increases but I think again, this may have to do with more with ETH price and less with what's going on with the stability fee these jumps in the borrow volume on compound. Now I think we saw a little bit of a dip and then recoveries is really hard to say what's going on since the 14.5% increase. But the borrower volume I think is not changed significantly. |
| # / 00:28:37 | Vishesh Choudhry | So what's interesting is initially, when we were jacking up to 11.5%, we saw a few big holders trying to get their hands quickly on some DAI to pay down their debts. I don't think those big holders have now, at least the ones that were deterred by anything less than, I don't know, 25% rate those, those kind of reasonable range holders I don't think have gone and levered back up in terms of drawing out debt. So they don't have those large outstanding debts to go and borrow DAI on secondary platforms to go and pay down. So what we've seen, I think, as a result is not a huge change in the loan supply and borrow & lending volumes. One thing that I did want to just quickly mentioned, because it was part of the discussion last week I had at a graph, but a couple of technical errors. So that'll be up next week. |
| # / 00:29:37 | Vishesh Choudhry | The collateralization ratio. And apologies that they're not on the same screen here, but you see April 14th and April 19th, or these two most recent increases. The collateralization ratio on Maker has not significantly increased. It ran up a little bit with what was going on with ETH price, but people have actually, I think, reduced the collateralization ratio slightly. Again, ETH price has come down slightly, but if I run the numbers on this, I believe the drop and collateralization ratio is more than just what's been going on with ETH price. So people have kind of let their foot off the gas a little bit, I think, in terms of the amount of collateral they need to collateralize their loans with. So that's to me a little bit more of a risk tolerance, a little bit less fear of getting liquidated, all of that again. So I will stop here if there is anything that someone wanted to double click on, ask questions, etc., I'm happy to, otherwise, I'll hand it back to Cyrus. |
| # / 00:30:53 | Cyrus Younessi | Okay, cool. Thanks for Vishesh. That was great. Let's quickly jump into the next presentation and then we'll do a big discussion afterwards. So Primoz, are you ready to ... |
| # / 00:31:08 | Primoz Kordez | Yeah. Can you see my screen? |
| # / 00:31:15 | Cyrus Younessi | Yes. |
| # / 00:31:16 | Primoz Kordez | Okay. So I actually don't have much to show for the past week because I just updated my old spreadsheet and wasn't really focusing on new metrics. What stands out in the past week is higher activity of ETH being removed or freed from the collateral in the middle of the week, does the yellow bar here and then yesterday and some other CDPs we're locking some larger amount of featuring the collateral. There wasn't really much activity in wipes and draws. They're more, I mean, especially in comparison with last week there were more or less balanced except on the day of the interest rate hike when almost one million of DAI was wiped therefore DAI in circulation in the whole week fell by only about a million or a million and a half. So the pattern is still the same. A single activity events still amount to about one-third of total activity. The top five events similarly to about three quarters or 75 for the whole activity. Altough we could see that locks and draws in the past week were a bit more popular amongst smaller CDPs and newer once, I guess these guys who are a bit more bullish. And frees and wipes were associated with larger CDPs who were, who were mostly the leveraging, that's why I could see a bit of a decrease in collateralization ratios. |
| # / 00:32:40 | Primoz Kordez | There was about 200 CDPs interacting with the system last week. As I mentioned, the largest part of activities associated with ETH being freed or remove from collateral. Interestingly, we didn't see high correlation between free and wipe activity. We don't know exactly what caused CDP the owners to unlock Ether, and not really use it for debt-repayment afterwards. Potentially, they might be moving Ether from collateral into some other assets. They could be transferring it to BTC which actual outperformed Ether past I don't know. But the other theory is also that the CDP owners might be transferring Ether to other platforms such as Dharma and Compound. And might be actually building leverage there because interest rates are much more favorable in comparison with Maker. And we actually saw increase in amount of DAI being borrowed on Dharma, I think. And the other theory is that the CDPs wanted to lower their leverage and converted Ether to fiat, but then I guess they would be more willing to buy DAI and lower debt-exposure, especially since DAI trades below one. But we can't seen that really because wipes were actually lagging frees in value. |
| # / 00:34:02 | Primoz Kordez | So that's, that's basically more or less all from me in relation to CDP statistics for this week. Nothing special to be honest. |
| # / 00:34:12 | Cyrus Younessi | Okay, cool so then, before we jump into the stability fee, I just want to kick it off with a quick reminder or refresher. So the goal of these stability fee changes is to reduce the DAI supply, which in turn should theoretically push the DAI price up. So I want to distinguish that as we talk about this, do people think that increased stability fees won't be reducing the DAI supply as effectively as we might have considered, or that a supply reduction itself is just not going to have the effect that we think it's going to? Because I see these two concepts get mudied up quite a bit. So for example, I mean, we have seen some small DAI supply reduction from about, I think the high was around 95, 96 million down to currently 88 million. And we saw that twice actually after it dip down, went back up and then came down again. |
| # / 00:35:23 | Cyrus Younessi | So it's clear that the supply is trending downwards, but do people think that if we continue raising the stability fee and having the DAI supply kind of keep going down, that it won't push the DAI price up? Just something to keep in mind. |
| # / 00:35:44 | David Utrobin | So, Cyrus, I could add a thought that I was having about this exact thing. I think that on the spot markets as there's more DAI demand presumably from people wiping, which also just isn't unclear that that's happening. But I imagined that the market makers will probably be a unloading between 98 and a half and a dollar so that there's additional basically liquidity on the sell side right below a dollar. So it might take a lot to actually get to the peg because market makers are eager to offload. What do you think about that? |
| # / 00:36:21 | Cyrus Younessi | Right. So I mean, there doesn't seem ... I don't see anything structurally wrong with that approach. I think there's this fear that this stability fee might have to go too high, which is a nebulous concept. And I actually wanted to share a picture. Primoz, do you have the link to that tweet or that picture of the Bitfinex, margin rates? |
| # / 00:36:48 | Primoz Kordez | Yeah, I have it, but I think it's better if I screen share it. |
| # / 00:36:53 | Richard Brown | I posted it. |
| # / 00:36:53 | Primoz Kordez | Oh, just posted it. |
| # / 00:36:54 | Cyrus Younessi | So Rich posted a link in the chat. Basically, I think these are the margin rates for Bitfinex, and we can see that there's just massive variance in this rate that fluctuates heavily based on kind of the spot demand for leverage on the exchange. And there's obviously some nuances, some subtleties that are different between this rate and the Maker stability fee. But I think overall, the shape, it's reasonable to assume that they will look somewhat similar. So back to your question David, I think that if we can collectively agree that a higher stability fee lowers the supply, and we're comfortable with basically highly variable high variant stability fees, and I don't see anything structurally deficient with the current lever that we're using but I know others ... |
| # / 00:38:00 | Richard Brown | So Cyrus, you explained this to me a couple of days ago, and it was sort of an Aha moment for me. It might be useful to dig into this a bit more, because it ties back to this theme that we've been having these calls of needing to have a better understanding of what people use the CDP engine for, and there's been this question about is it just to unlock liquidity to do X, Y or Z, or is it primarily a leverage tool? And I think that by comparing the response to the community too or CDP to the stability fee hikes and especially with comparing it back to Primoz's Twitter thread that I posted, which was worth a read, is your impression that the reaction to the market to the stability fee increase is a pretty clear indication that leverage is the primary use case here? Like the ... |
| # / 00:38:56 | Cyrus Younessi | Yeah, I think so. I mean, we're still investigating that, but I think it's fairly clear that the primary use case for CDP is leverage. I mean, we can just tell that from the correlation of DAI price to the ETH price. |
| # / 00:39:16 | Richard Brown | That paints a lot clearer picture about whether the stability fee is of the correct lever then in that regard, because the risk appetite, if obviously, the clear a primary usage is leverage, the risk appetite is going to be a lot higher, and the premium people are willing to pay for that. |
| # / 00:39:37 | Cyrus Younessi | Right, yeah. So I mean, essentially, if all of a sudden there's a huge surge of demand for leverage, then it makes sense that the system would have to kind of price itself accordingly in order to maintain the stability that we desire. If it doesn't, then obviously that leverage is being offered at too cheap a rate, and we end up in the situation that we're in. So I mean, I think that part is fairly clear. I think what's unclear or what caught most of us off guard is just how variable that rate in just how volatile that rate can be. Can a sudden surge of demand for leverage such as an impending bull market like we've been in, is it really feasible that that would push the rates as aggressively as it did? |
| # / 00:40:33 | Cyrus Younessi | And I think the answer is sort of in the middle. So I think maybe the stability fee was too low to begin with. So if it had started off somewhere in the 5 to 10% range, then the current fee that we're seeing wouldn't have such as shock factor to it. So I think that played a part for the emotional side of things as well. But I think the reality is that for as long as DAI is being used primarily for leverage, we can and should expect highly volatile stability fees going forward, on the reverse too, if it overshoots or for whatever reason, the bull market just suddenly dies, I think we could see a quick correction in terms of demand for leverage. |
| # / 00:41:24 | David Utrobin | So I have two quick questions for you, Cyrus. I mean, obviously, everything you said kind of brings the question to MKR governance of should we be considering even higher fee increases than 4 and 10% to the 20% levels. And then also, let me just add. There's also the question of what are the risks overshooting, and are they immediate risk, urgent risks or is overshooting kind of a meme that's taken too urgently? |
| # / 00:42:00 | Cyrus Younessi | I mean, I don't think we know the answer to the risk of overshooting. I know there's some in this call that are somewhat concerned with it. Personally, I'm not. I just do think once we overshoot is going to require some swift governance too quickly undo it. I mean, I think we'll have a bit of a buffer if there's room in the debt ceiling, then market makers can generate DAI in and push the price back down. But that's just kind of like, let's cross that bridge when we get there. Let's fix the immediate problem. I don't want to dominate this conversation. So please others jumped in. |
| # / 00:42:38 | Richard Brown | Yeah, I'd love to hear from the community actually. So we have a lot of big wigs in the call, a lot of MKR holders, and a lot of MKR voters. So some opinions about what their impression is about this mid-range selection in their most recent poll, whether that implies ... sentiment has maybe scared people away from trying to increase it any farther, whether the community or the MKR voters believe that they are achieving or getting close to an equilibrium. I'd like some additional insight because I don't know what's happening, and I'd like to understand the poll that we just had. should I call people out specifically? Put someone on the spot? One confirmation, do you guys have an opinion? Matthew, you're always good for an opinion. |
| # / 00:43:33 | Alex Evans | So there's a few things maybe that we didn't touch on there. I think you made some really, really good points. One, I like the way that you framed it in that we have two hypotheses here, just going back all the way to the first thing that you mentioned. On the one side, we have the question of does this stability fee affects supply and if so to what extent? And the is the question as to what extent does the change in supply then have an impact on price? And I agree that we have to think about one or the other. We haven't seen the stability fee have an enormous effect on supply. And so, therefore, when we don't have that data, it's hard to answer question number two. And so until we see that I think all that is going to be questioned not just by people on this call, but the broader community that potentially spend a little bit less time on this. But it's as they're just somebody to be aware of that we can't do much about. |
| # / 00:44:27 | Alex Evans | I mean, if we're disciplined about continuing to increase the stability fee until we see the results that we would like to see or are refuted in our initial hypothesis, that just will remain open, and we just said something we need to be comfortable with. On the question of overshooting because I have a strong opinion about this. I am absolutely not worried about overshooting, in fact, I don't think it would be a bad thing if we overshot a little bit and that means the market makers would be able to clear some trades and above a dollar and they've validated defending the peg for us to the extent that they have significant capital. And so I wouldn't mind that happens without taking that risk for us. So that's just two cents on [inaudible 00:45:08] that you mentioned in there. |
| # / 00:45:10 | Cyrus Younessi | Right. And part of what I said kind of bridges into this the idea of alternate solutions such as obviously reducing the debt ceiling. So if people are of the opinion that a reduced supply will have an effect, then debt ceiling argument is moot anyways cause it's accomplishing the exact same thing. If you do think that reduces supply will help, then is it not worth just considering the continuation of the supply reduction through the stability fee. So as said, we've seen some reduction from 96 to 88, what is that? Maybe 8% reduction, which is not great. But so is that not enough confirmation for certain people that higher fee has resulted in a lower supply? And I mean, no secret. I'm not for the debt ceiling reduction, but happy to hear other thoughts. But for me, I think it kind of creates some weird incentives that we haven't fully thought out yet, so it turns the system from a permissionless one into a first come first serve. CDP owners might fear that they wouldn't be able to open one back up if they were to close it, so ... |
| # / 00:46:36 | Chris Padovano | But why would they think that though? |
| # / 00:46:37 | Cyrus Younessi | Why would they think which one? |
| # / 00:46:39 | Chris Padovano | Why would they think that for some reason that the debt ceiling would prevent them from opening up a CDP in the future? |
| # / 00:46:48 | Cyrus Younessi | No, I mean, well if they were to close one right now, then they would have to wait for ... let's say the debt zone was set to 50 million and they closed it right now, and they wouldn't be able to reopen one until it fell below 50 million, right? |
| # / 00:47:02 | Chris Padovano | Is it much more likely that they would try to figure out ways to sell their CDP market opens up? I agree with you that there are kind of some unintended consequences of just immediately flashing the debt ceiling to a level where folks can't issue new DAI. But I think that the technical risk of global settlement certainly is a lot more palatable, if they're say $75 million in DAI outstanding as opposed to 90 million or $70 million in DAI opening as opposed to 87. Because that's probably the biggest risk that DAI holders and just the larger community have is that the peg remains unstable for a significant period of time. And then there's a panick in DAI markets and instead of focusing on the size of the auditorium, really what we should be focusing on is the size of the exit door. And in a post global settlement world, things may get a little. I mean, maybe not, I don't have ... I don't know. |
| # / 00:48:09 | Cyrus Younessi | Yes, I think there is a reasonable argument for lowering the debt ceiling to something above where we're currently at, to let's say 90 million, that's actually not something that I'm for or against one way or another, but that doesn't also have immediate effect on the DAI price. But I see what you're saying. In terms of the global settlement risk, I mean, for me that's an entirely separate conversation because when Maker scales to billions or more, I mean we're going to have to deal with that and much different ... |
| # / 00:48:44 | Chris Padovano | 100%. But we'll come to that bridge when we cross it. Right now we all acknowledge that we're in Beta or in Single Collateral DAI. We can only use Ether. The peg has been broken for three months. We're increasing stability fees at a rapid pace, right. I think a lot of people were kind of surprised that the most recent stability fees increase just went through on Friday, as quickly as it did. But it did. And right now, I think it's not an irrelevant conversation to start having that, at what point does like a super high stability fee just become kind of a ... that we should think about raising it for public policy reasons, right? I don't think we're there yet, but I'm just saying that there's a looming consideration once we start getting above 20%, and it's really ... I just don't understand what the downside is of acknowledging that we're in beta trying to use all the tools in the tool belt to try to fix the outstanding price and supply. |
| # / 00:49:55 | Chris Padovano | Market makers will not create CDPs to issue themselves more DAI, unless at the same time, they're naturally long ETH. So that's kind of a red herring. I still think that there's a lot of inventory ... there's some excellent data on CDPs prevented from Primo and ... sorry, I'm not sure if I'm pronouncing your name right, Primoz. And if you look the CDP whales, there's still issuing themselves more DAI they're not wiping. I mean ... |
| # / 00:50:29 | Cyrus Younessi | So ... |
| # / 00:50:29 | Chris Padovano | I see reduction in supply ... |
| # / 00:50:34 | Matthew Rabinowitz | But that's exactly the point. |
| # / 00:50:36 | Chris Padovano | It's moving ... |
| # / 00:50:37 | Matthew Rabinowitz | [inaudible 00:50:37] for a second, Chris. That's exactly the point. Every CDP owner is selfish. They're looking after their own best interest. And if their own best interest ... |
| # / 00:50:46 | Chris Padovano | I don't understand. [crosstalk 00:50:47]. |
| # / 00:50:48 | Cyrus Younessi | Chris, let Matthew just speak for a second. |
| # / 00:50:51 | Chris Padovano | Okay. |
| # / 00:50:52 | Matthew Rabinowitz | Yeah. When you're acting up to in your own best interests, if you're still willing to mint DAI at these prices in a permissionless system, that means you're doing it for a reason that's beneficial to yourself on a blended basis. Somebody's found an angle on how to borrow money and make money by borrowing at these rates. It's screwing with the rest of the entire community because nobody else has an appetite, well, some people apparently do. The challenge is that until there's a demand offset, the blended basis, people are still finding ways to make it work up until the point where they don't. And the question is why do we find that blended stability fee? We start introducing artificial tools. |
| # / 00:51:36 | Chris Padovano | I don't know ... Okay. Hold on one second though, because this keeps coming up, and I don't know why all of a sudden, right? We're just stability fee curious when it comes to measuring the viability of using a stability fee to quote lower supply and fix the peg, right? That's not ... |
| # / 00:51:59 | Cyrus Younessi | I can answer that. I think I can answer that. |
| # / 00:52:01 | Chris Padovano | Okay. But again, what's artificial without this, because this whole thing is pretty artificial? The whole thing is a misnomer. It's a miss characterization. It tried to paint something as being kind of like ugly and against market forces, but I just don't understand. So yeah, by all means. |
| # / 00:52:22 | Cyrus Younessi | Sure. So let me try to answer it. I think people think that the debts ... people misunderstand what the primary risk to the debt ceiling is, and it's not relevant to monetary policy or the DAI stability, but rather is a function of the risk of the collateral failing. How much debt ceiling for risky asset is a billion, and it fails and that's $1 billion of bad debt? Technically not something that's related to monetary policy. |
| # / 00:52:58 | Chris Padovano | I get that. But I guess, why ... and I understand too that this may be a growing minority, but a minority position nonetheless, right? We're pretty certain that we have too much supply, right? I think everyone is in agreement with that. And I don't have a good reason why, if we have too much supply, why don't we cap supply, understanding full well that we are [crosstalk 00:53:35]. |
| # / 00:53:37 | Matthew Rabinowitz | Chris, you're nailing the theoretical on the front end. No, I'm not even disputing the theoretic ... |
| # / 00:53:41 | Chris Padovano | Yeah. I feel like we're agreeing. |
| # / 00:53:43 | Matthew Rabinowitz | Okay, yeah. The challenge is not what you do to start, it's what you do to stop. Okay. Think about what you're saying, if you're putting a tool in there that limits supply and its creation, how do you turn it off and do not expect when you release that inhibition? You're going to have the all the exact opposite challenge because you're not finding a market solution, a market force solution. You're introducing another force. That's the point. |
| # / 00:54:10 | Chris Padovano | Totally. But here's the thing, right? Is that we have this great data set about what happened the last time we ran up against the debt ceiling. DAI appreciated above a dollar, and then once the debt ceiling was raised, the pressure was relieved, and DAI traded much closer to a dollar than it is right now. In December, we had a very large CDP. It's the largest CDP that we have just opened $13 million in DAI issued. And I'm only bringing this up because we're kind of in a situation right now where we can keep raising the stability fee, which I think is a good idea. But I think it's important to keep having conversations like this because like ... |
| # / 00:55:00 | Richard Brown | Chris, I need to cut you off. I'm not going to kill the conversation. Let's stick around after the call, but we're at the top of the hour. We're going to start losing a pile of people. So, Steven if you want to give us your final thoughts. Anybody who is interested in continuing the debt ceiling conversation, stick around. I'll let you go, Steven. |
| # / 00:55:16 | Steven Becker | No worries. I just wanted to basically just thank everyone for being on this call. And just listening to the points that have been raised, it gets very interesting to think about the instability fee is a lever and think more broadly about what is the environment, what does the ecosystem look like to make a stability fee more effective than what we believe it is doing at the moment, at the same time, probably cognizant of the fact that what that ideal state is, and trying to compare it to where we are, and think clearly about what are the demand factors that we need to innovate on, to try and counter as opposed to ... just try to counter and build the system as opposed to try and manage something that we're at the same time bootstrapping. But to all the folks that have contributed to this conversation, thank you very much. I really do appreciate it, and I think that we can definitely keep the momentum behind us. |
| # / 00:56:15 | Richard Brown | All right. Thanks, Steven. Thanks, everybody for your great and impassioned conversations and thoughts today. Last week we kept the call going after the 10 o'clock mark, and that was well received, surprisingly so. I think we can potentially do that again. So if people don't have jobs to do, feel free to hang out and we can continue to talk ourselves out. One thing I do want to caution, Chris, love your passion. It's very important that we let people finish their conversation. So I don't want to turn this thing to turn it to the Fox and friends kind of deal. So let's make sure that we do the back and forth thing and let people have their say. |
| # / 00:56:52 | Chris Padovano | I think we are doing a pretty good job, back and forth. |
| # / 00:56:55 | Richard Brown | It could be better. So anyway, that's just, for everybody in the room actually because I think Joe is about to blow us up ... |
| # / 00:57:02 | Joe Quintillian | Yeah, I mean, we got a lot of people go back and forth, Chris. I know you go on your roles, and that you do a good job when you go in your roles. I understand. But I got your back and forth on this conversation. |
| # / 00:57:13 | Chris Padovano | Yeah, totally. |
| # / 00:57:17 | Joe Quintillian | And this is an important thing. We need DAI above $1. There are a lot of people on this call that didn't get a chance to talk during the hour. I think maybe that's next time we suggest like the Q&A, we have a shorter [inaudible 00:57:32], because I know there are lot of partners that we'd love to talk because they want to drive DAI back up to a dollar. |
| # / 00:57:40 | Richard Brown | That's a great point. Thanks Joe. That's something that we've been talking about for a while is whether this call should actually break out into something different at 10 o'clock, where we basically maybe just a round table around risk, whether it's just random questions. Maybe it's just thoughts and feelings and all the rest of it. So maybe let's do that. I'm not sure whether we're talked out on the debt ceiling thing yet, judging from Chris's passion, I think probably not. But there are a lot of other questions that got asked, David, if you can scroll through the chat and see if there's anything that was hyper-relevant or if anybody asked a question in the chat that didn't get addressed, please ask to jump in. |
| # / 00:58:18 | David Utrobin | Well, I think that we should continue with the debt ceiling discussion. But Mike did post the link to some of his thoughts that are actually pointed out contrary to the position of Wyre as one will are just DAI market makers. So it's definitely something that the community should take a look at. But other than that we didn't see anything particular. Yeah. |
| # / 00:58:40 | Richard Brown | All right, we'll keep an eye on. Let me finish up. Let me maybe try and put a bow on the Stetson. I think it's potentially not something ... Well, I don't know. I'm not going to stifle the conversation. If people want to keep on talking about it, that's great. Here's my advice though. We have this ... maybe let me try and reframe things. So we had this discussion where I think at least personally it's becoming obvious that maybe, yeah, I'm just the slowest guy in the room that CDPs are all about leverage. People are willing to leave her up because there are potentially degenerate gamblers or who knows how things work. So as a high stability fee is not really a disincentive. So perhaps we haven't found out what that sweet spot is yet. There's another school of thought that just simply artificially capping the amount of DAI that's in circulation is a valid way to go as well. I'm not a ... |
| # / 00:59:31 | Chris Padovano | We've already artificially capped the total supply of DAI. |
| # / 00:59:33 | Richard Brown | Sure. This is the thing where I want to finish my sentence before you jump in, Chris. So the next step is, we need to completely understand the conversation. And I don't think that completely understanding the implications of the density of the conversation is going to happen today, although we can like work towards that. What I would love to see though, and this is kind of something that I was touching on at the very beginning of the call, is that there needs to be a very ... there basically needs to be a thesis presented, as far as I'm concerned about what the debt ceiling is all about and why that would be good. So somebody needs to boost up the old Google Sheets or Google Docs, and just write up 10 or 15 sentences or paragraphs, whatever it takes to create a reasoned and impassioned platform for which people can begin to debate. |
| # / 01:00:16 | Richard Brown | Because right now the debt ceiling discussion from what I can perceive, maybe this is my own perception, but it's spread across five or six different threads in the MKRgov sub Reddit. I've read it and maybe there's one or two at MakerDAO. They have various levels of complexity in them. Some of them have really good comments, some of them have shitty comments. Somebody needs to aggregate those, that thinking and come up with a plan that we can all go, "Okay, this is the debt ceiling plan, what do we think about this?" And then we move from there. And then I think that an interesting plan of possibility is that maybe we have governance poll that says, "Hey, are people ... Whose interested in talking about this debt ceiling thing, seriously?" And then if maker comes out and votes fourth, and yeah. Now it's a thing, right? But there needs to be a clear plan of action as opposed to, "Hey, we need to change that soon." That's not going to go anywhere. |
| # / 01:01:04 | Chris Padovano | Joe, what do you think about the debt ceiling? |
| # / 01:01:09 | Joe Quintillian | I want to give a little more time, but I think we are breaking down the overall number of DAI issued. Now we're down to 86 million because right now, I thought our mistake was we shouldn't have raised so much as just let it hit the debt ceiling, but I really don't want to lower the debt ceiling. It shows lower growth. We're raising up so much, it shows DAI demand at these rates. Think about it as a hedge fund right now. You can go and go and buy, DAI at 97, 98. Sure. You'd get a couple of million dollars worth from Cumberland, from all these other people for me. And you could go buy $5 million a DAI, borrow it, and lend at Dharma or Compound and earn a great return. So it's a matter of ... I don't think it's the debt ceiling as much. |
| # / 01:02:13 | Joe Quintillian | I think it's also access to DAI. And this is what the maker teams working on, getting more people so people can go buy DAI and then go lend it out. Right now it takes two transactions to really get to DAI. It's not really great. I mean, not many people we'll have acces to Coinbase Pro, to go from dollar to USDC to DAI, what DAI really needs to be, Is great access where people can just go and immediately get the credit card and go buy DAI. That hasn't happened yet, but I'm sure the Maker team has tricks up ... |
| # / 01:02:56 | Michael Dunworth | I don't think we want that because we're just scaling a problem. |
| # / 01:03:00 | Joe Quintillian | I don't think it's scaling a problem. |
| # / 01:03:06 | Michael Dunworth | What? |
| # / 01:03:08 | Richard Brown | Listen, Michael, can you expand on it? |
| # / 01:03:08 | Michael Dunworth | Evidently there's a problem in the underlying. Like the infrastructure, there some problem somewhere. And that's what we're trying to find, identify. And we can't force and we can evangelize and do that sort of stuff. But demand will come. That's it. That's just a fact. We just cannot fight time and adoption stuff. The only thing we can do between now and when that hit is make sure that there's only one place in town that has the most concrete stable coining that is decentralized. So if we're putting any petrol on the fire right now, some people have said like, "Let's list it on binance and get more awareness and da, da, da." The bigger it gets, the faster people can onramp, the faster people can get an all that kind of stuff, the more problematic it becomes. |
| # / 01:04:03 | Michael Dunworth | And we started seeing that pretty significantly, and that's why we had our numbers really blown out. I think it was a $1,04 to buy, and 95 cents to sell or something like that. Strictly because we decided, we're [inaudible 01:04:19] because we weren't making any money as a company, as market makers, we weren't making any money. And as DAI shareholder, I mean, a MKR holders. It was a disservice. If we sort of knew that it was busting it even more, then we will just like a kill switch. Something to keep your mind. Yeah, that's all. |
| # / 01:04:45 | Richard Brown | Well, those are some good context. I think that it's becoming increasingly obvious to a lot of people that the reason that we are having these discussions now is because the communities or the voters left this stability fee at an unreasonably low rate for far too long, right. That's one of the things that needs to be in the back of our mind to if we do hit that glorious day when we find out where the overshoot is that responding to aggressively in the opposite direction potentially create some risks as well, right? |
| # / 01:05:26 | Michael Dunworth | Mm-hmm affirmative. But I think on the debt ceiling stuff, the last call, a couple of months ago, I think I'm sort of against the idea of using the debt ceiling as a mechanic. That's basically a complete admission that the system is not working. That's my reluctance to use it. But I do agree. I noticed it's factual that the reason this is all blowing out is because the system is not ... It's three and a half or 3.5 X the amount of collateral in the system, but the system is comfortable with. Based on the price discovery numbers that I'm using, it's saying that it's basically three and a half X bigger than it should be and so basically. I think this is a really good chance to actually entertain the global settlement. We're going to need to do it. It's going to have to happen at some point anyway. Why not do it when there's an actual meaningful reason to do it? And I think it would signal really well to the rest of the market, the maturity of execution that Maker is taking to preserve long-term value for shareholders or DAI holders and stuff. I don't know if you guys ... |
| # / 01:06:48 | Richard Brown | But that's got a pyrrhic victory at that point? |
| # / 01:06:51 | Michael Dunworth | Pardon? |
| # / 01:06:52 | Richard Brown | A pyrrhic victory at that point. In order to prove that we won, we need to burn everything to the crown, to show that our resolve at the strong. |
| # / 01:07:02 | Michael Dunworth | Yeah. It's a mature decision. So if Rune comes on and says, "Hey, we want this to be a $10 billion market cap to DAI in the next three years," so we are going to burn it to the ground. This is a fire drill guys, everyone, you're going to hear an alarm literally like Steven just getting a fire drill out of the call earlier. I think that would signal incredible maturity to the rest of the market. And now's a great time to do it when there's a reason. |
| # / 01:07:32 | David Utrobin | Mike, I think ... |
| # / 01:07:35 | Richard Brown | There's enormous hesitancy with implementing something like the debt ceiling because we don't completely understand what the effects a small lever like that would have. I think that the amount of philosophizing it would take to try and understand what an emergency shutdown would have on the system and consumer confidence and the wider ecosystem and all the people that need to exchange all their old DAI for new DAI, and the hit on MKR token... |
| # / 01:08:03 | Michael Dunworth | Yeah, that's true. But if you have ... We have a motivation to do it right now. And you could say, "Guys, during these five days, we will be executing a global settlement. No-one, we're not going to tell anyone other than Rune and Rich and David or whatever." And give that predictability just to soften the mark a little bit more. I don't want to do it when it's 2 billion and you don't get to choose whether or not you're going to do it. [crosstalk 01:08:39]. |
| # / 01:08:39 | Richard Brown | [inaudible 01:08:39] finish up in a second. There's a corollary in the IT space, if you have a backup system but you've never tested that backup system, how do you know you actually have a backup system? And there's kind of feeling with the global or emergency shut down. How do we know it's a thing unless it's a lever that we pull? From that respect, we can test the mechanics of it. There's also how do we signal to the community that we're going to do this? The signaling part I can kind of understand, terrifies me, but I can kind of understand, but shut global down/emergency, whatever we're calling it these days, emergency shutdown. In the beta stage with potentially whatever 86 million DAI standing, there's not really signal the fact that we'd be willing to do it with billions of DAIs outstanding right. It's designed to be a fixed for a fundamental flaw in either the system, the game theory, the contracts or the ecosystem as a whole. |
| # / 01:09:37 | David Utrobin | There's also another thing to consider here too because if you have a global settlement before Multi Collateral DAI, because there is going to be a global sediment in the transition from single collateral, the multi collateral that you're pretty much cutting short the demand growth of DAI as well because everybody's going to have to redeem their DAI and their CDPs for collateral. So the emergency shutdown really should not be used as a flex because the unintended negative consequences, in my opinion are very large, and I think what can show the strength of Maker governance probably in relation to like the earlier discussion we had, the idea that the variance in rates for leverage tends to be really high on other reference points like on Bitfinex. It might be better for Maker governance to do higher variance rate changes that might be a better kind of step before global shutdown but again, settlement is exactly [crosstalk 01:10:44]. |
| # / 01:10:47 | Michael Dunworth | [inaudible 01:10:47] now way closer to the ... I mean, look, it's a couple of months away, or whatever, but MCD is organically going to trigger that, and it's going to be more predictable. So probably it's a nail in the head there. I totally just missed that right now so I stand corrected. Good point. |
| # / 01:11:05 | Richard Brown | There's another thing that I want to talk about as well. And at the global settlement/debt ceiling solutions are two examples of probably on the same spectrum. The community is playing [inaudible 01:11:20] is raising the stability fee in order to find the equilibrium state with which we can manage supply and demand. My concern is that we introduced something like the debt ceiling or are we just shut the thing down and start over again, is we've never learned that lesson. We don't know what the equilibrium state is. We don't know what the correct stability fee is, we don't know how the stability fee impacts people that are laboring, or what the ecosystem is up to or the price of Ether, right? We lose that learning and that means that once we shut the system back up, we remove the debt ceiling. We have no idea. We're back in the same boat where we need to figure out, "Okay, what's the appropriate stability fee for this asset class?" We'll never know that answer and so we find it. |
| # / 01:12:02 | Chris Padovano | The stability fee is always going to be dynamic. I think the idea of shooting for this platonic ideal of a stability fee is just not the right way to go for obvious reasons because there's so much DAI. The whole system is very dynamic, right? A major assumption that we all kind of thought was going to happen with that higher stability fees would push people out of CDPs. But what we never counted on in an ETH bull run, people don't care about paying 16, 20%, 25% per year in interest payments to get permissionless leverage from Maker. |
| # / 01:12:50 | Cyrus Younessi | That's good incentives for MKR holders and they end up generating more for the buying burner. People are willing to pay ... I actually, what I think we discounted was just how valuable permissionless leverage was. If you can get X percent on a centralized exchange, I mean, the benefits and flexibility of permissionless leverage, you should probably even be higher. |
| # / 01:13:16 | Chris Padovano | To get access to the facility, yes. But if we agree that like DAI as a stable coin is the chief export of MakerDAO, then I'd say that we're not doing the best job, right? Yes, being able to borrow against your ETH, and have MKR token holders take on the other side of that bet. I agree with you, right. Who would've thought that that would have been so popular as opposed to kind of this real peer to peer cash? That's price stable. Right. And that's just kind of another reason why I think if you were just managing a balance sheet, right, and you're just looking at kind of, "Okay, here's what I had outstanding, here's what I'm owed." Wouldn't yo strongly consider trying to say, "Yup, I'm just not giving out more leverage right now." I don't have science or algorithms or empirical data backing. It just seems like a lot of common sense. |
| # / 01:14:24 | Cyrus Younessi | So Chris ... |
| # / 01:14:26 | Chris Padovano | Hold on one second. I just want to touch on something that Mike said. What Mike said about global settlement, I agree it's very extreme, but one of the things that it kind of demonstrates would be the redeemability of DAI to ETH. And I think that's probably a much larger point than kind of pushing the essentially the bankruptcy button and saying like, "Yep, we're bankrupt." But I think that's ways of creating. |
| # / 01:14:55 | Max Colingwood | Thinking about global sentiment is pretty drastic, I mean will obviously also show as soon as that's announced, is it the DAI peg should in theory return to exactly $1. There's no reason why that wouldn't happen because every DAI holder will received exactly $1. I mentioned earlier that is effectively what should maintain DAI peg is the risk of global sentiments. The problem is, I think now, there is no risk of global settlements. There's no timeframe for it. And so effectively, the market makers who buy at 98 cents have no idea how long they'll hold that for until they can sell it for a dollar. Whereas, if you're buying DAI, they're going to be making it a much higher return and that. And that return will only increase if the stability fee gets pushed out. |
| # / 01:15:50 | Max Colingwood | So I think a solution could be to introduce some kind of scheduled [inaudible] of partial settlement. Not global settlement. Some sort of a partial settlement system. |
| # / 01:16:07 | David Utrobin | Can I just stop you there? So the partial global settlement system actually, there's been a lot of talk about it in the rocket chat, and there's a lot of kind of complex problems with it, not just for like an implementation standpoint, but also from a game theoretical standpoint. But yeah, just wanted to point that out. If you have further thoughts, go ahead, because I do also have a couple of thoughts about some other stuff that Chris was talking about. |
| # / 01:16:32 | Max Colingwood | Okay. Yeah, sure. Yeah, I'll take a look at that and maybe that we can continue that conversation next time then after I read more about that. |
| # / 01:16:41 | David Utrobin | All right, cool. So I mean, my thoughts for that ... I think that the cost of capital and being willing Maker governance being willing to really raise the stability fees with higher variance is important because people can refinance, although it's an obstacle. You know lowering supply is step one, right? Before you see anything in the spot market happening, and you're going to see a lowering of supply naturally. But I just think the number one thing to consider really as higher variance and rates, because number one, as everybody kind of has already said, the emergency shutdown is an extremely disruptive thing that should only be used in case of emergencies or technical upgrades. And yeah, that's all I really wanted to say. |
| # / 01:17:31 | Joe Quintillian | One thing I wanted to say is that, if I'm a hedgefund right now, I can go buy DAI at 98, 99 cents, and lend that at Dharma for almost 14%. I think it's about 11 or 14%. That is an unbelievable return. You don't get that on CD's right now. So if we keep on going higher, you'll see funds come in, and they're going to buy DAI and they're going to overwhelm the big CDP holder who can take out as much as right now as much as he wants. But that demand will take over. |
| # / 01:18:03 | Chris Padovano | Why don't you guys do that right now then? If you have $1 million in DAI, if this is so reasonable thing to do, why don't you do it right now? This is like? |
| # / 01:18:13 | Joe Quintillian | On that DAI? |
| # / 01:18:14 | Chris Padovano | I'm just saying ... |
| # / 01:18:18 | Joe Quintillian | I'm already [inaudible 01:18:18] partners. |
| # / 01:18:18 | Chris Padovano | But what I'm saying is, if it's such a good deal why not just do it then Joe? Why wouldn't you take that opportunity? |
| # / 01:18:24 | Joe Quintillian | But what do yo think I'm thinking about Chris? |
| # / 01:18:28 | Michael Dunworth | We'd do it. |
| # / 01:18:28 | Joe Quintillian | [inaudible 01:18:29] start a fund for 10 million, and make 30, almost a huge return. Yeah. You want to partner with me, Chris? I'm offering to do that. I'm telling you, that's ... |
| # / 01:18:38 | Chris Padovano | You want to partner? Yeah, I'm in. I'll take under consideration. |
| # / 01:18:42 | Michael Dunworth | [crosstalk 01:18:42] counterparty risk. |
| # / 01:18:52 | Richard Brown | What was that Mike, you cut out a bit. |
| # / 01:18:53 | Michael Dunworth | I wasn't interrupting. I just saying, one of the reasons ... I mean I'm not an IRA or whatever it is. I'm not a licensed fund manager, but I know that one of the things we consider is counterparty risk. If these dudes have whipped up some smart contracts and it's had an audit by old mate, that was a year ago. That's where it's usually really problematic. So people sort of tred carefully where they might be sitting on five, $10 million worth of DAI, but only deploying like 250K, plus the markets they can't actually handle that much. The RDX was 21%. If you put it on there. Listen to this. I think your are 2X short a negative 51% negative rate. So it was basically a 51% APR. It was bonkers, but it doesn't mean that you should go sink 10 mils on to that market as we'd Dharma and stuff like that. Dharma can do up to $2 million at 14%. That is, wow. That's a lot. yeah. |
| # / 01:20:01 | Michael Dunworth | I don't know if we've talked about price discovery, but I think every single thing is going to come back to that period, and I've written a doc. I'm not trying to evangelize my own agenda because this is actually the complete antithesis of the company's agenda where we actually sort of breaking down the market maker, but your price discovery is really important and price discovery is done by market. And makers and market makers get out of bed in the morning from having reasonable incentive. I asked this the other day and in the Maker a chat and I got airballs like literally Sufjan when people, I was like, "What are the incentives for a market maker?" They get the arbitrage. They get the spread. It's like there is no incentive and there's no arbitrage. If you cannot realize the spread. |
| # / 01:20:58 | Michael Dunworth | It's like saying there's a 30% discount when I buy ETH here and I sell it in Korea, great. I've got a whole bunch of KRW now. I can't get that back to US dollars. That's why there's an arbitrage opportunity. So I don't know if you guys know something that I don't, but I feel like I should know more about the incentives of a market maker. Yeah is there any anyone who knows what they really at? What are the incentives are? |
| # / 01:21:27 | Joe Quintillian | What we have right now is the interest rates. That's it. And you try to make markets around where DAi is trading. But right now, there's not been a lot of volumes. [crosstalk 01:21:41]. |
| # / 01:21:41 | Cyrus Younessi | Yeah. I think what you need is, you need two-way flow between borrowers and people paying back their loan. So the stability fee has to be high enough. So say you have that two-way flow where DAI fluctuates between 99 and 101, back and forth. That's if you don't have that, then market makers obviously won't be ... |
| # / 01:22:06 | Michael Dunworth | Yeah, that makes sense yeah. |
| # / 01:22:14 | Richard Brown | Well Jordan, you've mentioned that a couple of times in the chat about redeemability, and this is a notion that I'm kind of hazy on sometimes. So, Cyrus, can you talk about that a bit? Maybe you can give Chris clarity about what that means. |
| # / 01:22:28 | Cyrus Younessi | About the global settlement? |
| # / 01:22:29 | Richard Brown | No, about the redeemability of DAI. This is a conversation that comes up every once in a while that there needs to be some way for people just to simply convert their DAI into a dollar. And where's that going to be facilitated? And who picks up the tab, the premium for that kind of thing? |
| # / 01:22:48 | Cyrus Younessi | Yeah. I don't know. I don't know too much about it. I know that the simple answer why can't be done is because right ... who's flatter will you be redeeming if you're a DAI holder. If you're a DAI holder, again, who's redeeming the other side? But I'm not too knowledgeable about whatever potential solutions are and workarounds and kind of technical answers. |
| # / 01:23:16 | Richard Brown | Jordan just typed in the chats can happen to Mike. It was Mike's idea for CDP holders to provide liquidity. |
| # / 01:23:23 | Cyrus Younessi | So I think that's the partial global settlement idea, right? Where somehow incentivize some CDP holders to provide liquidity at some pre-specified time intervals. I don't know too much about that. I think David does, but I think he may have just jumped off. Sorry. |
| # / 01:23:48 | Richard Brown | No problems. I put you on the spot without warning. So it's my fault. |
| # / 01:23:51 | Cyrus Younessi | No, it's Okay. Just |
| # / 01:23:54 | Richard Brown | Right. We're at 10:30. I'm not sure how much momentum we have left. I do know that I need to jump out because I have 13 hours of work I need to do now. Cyrus is in the same boats. So I think that what I want to do is the same thing that I've done for the last two calls. I am going to spend the next hour or two rewatching this call typing up the summary, getting the videos and audio uploaded, put a recap in the threads that I posted what seems like hours ago, I'll do it again just for clarity sake. Continue the discussion here in the link I just posted. Questions that weren't asked or answered to people's particular satisfaction, please retype them there if I don't get them to end the summary, and let's continue the chat over the course of the next week. Tomorrow, an executive vote will go up with asking the community if they want to raise the stability fee by 2%. |
| # / 01:24:53 | Richard Brown | I think that's the end of the call as far as I'm concerned. Cyrus, thanks for your input. Thank you, Michael, Vishesh, the rest of the people that jumped in, that was enormously valuable. Thanks, everybody. |
| # / 01:25:06 | Michael Dunworth | Thanks so much guys. |
| # / 01:25:10 | Cyrus Younessi | Bye every body. |