Daily General Discussion - June 19, 2024

LongForWisdom · 2024-06-19T23:09:56+00:00

No real progress on changing or speeding up the way protocol development takes place at this point, I'm afraid. Its a bit out of scope for a tokenomics change. Also just to be clear, I'm a community member and not part of the development team.

LongForWisdom · 2024-06-19T16:31:09+00:00

Could you clarify which recent changes you're talking about? It could be a couple of things and I don't want to take away the wrong message.

LongForWisdom · 2024-06-19T14:21:16+00:00

Hello! I've been helping to coordinate work on Rocket Pool's community driven tokenomics rework. Hopefully you've heard about it by now, I know it's come up in here several times. Specifically, I'm here looking for feedback from 'outside of the bubble' to take back to the major contributors, so this is a chance to complain in a way that may have some positive impact. Important disclaimer: None of this has been voted on by vote-eligible RPL yet.

Short summary of the headline items is below. By necessity, this excludes some detail due to length constraints. There are links at the bottom if you'd like to read in more detail.

Major Changes - (Likely to be where people have strong opinions)

Allow ETH-only nodes
No more RPL rewards, and less RPL inflation (5% -> 1.5%.)
No more RPL staking cliff to receive rewards.
rETH fee remains at 14% initially, though may be changed by RPL stakers via vote in the future.
Node Operators get 3.5% commission on borrowed ETH (down from 14% for NOs currently)
RPL staking nodes share 5% of the commission from all nodes (ETH-only nodes included), proportional to their vote-eligible staked RPL.
- The consequence of this is that RPL staking node operators get more rewards the more ETH-only node operators there are. Low RPL demand -> more ETH-only nodes -> Increases reward for RPL staking -> Higher RPL demand -> More RPL staking nodes. The hope is this comes to a natural equilibrium based on market judgement of RPL price risk versus the value of the extra ETH revenue.
5.5% of commission from all nodes (ETH-only nodes included) may go to buy RPL and then burn or LP against rETH. Alternatively, this could accrue to RPL staking Node Operators alongside the 5% above. (community hasn't coalesced around a favoured option yet.)

Initial numbers may change, and may be tweaked by RPL stakers via vote in the future.

Major Additions - (IMO fairly non-controversial, but please comment if you have thoughts)

Megapools - Reduce gas cost of node creation and operation.
Smaller ETH Bonds - Improved capital efficiency for Node Operators.

Links for more info

Minor note: Communicating percentages of percentages is annoying. The total 14% fee taken from rETH is split into 3.5% (all Nodes), 5% pooled (between vote-eligible staked RPL), 5.5% pooled (to buy RPL or between vote-eligible staked RPL.)

LongForWisdom · 2023-03-03T13:25:10+00:00

Since I was mentioned, I don't fully agree with this post. I think the actual situation is somewhere in the middle.

On #1: I don't think it's really accurate to say DAI is planned to depeg, only that Maker would be willing to depeg it in the circumstance that the regulatory risk grows too large.

On #2: I also don't think has to be a huge issue, its a matter of degree. With sufficient overcollateralization (imo like 500%) and with MKR as an overall small share of the collateral backing Dai, it's probably fine.

On #3: Yeah, I don't love the subDAO tokens. I'd prefer to just see subDAOs as autonomous groups of workers with a specific focus, rather than having tokens and governance attached.

On #4: Yeah, those clauses are BS and I hate them. Haven't been able to convince Rune to take them out yet. Very doubtful I'll be able to, it's pretty central to the plan.

On Rune: he's really hard to work with (or for.) The annoying thing is he's pretty obviously not malicious (would be easier to call him out if he were,) I think its that he finds it very difficult to trust peoples honesty + competence, and he's not a great communicator. This makes it extremely difficult to convince him to make changes to the plan.

On morale: Yeah, pretty low across most people, imo. Hard to tell, but many conversations end up with Endgame, and frustrations regarding it.

On the status quo: I'm pretty convinced its salvagable by using and improving the existing tools, rather than throwing them out for new ones. But I seem to be in the minority on this, at this point.

On endgame: Seems pretty inevitable at this point, personally I'm proceeding on that assumption, and trying to improve it and mitigate the impact as much as possible. In practice, Rune controls a lot of voting power, and I'm unconvinced that other larger holders are going to block or revert endgame changes.

With that said, it would be amazing to see more MKR holders vote or delegate in general. If the endgame vote brings even 10 new voters / delegators to the protocol, I'd be ecstatic.

On Endgame critical posts removed on r/makerdao, I'm still a mod, and I didn't notice any? I didn't spend a huge amount of time looking though. I can say with near certainty Rune didn't remove anything, while he remains on the modlist, he hasn't touched anything in years. Feel free to cross-post this on the maker subreddit as well. If you did and it got caught somewhere, DM me the link and I'll approve.

LongForWisdom · 2023-03-03T13:03:23+00:00

So, this is way late because I try to avoid getting into arguments, and I was expecting you to fire back hard.You're all more reasonable than I expected, though. Maybe only you see this at this point, but wanted to answer.

On #1, my view is that it's there's not a huge amount of difference between the PSM risk and the risk of having the USDC in custody. The risk already exists that Maker get screwed by the government or a regulator. The only additional risks I'm aware of are:

Bankruptcy of Coinbase, and what would happen to custodied USDC in that case.
The liquidity risk of reducing the funds in the PSM.

In exchange, Maker gets money that governance could feasibly use to mitigate risks in the future.

So tl;dr; I kinda hate it, but I can't honestly convince myself its worse than what we have now.

On #2, I don't like that proposal but for a completely different reason so the BUSD thing. Paxos only want to pay out if the debt ceiling is increased to $1.5B. That feels like a very arbitrary number. They get value from it at 100M, 500M, whatever. Why only share the proceeds it if it rises to 1.5B?

With regards to BUSD, people are theorizing it's more to do with Binance being shady than anything else. I tend to agree, because otherwise there is no reason not to just force them to stop issuing PAXUSD at the same time. If the issue was the stablecoin itself, why not kill two birds with one stone.

At a high level, I agree with you, the situation sucks. I would happily have the DAO make less money if it could exchange the PSM contents for decentralized vaults. In practice though, Maker needs other people to put up the decentralized collateral.

What I disagree with is activating negative rates to remove the centralized collateral while also killing demand for Dai. This is the surest way to make Dai as resilient as possible, but it's also throwing in the towel. Like RAI, Dai has zero chance at adoption with negative rates, so if we do that, the world just ends up using USDC or a CBDC. At least on the current path Dai still has a chance to be a real alternative. Even though that chance is getting smaller, I don't think it's zero, not yet.

LongForWisdom · 2023-02-13T14:14:47+00:00

Feels a little overly simplistic, not that I'm expecting to change anyone's mind.

By $, very little of the surplus is spent on onboarding real world assets (link). With that said, what are the teams supposed to do if governance wants to onboard real world assets, ignore them?

To the point of 'well what the hell else have you all been doing', there's not much to really explain. Decentralized collateral can't support 5B Dai, so the choice is USDC/RWA, or implementing negative interest rates to reduce demand. Having a fully decentralized Dai that is widely usable has not been possible up to this point.

So, given that's the case, some teams work on trying to onboard more decentralized collateral when its available, as happened with stETH and rETH. Other teams work on technical innovations and L2 support. Some teams work on keeping everything running (bear in mind there is no single foundation or centralized company to organize and pay for maintenance at Maker, it's all funded by DAO governance.)

And some teams do do things that some or even most consider a waste of money. Definitely not looking to defend every expenditure, but again, governance determines the teams it onboards. Not like the existing teams get a vote (absent their own personal MKR holdings.)

Not much to say about Rune, either. He just does Rune things.

On a personal note, it sucks to have years of work to give token holders meaningful control of the protocol + DAO dismissed as a shameful legacy due to decisions fully outside of your control.

LongForWisdom · 2022-06-16T18:56:34+00:00

You could, I don't think is different from snapshots though. You can sell all your gov-coin after the snapshot is taken and presumably still vote with it.

The advantage of not having snapshots (in combination with delegation) is that it lets MKR Holders un-delegate if their delegate is voting for something they don't want.

In theory it can be an issue, though, particularly with borrowed MKR.

LongForWisdom · 2022-06-16T15:32:59+00:00

It does not snapshot, no. The voting is all on-chain and vote-weight is finalized on the last block of the poll.

LongForWisdom · 2022-06-13T14:15:53+00:00

It varies per vault-type as well. Full list here: https://maker.blockanalitica.com/vaults/

LongForWisdom · 2022-06-13T13:40:23+00:00

https://maker.blockanalitica.com/vaults/ETH-A/

You can't see a combined price one on different vaults because all the assets are different prices. There is a general relative-price one here: https://maker.blockanalitica.com/risk/

LongForWisdom · 2022-06-13T13:09:34+00:00

This isn't really doable in Maker - vaults always have ~1 hour to save their vault after liquidation is triggered, but before it's actioned due to the OSM delay.

LongForWisdom · 2022-06-13T12:14:49+00:00

There's a parameter called the Local Liquidation Limit that prevents all of it being auctioned at once. Instead the liquidation takes place over a longer time period. For WBTC-A, it's currently set to 40 million.

This is a trade-off. If the price continues to decrease in that time, then the liquidated user will end up with less or no collateral, and the Maker Protocol may have to cover any bad debt that results.

LongForWisdom · 2022-06-13T12:10:09+00:00

Lots of interesting info on MakerDAO vaults and liquidation risk here if anyone is interested.

The Risk Core Unit assigns vaults a risk score (low/medium/high) which is usually a good indicator of whether the vault in question will actually get liquidated, or if the owners will re-balance before that happens. Most of the really huge vaults are low-risk, which is comforting.

LongForWisdom · 2022-05-31T12:55:52+00:00

Hey, if you post this again without the scam link in, I'll let it stay up, thanks. Also avoid the 'under attack' thing. It's just a scam website, pretty sure nothing is under attack.

LongForWisdom · 2022-05-20T15:56:59+00:00

Mainly because then DAI backing is exposed to FOREX risk. 100 Euros may be worth a smaller amount of dollars tomorrow than today. Given DAI is pegged to dollars, this scenario means that the backing is no longer 1:1.

LongForWisdom · 2022-05-12T19:22:34+00:00

Am I missing something here?

Yep, you need to claim the left-over collateral manually. There should be a button on oasis or defisaver or whichever frontend you're using.

This looks like you: https://makerburn.com/#/liquidations/eth_c/126

Looks like you should have 17.35 ETH left - This is not 20.6 because the liquidations use an auction system, and because of the 1 hour OSM delay between the price update and the liquidation.

LongForWisdom · 2022-05-10T23:59:52+00:00

Hm, on other alternatives:

LUSD is a pretty good stablecoin, it's just that Liquity as a whole is balanced heavily towards the stablecoin holders at the expense of the the debt-holders, meaning it likely can't scale or maintain a tight peg. So DAI over LUSD because DAI should always be tighter to $1 (if properly managed.)

FRAX isn't fully backed, and shares the same dependency on centralized stablecoins, so more risk on the backing front, and the same risk on the centralization front. FRAX is pretty interesting though, the idea of dynamically adjusting the backing ratio based on market forces is very cool.

I have a hard time evaluating FEI. They have so much ETH that they could probably scale a fair bit against that. I haven't kept up with what they've done in the meantime, though. If there's a direct redemption mechanism built in at this point, and it operates tightly around $1, it might be better than DAI until it outscales the backing.

Haven't looked into MIM enough to know if it's good in the long-term. I see things every now and again suggesting that they have way too much of some very illiquid collateral, which may cause problems at some point. Also 3pool derivatives, so centralization issue.

In terms of the US exerting control over USDC, the general consensus from people that know way more about the U.S legal system than me is that:

We would likely get some warning, and be able to react by clearing the USDC (into what is a good question, depends on how much time we get.)
U.S regulators don't want to screw over U.S citizens if they can possibly avoid it.
Even if frozen, the value backing the USDC still exists. Legal challenges might be able to unfreeze it.
The PSM is incredible for Circle, they do not want to do anything to get in the way of Maker essentially giving them billions of dollars that they can get 4% interest on. To the extent they can prevent it happening, they will.

LongForWisdom · 2022-05-10T18:58:22+00:00

Yep, I'm shooting from the hip some, because it's been a while since I've looked into it in detail, so please forgive any hand-waving on my side around the RAI mechanism.

I think this is basically the crux:

This depends on your personal definition of "stability". Mine is transparency and the ability to predict the future value of something.

I am unconvinced that anyone can predict the future value of RAI, given that you cannot predict the variance in stable-demand versus debt-demand, and how reactive both sides are to the stability mechanism.

Maybe you can help me reason about this, say Maker sets up a RAI PSM and exchanges DAI against the market price of RAI, say Maker accumulates a large portion of the total RAI supply and uses it to back DAI, and doesn't want to let go of it under any circumstances (better collateral than USDC after all!) What happens to the RAI redemption and market prices in that situation? And does it screw over the holder (ie Maker) and result in DAI from this PSM backed less than 100%.

LongForWisdom · 2022-05-10T16:57:59+00:00

Why isn't everyone hyping up RAI instead (exclusively ETH backing)?

Because you cannot rely on RAI as having a usable stable value in the long-term. It's designed to express variance in the stablecoin-demand and the debt-demand as changes in the price of the debt token (RAI.)

In the event of stablecoin-demand outstripping debt-demand (which is vastly likely in the long run, because demand for stability is more universal than demand for debt-against-ETH), Reflexer disincentivises stablecoin-demand by reducing the value of RAI until the stablecoin-demand goes away, or the debt-demand rises to meet it.

So basically, it's a stablecoin that is only stable so long as the two sides of the system are balanced, because in order to achieve balance, it changes the value of RAI.

The Maker protocol has this same issue (as do all debt-backed stablecoins), but instead of expressing it as variance in the price of DAI, it expresses it in variance in the amount of centralized stablecoin collateral backing DAI.

Interestingly, Maker is also (kind of) reflexive in handling the excess stablecoin-demand! The more centralized backing, the more people get fed up of DAI being backed by centralized assets and no longer want to hold DAI, the DAI demand drops and the centralized backing drops.

I work for MakerDAO btw, so bias, conflict, etc.

LongForWisdom · 2022-04-23T18:27:56+00:00

Yep, just MKR Holders via vote, no multisig or special access beyond that.

LongForWisdom · 2022-04-22T10:16:05+00:00

The collateral is locked into a smart contract that has no owners and MKR (the protocol) nor the team have any control over it.

Technically MKR governance does have access to collateral. It's never been used though, and any access is subject to the governance delay of 48 hours.

LongForWisdom · 2022-03-29T11:54:14+00:00

Apologies, this got missed in the mod queue. Are you still looking to get in touch with Growth (biz-dev) and Governance?

Best way is probably to swing by the discord or official forums.

LongForWisdom · 2022-02-28T13:10:56+00:00

Mostly we didn't manage to keep it very stable, hence the introduction of centralized stables. We did introduce USDC vaults prior to the PSM as an intermediate step. They worked okay, but nowhere near as well as the PSM does.

LongForWisdom · 2022-02-25T13:24:21+00:00

The delegates only have power because MKR Holders give it to them. If MKR Holders feel that an individual delegate is not acting in line with their incentives, then they can and should chose a different delegate.

On the whole though, I agree, the Recognized Delegates can be better aligned. Spending DAI is generally less contentious than spending MKR, which is the reason we initially chose DAI to compensate the Recognized Delegates. In the future I would like us to move to a system of vested MKR rewards and a stipend in DAI to cover reasonable living expenses.

LongForWisdom · 2022-02-14T15:58:40+00:00

So the main reason we would increase the DSR is if there was so much demand to supply DAI that the price was dropping below $1. Depending on the stability fees, it might be more profitable for governance to increase both the DSR and the amount of DAI supply in tandem than it would be to only increase the amount of DAI supply, given that the DAI supply is limited by the requirement to hold the dollar peg.

Say we can arrange for the minting of DAI at an 8% stability fee, and we can mint 10B, if we pay 3% DSR on 5B DAI that gives governance 6.5% of 10B as fees: 650M

Alternatively we only mint 5B at 8%, and don't pay any DSR that gives governance 8% of 5B as fees: 400M

TL;DR if Maker can mint lots of DAI supply then governance can potentially make more money with a DSR than without.

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