---
# System prepended metadata

title: 'Episode 178: February 10th, 2022'
tags: [G&R]

---

---
tags: G&R
---

# Episode 178: February 10th, 2022

## Agenda

- [00:00](https://youtu.be/rHIQFRdqa1M): Introduction
- [01:41](https://youtu.be/rHIQFRdqa1M?t=101): Votes and Polls
- [06:10](https://youtu.be/rHIQFRdqa1M?t=370): MIPs Update
- [10:07](https://youtu.be/rHIQFRdqa1M?t=607): Forum at a Glance
- [17:33](https://youtu.be/rHIQFRdqa1M?t=1053): Initiative Updates 
- [25:49](https://youtu.be/rHIQFRdqa1M?t=1549): Team Lead Discussions
- [01:00:46](https://youtu.be/rHIQFRdqa1M?t=3646): Open Discussion 
- [1:18:29](https://youtu.be/rHIQFRdqa1M?t=4709): Conclusion

## Video

<https://youtu.be/rHIQFRdqa1M>

## Introduction 

### Agenda and Preamble

#### Payton Rose

[00:00](https://youtu.be/rHIQFRdqa1M)

- Hello, welcome to the #178 meeting of the Governance & Risk Call. My name is Payton or Prose11 online, and I am one Governance Facilitators. I am joined live by a group of awesome Maker people who work for the protocol. We put these calls up on YouTube every week so that anyone can access them, as well as for future references. We encourage you to ask and participate in the conversation; you can use the raise hands feature in Zoom. If you want to say something but cannot use the microphone, you can always leave your comment in the chat, and we will get to it. 

## Governance Roundup

### Votes

#### Payton Rose

*Polls:*
- 3 Weekly Polls - PASSED 
    - Introduce Rate Limiting into the Flapper – PASSED
    - Extend the Delegate Compensation Trial – PASSED
    - Offloading TUSD-A – Winning option: Activate liquidations 

*Executive:*
- Last Friday’s Executive - Passed and Executed – Recognized Delegate Compensation, Raise the Emergency Shutdown Threshold. MOMC Parameter Changes, Core Unit DAI Budget Stream Corrections. 
- Reminder: No planned Executives for 2022/02/11 and 2022/02/18!

### MIPs

#### Pablo

[06:01](https://youtu.be/rHIQFRdqa1M?t=361)

[Weekly MIPs Update #73](https://forum.makerdao.com/t/weekly-mips-update-73/13092)

![Calendar](https://i.imgur.com/hrD7k3g.png)

![MIPS General Updates](https://i.imgur.com/6AZ6Qm7.png)

![Formal Submission Window](https://i.imgur.com/mC2wzBK.png)

![MIPs](https://i.imgur.com/m8pRhVj.png)

![Core Unit Onboardings](https://i.imgur.com/afFzwJ7.png)

![Facilitador On – And Offboardings](https://i.imgur.com/EfvdfTp.png)

![Core Unit Budgets](https://i.imgur.com/uEYIGWn.jpg)

![Amendments](https://i.imgur.com/97WgFYM.jpg)

![Others](https://i.imgur.com/FF0MWCQ.jpg)

![MIPs RFC](https://i.imgur.com/CEbvmwe.jpg)

![Core Unit Budegts RFC](https://i.imgur.com/7f0drJN.jpg)

![Core Unit Offboarding RFC](https://i.imgur.com/bR4e886.jpg)

![Amendments RFC](https://i.imgur.com/EMEVONh.jpg)

![Others RFC](https://i.imgur.com/jzxTeIu.jpg)

![That´s all for MIPs](https://i.imgur.com/urSc1zE.jpg)

### Forum at a Glance

#### Artem Gordon

[10:07](https://youtu.be/rHIQFRdqa1M?t=607)

Post: [Forum at a Glance: February 3 - 10, 2022](https://forum.makerdao.com/t/forum-at-a-glance-february-3-10-2022/13167)
Video: [Forum at a Glance]( https://youtu.be/rHIQFRdqa1M?t=607)

## Initiative Updates

### Mark “@Aes”

#### MakerDAO Financial Presentation 

[17:33](https://youtu.be/rHIQFRdqa1M?t=1053)

![MakerDAO Financial Presentation](https://i.imgur.com/fj7OH2K.jpg)
-	Hello guys, I am Aes, the new facilitator of the Strategic Finance Core Unit.  

![Legal Disclaimer](https://i.imgur.com/MFPY9rH.jpg)
-	Before beginning the report, there is just a brief legal disclaimer. It does not constitute financial investment, legal regulatory, or tax advice.

![Monthly results](https://i.imgur.com/iIbB3re.jpg)
-	The protocol had its most profitable month ever. It had about 26 million in net protocol income, driven by the record liquidation income of a little over 18 million Dai. The net interest income decreased 15% over the month. The tightening financial conditions and overall bear markets caused it. The workforce expenses increased roughly two percent from last month and should continue to grow in the next few months with the onboarding of the new strategic finance and technology operations CU. Due to cash accounting, Dai dispersed to cover the foundation-funded Oracle expenses will not be reflected until it is spent; therefore, the money is held in equity within the operating reserves.

![Monthly Income Statement](https://i.imgur.com/uw8x5DQ.jpg)
-	The visual representation of the income statement, the protocol revenue, and income show a bit of strength, but a massive liquidation income is not expected to keep recurring. The interest income has remained very strong, and the expense is stabilizing. However, the Oracle expenses for gas increase considerably on the expense side due to the recent increase in the ETH price.

![Lending business](https://i.imgur.com/BJUfkOu.jpg)
- The last month's lending income was $10 million, as they decreased by 15% from the prior month. Our ETH dependency continues to trend lower as more WBTC collateral is onboarding. As these map assets mature, they will become less correlated over time. Ramping up the real-world assets initiative will provide tremendous resiliency and diversification benefits to protocol income, which should reward the protocol with the higher multiple of earnings in the longer term.

![Risk](https://i.imgur.com/ZNZVjdg.jpg)
-	The risk metrics improved over last month due to the rapid inflows of USDC into the PSM, people unwinding their risk-weighted assets, and the decrease of collateral values. The CET1 ratio increased by 65 basis points. The Liquidity Ratio is near 59%. The Dai supply is backed by 62.5% stablecoins, reaching a 10 billion Dai milestone. These inflows have sparked multiple proposals for how we can start using the stablecoins to the advantage of the protocol by investing them in highly liquid and senior credit instruments; nearly 6 billion in stablecoins would generate 30 million in protocol earnings. This yield is relatively safe.
  
![MKR Valuation](https://i.imgur.com/VublTvD.jpg)
-	Recurring earning yields remain high, suggesting markets are still cautious.

![ETH Market Share](https://i.imgur.com/Tg3UVG5.jpg)
- ETH lending market share increased by approximately 2.6% the prior month, which is excellent, although it decreased about 3.5% year-over-year. This was as the ETH lending market contracted near 6% from last month. 

![WBTC Market Share](https://i.imgur.com/nxRGPZE.jpg)
-	Maker continues to be the king of the Wrapped Bitcoin lending market. Our market share increased by 0.4%. Overall the bitcoin market is strong despite the deteriorating market conditions in January. Wrapped Bitcoin owners are more interested in getting involved in Defi.

![Real-World Assets](https://i.imgur.com/UwcVNP9.jpg)
-	The real-world assets keep going up.

## Team-Led Discussion 

### Prose11

[25:00](https://youtu.be/rHIQFRdqa1M?t=1500)

- This brings us to our discussion segments. We will kick it off to continue the liquidity discussion as we mentioned earlier. Now that we have LongForWisedom’s posts about approaching liquidation and the set of decisions, this may hopefully add some framework. Are you comfortable with giving us an intro, LongForWisdom?The real-world assets keep going up.

[26:19 LongforWisedom](https://youtu.be/rHIQFRdqa1M?t=1579)  

- Yeah, I can do that. This is a write-up of what we discussed in the Governance & Risk Call last week. If we want to do something with liquidity, we need to locate our funding source. We need to do this for basically anything except Maker-Dai pairs. Maker-Dai is a particular case.

[Prose11 26:58](https://youtu.be/rHIQFRdqa1M?t=1579)

- It lays out the framework for three separate discussions, the first being what to do with the funding. This is where we should start today.

[David Utrobin  27:14](https://youtu.be/rHIQFRdqa1M?t=1634)  

- I took the three decisions, laying them out there: funding source, strategy conversation, and tactics compensation.

[Prose11  27:27  ](https://youtu.be/rHIQFRdqa1M?t=1646)

- Excellent. As Long alluded to in the post, there are several different ways to get funding. However, some methods may not be palpable to some Maker holders, depending on their core beliefs for the Maker Oracle. We can print Dai and MKR, but this printing would essentially be unbacked. The amount in it caps our surplus buffer. This is also where we pull expenses from. We could raise funds, do something like bonds, or use other items in the protocol treasury. We have the ENS tokens accumulating staked Aaave from our D3M implementation. But the rub with all of these options is the amount of capital available to us without minting is not a lot.

[David Utrobin 28:42](https://youtu.be/rHIQFRdqa1M?t=1722)

- I have a question. What is a meaningful amount of liquidity for a given LP position? There is a signal request of up to 20 million in liquidity for the UNI-V2 position. That would take 10 million from the surplus buffer and then pair it with 10 million worth of MKR from the treasury. What is a healthy amount of liquidity to provide the market both on L1 and then as well for the bootstrapping L2 Dai markets?

[LongForWisdom 29:24](https://youtu.be/rHIQFRdqa1M?t=1764)

- I mentioned it briefly and said the answer would depend on what venue or method you use. UNI-V2 is less capital efficient than UNI-V3 can potentially be, depending on the range. In terms of how accessible liquidity is, that is important and depends on what platform you are using.

[David Utrobin 29:45](https://youtu.be/rHIQFRdqa1M?t=1785)  
 - Is there a target for slippage versus the size of the trade ratio? I am curious about a healthy barometer.

[LongForWisdom 29:57](https://youtu.be/rHIQFRdqa1M?t=1797)  
- Yeah, there should be. I am not experienced enough to say what it should be. Maybe something Chris could chime in on?

[Prose11 30:18](https://youtu.be/rHIQFRdqa1M?t=1818)  

- Monet-supply has a good point in the chat; you can set your levels. So if you were to purchase 1% of a pool, you experience X percent slippage, and try to set that within abound. One question I have in terms of whatever funding strategy we choose, how big of an issue is the liquidity problem? Is this a massive problem we are trying to solve? And in which case, maybe some of the less palatable solutions may make more sense. But if it is a minor problem, you would not start with the extreme measures for solving it.

[LongForWisdom  31:19](https://youtu.be/rHIQFRdqa1M?t=1876)  

- I can summarize the objectives I have heard previously. Then, we can discuss them if we want. One objective I listened to a couple of times is to encourage L2 adoption. For example, you would like to offer liquidity on common pairs on L2 to encourage Dai adoption on L2 versus USDC. Another one was increasing the liquidity of MKR particularly. The reasons for this are a bit fuzzy to me. However, it makes the protocol look more professional, provides more ability for people to invest, and makes the Flap and Flop mechanisms work better. Feel free to talk about why it is a great idea to do MKR liquidity. One of the potential strategies is trying to make Dai the on-chain stablecoin routing token. Currently, USDC has this by default, in that most pairs are paired against USDC. When you want to trade between two semi-arbitrary pairs, the trade often gets routed to USDC pools. Potentially Dai can be used if Dai is liquid against some of the main trading pairs. Those are the main three objectives I have heard. 

[Chris Mooney  33:13 ](https://youtu.be/rHIQFRdqa1M?t=1993) 

- One thing I did not hear mentioned in the funding strategy is using the PSMs. They are positions with some Dai against them. You can flash loan yourself, let us say a million Dai, and then get 500,000 USDC onto the PSM. Then, you sell that USDC to your desired pair to fund some LP token. We have a vault type for that LP token. This process allows you to mint the original million Dai back to pay back the flash loan at the end. At least with stable-stable pairs, we can use the PSM as a funding mechanism to do this. I do not know if people have creative ideas, but there may be a way to pair Dai against more volatile stuff with liquidations off in the long term, such that stability fees should outweigh losses and the drop of a particular pairing. However, I am unsure as I have not crunched those numbers. This is just worth exploration. If that is the case, the funding source is not infinite, but it is insanely deep. We are probably in the 5 billion range that we could use to fund Dai liquidity in the space.

[LongForWisdom 34:50](https://youtu.be/rHIQFRdqa1M?t=2090)  

- Yes, stable-stable is one of the easier problems to solve in this area. As you said, it is much less dangerous to mint DAI to use it and pair against stables. We might have solutions to that in the shape of the GUNI-USDC-Dai pair. We could duplicate that for other centralized stablecoins or decentralized stablecoins.

[Prose11 35:38](https://youtu.be/rHIQFRdqa1M?t=2138)  

- Those are excellent points. There is much more flexibility once we start breaking into the PSMs. I do not know why that did not occur to me. Out of curiosity, is there some interest in going through the strategy or tactics conversation as well? We do not have to stick to this discussion if people feel we covered this subject last week. That is a good point. The tactics are infinite and complex.

[David Utrobin  36:24 ](https://youtu.be/rHIQFRdqa1M?t=2184) 

- The tactics piece's main thing was centralized versus decentralized and managed versus unmanaged. This does not necessarily need to occur in those configurations because a person could be managing a position that does not require active management. For example, this could be a V2-UNISWAP position, but they handle liquidity. But that is the whole conversation. Do we trust somebody before we set up an automated solution? Or do we hold out and try to find an automated solution with minimal management first? Psychonaut’s signal request suggests this for that 20 million LP position. The tactics conversation asks how do we deploy it?

[LongForWisdom 37:11](https://youtu.be/rHIQFRdqa1M?t=2231)  

- Tokamak and other protocols are popping up that offer similar things. But again, it gets pretty complicated, which is why I wanted to avoid it for now. I need to read up again.

[Prose11 37:33](https://youtu.be/rHIQFRdqa1M?t=2253)  

- Paper has a good question. Can whoever thinks that we do not have enough MKR liquidity take a moment to explain why? What is currently inefficient? We could say from a governance standpoint this will be the first year we have our vesting MKR going out to contributors. That is a tax liability for many people in jurisdictions, so they probably have to sell it to fund that.

[David Utrobin  38:03](https://youtu.be/rHIQFRdqa1M?t=2283)  

- That is not the first time that Maker was vested. Foundation employees also received rounds of vesting, and arguably for way more MKR than is currently on schedule to be vested.

[Chris  38:16](https://youtu.be/rHIQFRdqa1M?t=2296)  

- The only thing that I would say about the Foundation is I am not sure when the tax portion of the MKR was handled or if the Foundation market sold it to recover that. It would not have had a market impact.

[Prose11  38:53](https://youtu.be/rHIQFRdqa1M?t=2333)  

- Well, to my point, David is putting out the obvious. As Chris mentions, MKR vesting and distribution did not keep the taxable portion during the Foundation days. This caused the like market song. Whereas if we are distributing to many contributors, there is a good reason that many of them will need to market sell to fund the tax burden.

[David Utrobin  39:23](https://youtu.be/rHIQFRdqa1M?t=2363)  

- The implied point is that deeper liquidity gives MKR more price support/resistance when people sell their vested MKR. 

[Prose11 39:59](https://youtu.be/rHIQFRdqa1M?t=2399) 

- Nick, you have a good point. I do not know if you got a mic this week, but I am happy to read it out. If not. 

[Nick 40:09](https://youtu.be/rHIQFRdqa1M?t=2409)

-  I can answer Paper’s question. It was not about where the Foundation was located for the vesting tax implications but instead about where individual employees were. All employees in taxable jurisdictions had their taxes withheld from their MKR. Now let us say there is no Foundation. Every individual who is part of the DAO will need to consider whether or not they need to sell a portion of that to cover the taxes. And that will impact the price. That is the distinction.

[MakerMan 40:57](https://youtu.be/rHIQFRdqa1M?t=2456)  

- Most of the liquidity is in Maker-F. Since it is a strongly correlated pair, it is not good for liquidity and value because of impermanence loss. Any token stablecoin V2 LP will buy Maker when the price drops relative to a dollar then sell as it goes up. If you stick money in there, you are guaranteed to buy below where you stuck it in and sell above that price. The price must change by a factor of four on either side, down 75% up factor of four to access the liquidity in that contract or to get more than half of it out.
- The whole point of doing it with a stablecoin is to build a pricing base. As the price moves, it will DCA and keep sopping up liquidity over time. The more you stick in, the less slippage and more trading you will have. In addition, you will sop up more of the base token. It could inherently sop all the Dai if you did this with Nexio-DAI, Gnosis-DAI, and Maker-DAI. Then, you can make vaults on these because the LP token’s volatility goes as the square root is the primary token. It is a better investment than trying to pair with a correlated asset like ETH or another token. Gnosis is already wanting to pair with other tokens. HoneySwap and Onehive have already done this. It stinks because you cannot make up all the liquidity with your token against everybody else’s liquidity and expect price support. This just does not happen.
- When I looked at fees, I rode these pairs and tested them. A token of Maker-ETH will make less than a Maker-Dai should the markets work right and arb those. It is how correlated things versus anti-correlated things or non-correlated things work in these spaces. The thesis here is to build a large liquidity position when you get strong price support. Your Oracle at 30% of overall liquidity becomes the position, and everybody ARBs against it using that position. This ends up being a tangible thing if you can do it. The DAO can sell into its liquidity and raise Dai. Should you need liquidity, you can pull it out. You do not even have to sell the Maker. You pull Dai back.
- That is the case for doing Dai stablecoin or token stablecoin vaults. Since we are Maker, we want those to be Dai because it will lock up Dai that earning interest potentially. We can offer vaults in this LP and encourage Dai creation. I have been trying to pitch to Gnosis to take their GNO that they want to burn, figure out how to raise some cash, pair it with Dai, and us to make a Gnosis V2 vault to make Dai. We can get a Maker instance on our Gnosis chain back with their liquidity, and then we support an instance for them for borrowing. To me, it is a no-brainer. You make money and sop up your liquidity. You make liquidity and pricing support against a stablecoin and not a correlated coin, like ETH.

[Kirk 44:42](https://youtu.be/rHIQFRdqa1M?t=2562)  

- That is the case for doing Dai stablecoin or token stablecoin vaults. Since we are Maker, we want those to be Dai because it will lock up Dai that earning interest potentially. We can offer vaults in this LP and encourage Dai creation. I have been trying to pitch to Gnosis to take their GNO that they want to burn, figure out how to raise some cash, pair it with Dai, and us to make a Gnosis V2 vault to make DAI. We can get a Maker instance on our Gnosis chain back with their liquidity, and then we support an instance for them for borrowing. To me, it is a no-brainer. You make money and sop up your liquidity. You make liquidity and pricing support against a stablecoin and not a correlated coin, like ETH.

[Prose11 46:01](https://youtu.be/rHIQFRdqa1M?t=2761)  
- Thanks for that. I got a couple of other discussion points coming up in the chat. Justine, you are welcome to chime in yourself. We have a comment pointing out that we are worried about people selling when the burner is on. We have a big protocol buyer that can sop up a lot of the selling pressure for MKR. I know we have at least one more discussion topic to get to. So I might put in the call for last thoughts on this one.

[David Utrobin 46:46](https://youtu.be/rHIQFRdqa1M?t=2806)  

- Go vote on Psychonauts signal if you have not yet. 


## Dai Liquidity Solution Design

### Wouter

#### SES Research Grant Clarification and Update

[47:37](https://youtu.be/rHIQFRdqa1M?t=2857)

![](https://i.imgur.com/MveCdh8.png)

![](https://i.imgur.com/L7N6Gnm.png)

![](https://i.imgur.com/jk1OHnW.png)

- We were particularly unlucky because our message communicated the exact opposite of what we wanted, so we needed to provide context and see how that happened. I want to start with some context of the research grant itself, how we award that grant, then talk about the incident post mortem. We will post a more detailed version on the forum. We are planning to avoid a situation like this in the future. If we start with the context of the research grant, there are three things I want to talk about. 

![](https://i.imgur.com/bw3wkBE.png)

![](https://i.imgur.com/j2n8PER.png)

![](https://i.imgur.com/kFkQAuG.png)

![](https://i.imgur.com/Bnayhwi.png)

![](https://i.imgur.com/uhS1rDq.png)

![](https://i.imgur.com/kmnXWFu.jpg)

![](https://i.imgur.com/38zFcF2.png)

![](https://i.imgur.com/G15jYzE.png)

- All of this impacted our way of reading the message in such a way that we read the message differently than most people perceived it. 

![](https://i.imgur.com/aZSQtAj.png)

![](https://i.imgur.com/aAlHxEx.png)

![](https://i.imgur.com/uFViGCW.jpg)

![](https://i.imgur.com/DpDo3b8.png)

![](https://i.imgur.com/SI9sGh3.png)

## Open Discussion

### Payton Rose

[Wouter 1:00:46](https://youtu.be/rHIQFRdqa1M?t=3646)

- We will publish a more detailed post mortem on the forum. And then, our next steps are what I described, such as starting these more open discussions with the community before moving forward with, for example, the different incubation program tracks that we are planning. And with this, wondering if there are any questions or comments.

[David Utrobin 1:01:23](https://youtu.be/rHIQFRdqa1M?t=3683)

- What Monet brought up in the chat is important. Even though SES might not want to put things up on Twitter, it will get on Twitter no matter what, as a secondary consequence of anything sensitive.

[Wouter 1:01:40](https://youtu.be/rHIQFRdqa1M?t=3700)

- Yes, I agree. Keeping the communications on internal platforms will dampen the effect a bit. But ultimately, because we are a transparent organization, it will make it to Twitter. And then, we need to make sure that we have a specific immunity against the kind of storms Twitter can create. That is where the alignment within the community is important. We need to make sure that the arguments are available to dispel the misinformation on Twitter.

[Prose11 1:03:12](https://youtu.be/rHIQFRdqa1M?t=3792)

- This will also be a chance to engage on the forum post when the postmortem goes up. Brian is saying he has AV issues; if those get solved, I can circle back to it.

[Wouter 1:03:24](https://youtu.be/rHIQFRdqa1M?t=3804)

- Somebody asked how we got Patricia as the candidate to work on this. I believe we have LayerZero on the call. And he can explain how Patricia is a banking industry refugee.

[LayerZero 1:03:46](https://youtu.be/rHIQFRdqa1M?t=3826)

- Sure. We have been talking informally with Patrice here for six or seven months. She is a compliance officer with 16 years of experience in the banking industry. Throughout all this time, she expressed her desire to quit her career in the banking industry and switch to crypto and DeFi. Since then, we have been talking to her about applying her expertise. I can attest that this person has hard skills with experience related to regulatory, specifically AML sanctions. She commits DeFi so deep that she quit her job to explore working for DeFi or MakerDAO. Ultimately, she has the expertise and commitment to the industry. That is why we selected her for conducting this research.

[Wouter 1:05:02](https://youtu.be/rHIQFRdqa1M?t=3902)

- The discussion about the incubation program tracks will be one of the follow ons. One of the program tracks is legal. First, we will try to attract additional core unit facilitator candidates who have the qualities and capacity to lead a team in a decentralized environment and align with MakerDAO’s values. Second, we want them to also have relevant background and expertise on the topic. Please get in touch if anyone knows people of interest with a legal background, project management experience, and team-leading capacities. We will make sure these people are included in the selection pool. 

[Chris 1:06:23 ](https://youtu.be/rHIQFRdqa1M?t=3983) 

- I have interesting technical topics to bring up. It is not because of the KYC AML announcement, but it did make me think about this attack vector. The past weekend of cancellations around DeFi also made me consider the vulnerability of all holders to MKR holders. We created Dai, so Dai is completely permissionless censorship-resistant. It is an immutable contract that cannot be changed or censored no matter how much you disagree with it. It cannot be compelled by legal doctrines or different jurisdictions to censor it. However, this is not true for vault holders. The protocol needs to be mutable enough for us to make upgrades so that the cat or the dog (two contracts that perform liquidations) can confiscate vaults and liquidate them. These functions, like grab on the bat, and other changes like debt ceilings, make vault holders beholden to the whims of MKR holders. 
- I do not have a great solution. The more we lock out MKR holders from performing these actions, the more we Ice Age ourselves out of the protocol. In the long run, MKR holders are likely to threaten vault holders, at least to their ability to create vaults. You can easily see a myriad of reasons why MKR holders may be pressured to censor vault holders under different jurisdictions or cultural movements. Right now, we depend on the fact that MKR is widely distributed. But even then, we have already consolidated down to just delegates. If those delegates tend to share, let us say, positions like cancel culture or a particular jurisdictional threat, then vault holders are at risk. It is worth starting to investigate, from a technical perspective, if we can have our cake and eat it too. See if we can lock MKR holders out of affecting vault holders without removing our ability to upgrade and change the protocol. I am not sure it is going to be possible. However, we should at least be prepared to lock ourselves out of making specific manipulations to the protocol in case we see such a threat on the horizon. That is one positive that came up. 

[Brian McMichael 1:10:00](https://youtu.be/rHIQFRdqa1M?t=4200)  

- Yeah, Wouter, your penance was exemplary. Part of the issue was this was a big surprise. It seemed to go against all of our narratives of permissionless. Then the response, "it is just research," was terrible. The same day, the IRS came out and said they researched how to hack into ledgers for people. I do not know if that is a satisfactory response because the research intends to hack. This slide deck was good. We are not going to try and slip something into Dai. There is also a compliance Core Unit on the SES page in incubation. I think its purpose should be elaborated to the community. We see research for KYC AML Compliance, and then we see a compliance Core Unit coming up on the horizon. Could you explain what that means?

[Wouter 1:11:15](https://youtu.be/rHIQFRdqa1M?t=4275)  

- That is a good point. It is also one that we have flagged internally. We have already changed the name. This is a completely different type of compliance. This is one of the Real World Assets CUs that would exist within the new, more decentralized structure. Checks and balances are one of the principles to create an arms-length relationship between different parties. The Real World Assets Core Unit structure would comprise three types. The Real World Asset portfolio Core Unit is probably the most familiar. This covers which would work on applications and onboarding new collateral types. The second would be legal. The third would be what we used to call the compliance Core Unit, which puts a framework in place. It plays a similar role in advising the other two Core Units: portfolio and legal. It is a check on the practices that they apply. It ensures independence and the best practices to make the protocol safer. In the traditional world, this is the role of a lending compliance unit within the business. We are using a different name now, updating the website.

[MakerMan 1:13:17](https://youtu.be/rHIQFRdqa1M?t=4397)

- I was thinking about this KYC compliance. When we talk about arm’s length, is this going to land on our UIs? We own one of them, but there are many other ones. This will land where the people are initiating the transactions. Anyone can bypass that, but most people will not do that. It makes me think KYC will land hard on the user interfaces to the protocol. Maybe that is the best place to deal with this.

[Wouter 1:14:04](https://youtu.be/rHIQFRdqa1M?t=4444)

- This is a broad topic. We do not own the UI in any sense because it is not a core unit. Commercial companies provide these UIs to bring the functionality and availability of the protocol for end-users. The developers of these UIs do not control the protocol. They will need to analyze to reveal feasibility and unlock the Maker protocol's permissionless potential for their end-users. These groups can apply many potential technological improvements to make it more decentralized. An obvious one is working with IPFS or a similar mechanism. You could create a desktop application UI so that people download it. You do not run it on the server; people can just download it and use it on their computer. The service provider is not running the UI. They are simply a software developer. It is a very broad discussion, but multiple service providers should make various UIs. The service provider should focus on software development rather than providing the service of accessing the Maker protocol. Now, that is my understanding of it as definitely not a lawyer.

[Unknown Speaker 1:16:24](https://youtu.be/rHIQFRdqa1M?t=4584)  

- I want to stress that decentralization is the main tool for reducing regulatory risk. We have seen regulatory agencies such as the SEC, the securities agency in the US, or the Financial Action Task Force. They have expressed that protocols that have achieved a sufficient level of decentralization could be outside their scrutiny. I want to stress that decentralization and reduction of regulatory risk go hand in hand. They are not contradictory. And by fostering one, we are fostering the other one. As we know, each centralization point is a regulatory attack vector. And part of this analysis should include which centralized point of failure we have and try to mitigate and decentralize them.

[Unknown Speaker  1:18:09](https://youtu.be/rHIQFRdqa1M?t=4689)  

- We invite the whole community to have a serious constructive discussion on how to deal with this upcoming regulatory risk. There are hard problems to solve, but they are problems that we can solve as a community together.

[Prose11 1:18:34](https://youtu.be/rHIQFRdqa1M?t=4714)

- Awesome. Our primary announcement is to stay tuned for more future announcements on the forum and Discord regarding next week's meeting. There is a chance we do not host one due to ETHDenver, but we have not decided yet. Stay tuned for that. We are looking forward to ETHDenver for anyone attending. There are some good resources in our Discord for getting in touch with other Maker folks that will be around and their events. Any events that people wanted to call up before we end the call? As always, let us keep the discussions going on the forum. Thank you for joining us, and we will see you maybe next week. Thanks.


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## Common Abbreviated Terms

`CR`: Collateralization Ratio

`DC`: Debt Ceiling

`ES`: Emergency Shutdown

`SF`: Stability Fee

`DSR`: Dai Savings Rate

`MIP`: Maker Improvement Proposal

`OSM`: Oracle Security Module

`LR`: Liquidation Ratio

`RWA`: Real-World Asset

`RWF`: Real-World Finance

`SC`: Smart Contracts

`Liq`: Liquidations

`CU`: Core Unit

## Credits

- Larry Wu produced this summary.
- Jose Ferrari produced this summary.
- José R. Jiménez produced this summary.
- Everyone who spoke and presented on the call, listed in the headers.
