Episode 185: April 7th, 2022

--- tags: G&R --- # Episode 185: April 7th, 2022 ## Agenda - [00:03](https://youtu.be/kj92mk6qbHA?t=3): Introduction - [01:29](https://youtu.be/kj92mk6qbHA?t=89): Votes and Polls - [02:58](https://youtu.be/kj92mk6qbHA?t=178): MIPs Update - [07:18](https://youtu.be/kj92mk6qbHA?t=438): Forum at a Glance - [11:24](https://youtu.be/kj92mk6qbHA?t=684): Initiatives Update: On-Chain Collateral Management - [33:48](https://youtu.be/kj92mk6qbHA?t=2028): Discussion: Collateral Management - [00:00](): Conclusion ## Video [Link](https://youtu.be/kj92mk6qbHA?t=3) ## Introduction ### Agenda and Preamble #### Payton Rose [00:03](https://youtu.be/kj92mk6qbHA?t=3) - Hello, everyone, and welcome to Governance and Risk meeting #185. My name is Payton, I go by Prose11 online. I am one of the Governance facilitators. This is our weekly sync where we go over things relating to Governance and Risk aspects of the protocol. As usual, we got a bit of an agenda to get through. This meeting is being recorded. We encourage open participation. If you have a question and want to hop on the mic it is helpful to raise your hand. You can also drop it in the comment section, happy to read it out for you if you cannot hop on. If there is a lull in the conversation, or you have a question feel free to jump in. Today we will start with our two minutes Roundup. I will get into the vote updates, starting with the polls. ## General Updates ### Votes #### Payton Rose [01:29](https://youtu.be/kj92mk6qbHA?t=89) *Polls:* - 2 Weekly Polls - **PASSED** - PPG - Open Market Committee Proposal - Launch Maker Wormhole With Optimism and Arbitrum Domains *Executive:* - Last week’s Executive - Core Unit Budget Distributions and Vesting Streams Setup, Gelato Keeper Network Budget Stream Setup - **Passed and Executed** Tomorrow’s Executive Proposal: - Delegate Compensation - ETH Amsterdam Event SPF DAI Transfer - MOMC Proposal - CRVV1ETHSTETH-A Maximum Debt Ceiling Increase ### MIPs #### Pablo [02:58](https://youtu.be/kj92mk6qbHA?t=178) ![](https://i.imgur.com/X18nc8N.png) #### [**_Weekly Cycle Subproposals_:**](https://youtu.be/kj92mk6qbHA?t=190) - [MIP4c3-SP3: Amend MIP64 to Allow More Flexibility in Scope](https://forum.makerdao.com/t/mip4c3sp3-amend-mip64-to-allow-more-flexibility-in-scope/14200) #### [**_Formal Submissions_:**](https://youtu.be/kj92mk6qbHA?t=221) - [MIP65: Project Clydesdale: Monetalis Arrangement I: Liquid Bond Strategy](https://forum.makerdao.com/t/mip65-project-clydesdale-monetalis-arrangement-i-liquid-bond-strategy-execution/13148) - [MIP66: Pairwyse Licensure](https://forum.makerdao.com/t/mip66-pairwyse-licensure/13554) - [MIP67: Methodology and Review Process for Structured Finance Transactions](https://forum.makerdao.com/t/mip67-methodology-and-review-process-for-structured-finance-transactions/13737) - [MIP39c2-SP30: Governance Communications Core Unit, COM-001 (Mandate Refresh)](https://forum.makerdao.com/t/mip39c2-sp30-governance-communications-core-unit-com-001-mandate-refresh/13197) - [MIP40c3-SP62: Modify Core Unit Budget, COM-001](https://forum.makerdao.com/t/mip40c3-sp63-modify-core-unit-budget-com-001/13654) - [MIP40c3-SP63: Modify Core Unit Budget, COM-001](https://forum.makerdao.com/t/mip40c3-sp63-modify-core-unit-budget-com-001/13654) - [MIP39c2-SP31: Update Data Insights Core Unit Mandate](https://forum.makerdao.com/t/mip39c2-sp31-update-data-insights-core-unit-mandate/13790) - [MIP40c3-SP64: Add Data Insights Core Unit Budget](https://forum.makerdao.com/t/mip40c3-sp64-add-data-insights-core-unit-budget/13791) - [MIP39c2-SP32: Adding Events Core Unit (EVENTS-001)](https://forum.makerdao.com/t/mip39c2-sp32-adding-events-core-unit-events-001/13780) - [MIP40c3-SP65: Events Core Unit MKR Budget (EVENTS-001)](https://forum.makerdao.com/t/mip40c3-sp65-events-core-unit-mkr-budget-events-001/13776) - [MIP41c4-SP33: Events Core Unit Facilitator Onboarding](https://forum.makerdao.com/t/mip41c4-sp33-events-core-unit-facilitator-onboarding-jon-perry-events-001/13775) - [MIP4c2-SP18: MIP7 Amendments](https://forum.makerdao.com/t/mip4c2-sp18-mip7-amendments/13788) - [MIP6c3-SP2: Modify the collateral application form](https://forum.makerdao.com/t/mip6c3-sp2-modify-the-collateral-application-form/13787) - [MIP7c3-SP7: CES Domain Team Onboarding (CES-001)](https://forum.makerdao.com/t/mip7c3-sp7-ces-domain-team-onboarding-ces-001/13794) - [MIP47c3-SP1: Dissolution of Content Production (MKT-001) Multi-Sig Request](https://forum.makerdao.com/t/mip47c3-sp1-dissolution-of-content-production-mkt-001-multi-sig-request/13991) #### [**_Proposals in RFC_:**](https://youtu.be/kj92mk6qbHA?t=346) - [MIP68: Monetalis Vault V2](https://forum.makerdao.com/t/mip68-monetalis-vault-v2/13789) - [MIP69: L2 to L1 Fast Withdrawals](https://forum.makerdao.com/t/mip69-l2-to-l1-fast-withdrawals/14041) - [MIP70: Huntingdon Valley Bank Self-Contained Onboarding Strategy & Execution](https://youtu.be/kj92mk6qbHA?t=372) - [MIP71: Huntingdon Valley Bank "Collateral Block" Exemption](https://youtu.be/kj92mk6qbHA?t=381) - [MIP72: Delegated Collateral Attachment - RWA Arranger Application - 6s Capital](https://youtu.be/kj92mk6qbHA?t=386) - [MIP73: Pando Investment Grade Climate Assets Collateral Onboarding](https://youtu.be/kj92mk6qbHA?t=393) - [MIP4c2-SP15: Core Unit Offboarding Process Amendments](https://forum.makerdao.com/t/mip4c2-sp15-core-unit-offboarding-process-amendments/12920) - [MIP4c2-SP19: MIP40 Budget Process Amendment](https://forum.makerdao.com/t/mip4c2-sp19-mip40-budget-process-amendment/14250) - [MIP40c3-SP67: Modify Core Unit Budget - Strategic Happiness (SH-001)](https://forum.makerdao.com/t/mip40c3-sp67-modify-core-unit-budget-strategic-happiness-sh-001/13805) ### Forum at a Glance #### Artem Gordon [07:18](https://youtu.be/kj92mk6qbHA?t=438) Post: [Forum at a Glance | March 31 - April 6, 2022](https://forum.makerdao.com/t/forum-at-a-glance-march-31-april-6-2022/14502) - [_News & Announcements_](https://youtu.be/kj92mk6qbHA?t=463) - [Penn Blockchain Delegate Platform](https://youtu.be/kj92mk6qbHA?t=467) - [The Maker Brand Team](https://youtu.be/kj92mk6qbHA?t=490) - [Introducing Forum Explorer](https://youtu.be/kj92mk6qbHA?t=510) - [_Dicussions_](https://youtu.be/kj92mk6qbHA?t=510) - [Using Large Cap Coin as Collateral Offchain](https://youtu.be/kj92mk6qbHA?t=538) - [Proposal: Maker3.0 - The Future of Crypto Lending](https://youtu.be/kj92mk6qbHA?t=567) - [Chips to Tires and Collateral](https://youtu.be/kj92mk6qbHA?t=591) - [_Active Signal Request_](https://youtu.be/kj92mk6qbHA?t=620) - [Advance "MIP4c3-SP3: Amend MIP64 to allow more flexibility in scope" to on chain poll](https://youtu.be/kj92mk6qbHA?t=620) ## Initiatives Update ### On-Chain Collateral Management (CMON) #### David Utrobin [11:24](https://youtu.be/kj92mk6qbHA?t=684) - Today, there is only one initiative for on-chain collateral management (CMON). Moreover, as the internal coordinates MakerDAO call it, CMON. This initiative is quite large. The collateral leads to think about it as just onboarding and offboarding, but a holistic view of collateral is also includes the maintenance and all of the things that go on top of the three foundational functions. ![](https://i.imgur.com/OZ6BOXw.jpg) - This includes priority setting processes, workflow coordination between the many different CU that are involved in this initiative. I have listed the main ones here: Collateral Engineering Services, Protocol Engineering, Sidestream, Auction Services, Oracle's Risk Growth, my team GovComms, and Sustainable Ecosystem Scaling. - Today, I will give you a brief update on this initiative. First, I will give you the products in implementation. I will talk about what we have achieved in terms of collaterals, D3Ms, PSMs, institutional wallets, what is in progress, and the upcoming. Following, I will go into the actual initiative milestones from a very high level. ![](https://i.imgur.com/7UHj2Ih.jpg) - For the first section, we will go through all the different implementations we have been keeping an eye on and tracking for the last couple of months. For one, we have achieved the milestone to onboard the curve LP token for SD staked Eth over Eth. I believe we recently got that up at the beginning of this month. Next collaterals under consideration are wstETH-C, PAXG, GNO, rETH, and sETH2. At the moment, the groups involved in priority and priority setting are in the process of determining what should be next. - There are some more exciting updates because the groups just published recommended metrics for collateral onboarding to help guide these decisions and an updated collateral status Index Sheet. ![](https://i.imgur.com/nd5p7ki.jpg) - As for D3M implementations, the quick update is that in general, there is a large code rewrite happening to make onboarding D3M's from various platforms easier, more streamlined, and efficient. In parallel, the compound D3M is going through an internal or an external code review before it is formally launched. - As for institutional vaults, we have had a long-running initiative to partner with Nexo on their big institutional vault, which is still in progress. It has been a bit slow going back and forth them making progress on this. Nadia and the team from growth are looking for other potential clients to work out institutional vault all deals. - Nadia Alvarez: It has been taking a long time because institutional vaults are like a product on their own, and many risks are associated with these vaults because they are so large. We have been developing the product for the last month. It is important to audit the code that Nexo is using to automate the protection of the vault, because we do not want that vault to be liquidated. - We need to understand that everything is correct. Nexo or any other institution will need an interface to access this vault. We have been talking with Oasis, who also is building this interface. It is a complex product for within data. After we launch it, it will be easy to onboard new institutions. We are reaching out to all of these institutions with this product; it is attractive to them. [16:32](https://youtu.be/kj92mk6qbHA?t=992) - David Utrobin: Thanks for providing context; the first one is always the hardest, but things tend to get easier after that. - That is it for our products and implementation section; we will polish that for next time. In general, this is the comprehensive milestone list for the initiative. I have grouped milestones into four main categories because we have 10 of them. ![](https://i.imgur.com/rL4heZQ.jpg) - There are process upgrades, technological upgrades, housekeeping, and products developed within collateral management. - Today, I will talk briefly about the categories one at a time to condense the ten milestones in four significant updates. Regarding process upgrades, this has been the highest priority milestone within the initiative since we started. Robert has really been spearheading milestones one and four to revise the collateral onboarding process. - This includes different things: it is an update of the collateral application process. It is the onboarding of CES as a domain team, the publishing of new collateral status index. It is also determining the prioritization criteria for collateral. It is updating the actual process documentation itself, and finally, it creates a process for parallel work alignments between all the different teams involved from step one to launch. - Robert: There is much work that is currently in progress, we just completed our Q1 review. In the meeting prior to this, we will post the video and give you more detail about what we did in Q1 and what we are planning on doing in Q2. The key to ensuring we have a process that works for our community, that onboards collateral, and we can do this in a safe, secure, and cost-effective manner. Today is part of that process to do the outreach into the community and collect feedback to make sure that we hear what the community is experiencing. We take that in and incorporate it into the following steps related to collateral offboarding. This is part of our collateral maintenance; we have onboarding and collateral maintenance in the collateral management lifecycle. There are two distinct phases and steps to get the collateral into the system. And then we have to manage it. I am excited because we hired an individual as a program manager to take over all the processes we are managing. She has experience in program management and bringing people together. So, during the quarter, we will start to work more fully on the clutter offboarding because it is a pretty significant area of work and there is a lot of feedback and opinions on how we might go about doing this. We will also build on the MIPS that has currently been published today to build on collateral offboarding. [20:10](https://youtu.be/kj92mk6qbHA?t=1210) - David Utrobin: Another key thing with these two milestones is trying to depersonalize the reasons for prioritizing one thing over another and off-boarding something. Often, I hear in the community that CU tends to be seen as the gatekeepers for collateral, and in many ways, that is true. However, in other ways, this process revision aims to standardize and objectify what those recommended metrics are so that it is less about the subjective opinions of CUs and more about objective guidance that can bring everybody to the same answers, regardless of personal opinion. ![](https://i.imgur.com/Qkzg8Bv.png) - For MS2: liquidations infrastructure cleanup, the main goal was to hand off to the new sidestream auction services Core Unit all of the touchpoints for liquidations. We want to completely transition from the old auction UIs into the new UIs that SES has developed and transitioning to the new auction demo keeper that SES has been working on. All these things are in progress. I believe auctions.makerdao.network is where the SES UI is, and it is very close to being ready to be switched over for the main MakerDAO UI. - Someone: I can add just a little more color to that: they are piggybacking off of the code they have made for the UI to make an actual standalone keeper in the same way we have the option demo keeper. From the protocol engineering units perspective, that is a huge help because we have been maintaining a keeper that is a little bit outside of our core discipline and it going to be really nice when we can hand that off and that is not part of the collateral onboarding process for for our team as well. - David Utrobin: For MS10, we have the delivery of a DM3 and rewrite. - Chris: There are many ways of providing credit or Dai into other protocols. We have Aave D3M, and it became clear that other potential protocols compound the refusals; different protocols could benefit from the same thing. We went with much breath in order to figure out what the requirements would be for each one of these and doing a bit of a rewrite. Once we are finished,it will be easy to hand this off to collateral engineering to deploy these bespoke D3Ms if governance so wishes. - David Utrobin: Lastly, MS7, which is the lowest priority of everything I have mentioned so far, is PSM improvements. This one is actually slated to be a focus more towards Q3. Those are the three main technological upgrades in the queue. As for housekeeping, there are only a couple of milestones here. One is the stable coin vault cleanup, and this is thoroughly in progress. TUSD is being offboarded, but what are left are USDC, USDP, and there is one more. There are three different stablecoin vaults in the traditional sense, like USDC-A type vaults, rather than PSM. The idea is to offload the remaining vaults and have all of our stablecoin exposure at MakerDAO managed through PSMs. The next step for MS6 is to offload the other three stablecoin Vault types in a bundle, which would essentially liquidate them into the PSM. [26:18](https://youtu.be/kj92mk6qbHA?t=1578) - Chris: The high level is T-USD, which will be a sort of typical liquidation turned on a rate-limited liquidation through a normal liquidation mechanism to recapitalize the Dai. The other stablecoins, like USDC, PAX, and G-USD, have Vault types and PSM components. We will take this contract that will allow us to effectively liquidate the underwater vaults directly into the respective PSMs. That way, it is not so much like reclaiming Dai, it is shifting Dai over to the PSM, that is available in the PSM. - David Utrobin: For housekeeping, we want to respond to all the greenlit MIP six applications. This is just the part of increasing the stakeholder experience for people who want to come in and partner with MakerDAO; whether they end up bringing a deal to fruition or not, we find it to be important to respond and have a high standard for how we communicate with people applying at MakerDAO. - Robert: We plan to start posting onto the existing MIPS 6 that are greenlit - this does not change the status. It simply allows them to look at the proposed collateral application template, which is currently in a formal submission. They can take a look at those questions that clarify, the guidelines published today to take, and then update their MIPS sixes to include the additional information and signal to us if they still are interested in moving forward in the process. Also, for those uninterested, simply let us know so we can remove them from the list. We believe this will help us understand who is interested in moving forward and not doing the first round of cleanup on the collateral status index. I have posted the draft index that we are starting to use. We use it in both of our collateral alignment meetings, both the on-chain and off-chain this week. It seemed to work really well to quickly move through where collateral was at, how we are working through that, and the next steps. Then it is clear that there are some issues: Greenlit collateral that has been sitting there for an extended period of time. Hopefully, that is helpful for the community to understand what some of the following steps are. [29:34](https://youtu.be/kj92mk6qbHA?t=1774) - David Utrobin: Finally, the last bucket: our products. We have three milestones relating to products. One was to onboard the curve stETH/ETH LP token, which is delivered. The only thing left with this milestone is to do the debt ceiling expansion. I believe that there is a small expansion plan for this next executive vote from 3 million to 5 million, but then following a proposed parameter foreign post by Risk proposed 50 million. This milestone will be considered complete once the debt ceiling is expanded. - Milestone five is to onboard the compound D3M. This is happening in parallel and is blocked by the D3M rewrite in general. It might be that it is already Code Completed. It is just going through reviews. - Derek: We are doing an internal team review now. We are hoping to get it in for the next audit window. This is the modular discussion that Chris mentioned earlier, so we are making sure that it is extensible and scalable. That is driving some of the discussion around how we build the internal Maker piece and then the external bit to help all the integration. ## Discussion ### Collateral Management #### Robert [34:31](https://youtu.be/kj92mk6qbHA?t=2071) - Since the MCD launch, which is the multi collateral Dai launch at the end of 2019, I do not think any of us would have anticipated the growth we have had with the protocol. To support this growth, our collateral and onboarding have tried to keep up with the quick pace of our industry. We went from onboarding ETH and BAT at the time of launch to onboarding just about ERC20 collateral we could find, we exhausted those tokens. We off boarded some and created the wrap BTC market. We experimented with other strategies like LP tokens, adding PSMs and institutional vaults, and now D3Ms, RWAs, L2, and some hybrid solutions that are starting to pop up. Some of the processes we have today were not built to handle the evolution of our collateral over the past two and a half years. I want to use our RWA as an example. What it looked like to onboard in our RWA was completely unknown. - Back then, members of the community like Long Charles, Rune, Planet X, and others, wrote the initial MIPS and processes to define collateral onboarding. I am sure they were not thinking about our RWAs, let alone these hybrids that are a little bit of off chain, and on chain technology, business, legal, and deal making. History is important, and it is also easy to forget. It is helpful to remember as we shape our future. ![](https://i.imgur.com/DhFjR5E.png) [36:18](https://youtu.be/kj92mk6qbHA?t=2178) - Today, we have a collateral onboarding process. Yes, it is real, and we use it to the best of our ability. The we are referred to are the on chain collateral stakeholders, the off chain collateral stakeholders and the mandated actors. To be clear, this list includes protocol engineering, Oracles, Risk, Real-world Finance, Growth, CES, SES, GovComms, GovAlpha, and the incubation CUs LTS which is legal and Love, which is Luca and the Oversight Committee. The process was created by the the MakerDAO community members shortly before the Maker Foundation was dissolved. I mentioned a few of them just a moment ago. I think we all realize the process is not perfect, but there is a process with prioritization, and we have a baseline. From my perspective, our growth opportunities are in the transparency, communication, prioritization, and commitment areas. The current process may or may not look like this graphic, when we are complete with the next iteration but I just want everyone to know that CES is committed to finding a solution that works, whatever that might look like, to scale the supply of Dai safely and securely in the most cost effective manner possible. - As it relates to our current challenges, my assessment of the feedback that I have received is around what I am calling the Big Four, transparency, communication, prioritization, and commitment. I believe these areas represent a critical component of the evolution of our current collateral processes. During our CES Q1 update today, we went into a little bit more detail in our plans for Q2, the video will be posted shortly. I recommend a listen when you get a chance. I do not want to spend time telling you what I think. I want to ask you what you are experiencing, so we can make this process better. I am also again participating in this discussion, because I too have a lot of unanswered questions. Well, we have done a lot of work between the CUs, work remains to ensure all key stakeholders are aligned. When there is an issue identified and where there is already a defined process, my first step is to take a big step back, collect information, then move forward again; that is what I am hoping to do on this call. Feedback is a critical component of surfacing a solution that will bring alignment as it relates to our collateral onboarding. To start this conversation, I will share one of the most prominent challenges CES face regarding collateral onboarding, or collateral process. How do we effectively prioritize collateral in the context of our DAO priorities? If you take a look at some of the conversations, initiatives, and implicit agreements that we have in our community, it is clear that we want to reduce the dependencies on USDC in the PSM. There is a lot of ways to go about that. I think that is a worthwhile goal or objective. - We also have what we are saying RWAs or real-world assets are a priority. Well which ones? Clean money ones? Arranger ones? There is another side of this that: we have collateral technology that is critical to enabling the onboarding of collateral. When we see a technology like D3M, there is a possible solution to help us assist in the generation of Dai. This is great. It is challenging for me to understand what the priority is based upon our DAO objectives, I am happy to align on whatever this might be, because it makes my job a lot easier. - I would also realize it is common to have multiple priorities and focuses; that is the usual way of things working. My goal is to ensure the CES CU, deliverables match the community expectations. Back to my question, I just posted out to the community ideas on how we effectively prioritize collateral in the context of our DAO priorities. That is all I have, I want to leave it there and allow the discussion to continue. I would love other people to ask other questions that continue this discussion. [41:12](https://youtu.be/kj92mk6qbHA?t=2472) - David Utrobin: Could you touch on the difference in time that it takes for an on-chain collateral to go from application to to implementation, versus real-world asset or off-chain collateral? - Robert: Generally speaking, for an on-chain piece of unchained collateral, the process works from the time the MIP6 application hits two weeks in RFC, then two weeks in the Greenlit poll. Once it comes out of there, we enter into a prioritization process. Currently, the old status of collateral status index being used in the forums does have a tab of a prioritization model that we have been using to help us guide the decisions we make on pulling collateral in. The front end of this process is four-plus weeks. The quickest you can get through is four weeks; the back end of that process, the way that it is defined and the way the documentation reads, is about four weeks. Some things can move faster. As an example, once we have onboarded a piece of collateral, like stake ETH, and the discussions to do different vault types. We can easily move that through much quicker than an eight-week process. But if it is known near c20, we have done work with it before and we have the tech already available to us, we can very rapidly move this through the system. - On the real world finance side of things, our challenge becomes in the deal and the legal aspects and knowing exactly what we have. Right now, it seems like from a tech perspective, all roads lead to the MIP21. MIP21 essentially means that all areas in the way of liquidations are pricing. If there is any aspect of that, or if there is a token, most of these deals do not have that, so it is a dummy token and emergency shutdown. All of that has to be defined in a legal agreement that is off-chain, and the amount of time that can take is entirely up to the complexity of the deal. We might see incompleteness in the application or in the terms that are being defined. If anyone from the real word finance team wants to pipe in, that's fine. However, that can greatly expand the deal. If you look at the new collateral status index, I have a T plus column, and that means the time plus the application. You will see that the the current real world assets that have been onboarded or Greenlit are significantly more time than the ones that are on-chain. It is different, and we need to know that it is different. We are trying to put together the processes that recognize the differences so we can move that through the system. [45:39](https://youtu.be/kj92mk6qbHA?t=2739) - LongForWisdom: I want to comment on Robert's point about not having good privatization tools currently available. A key part of this process is transparency and communication between Governance and Core Units. Thus far, all our voting processes have been used to prioritize topics in a vacuum without comparing them to other things we might want to do. Although better than nothing, it's not workable in the long term for obvious reasons. The general hope is to provide a voting primitive that better handles relative privatizations. GovAlpha and DUX will be working on this. If everything goes well in this quarter, I hope to be able to try something in the next few months. We potentially should have prioritized this earlier, in addition to other stuff. The lack of that contributes to the confusion and tension around collateral onboarding and our general implementations. - Prose11: I want to follow up on that statement; it is not easy to communicate cross core units because different Core Units have different priorities. We have all budgeted for other objectives for different initiatives. When the DAO comes along and votes for something new, a lot of coordination effort needs to occur. We have come a long way with setting up across core unit initiatives. However, working things into a true priority framework that prioritizes governance input while still preserving Core Unit autonomy is a tough nut to crack. We are open to collaborators and further ideas on that. I expect the forum posts from the US on the subject tomorrow to get things started. There are still a lot of difficult questions to answer. [48:29](https://youtu.be/kj92mk6qbHA?t=2909) - Wouter: I wanted to quickly try to connect the dots with the MIP65 posted and the reaction against it. It is essential to see that these are connected. The prioritization discussion is an old discussion. Since the beginning, there have been a lot of concerns that the prioritization is not transparent. Outsiders have been concerned that CUs have too much discretion in deciding which collateral types get prioritized. For insiders, it is a very different situation. We know there have been coordination processes in place. The discussions about prioritization have always been intended to be as objective as possible. But due to the even perceived lack of transparency, there is difficulty convincing outsiders that this is the case. - In that sense, the CUs may be making their lives unnecessarily difficult. Although it is not easy to make it entirely objective and transparent, MIP65 is somewhat of a rift in the community. MKR holders and delegates asking for more information are a bit pitted against the Core Units. I do not know whether this passes or not is super relevant. But if it passes, I see it as a crude way of prioritizing. If it passes, I hope it is a motivation point to ensure a transparent and open prioritization process. Once we have that process in place, it is hopefully no longer necessary for people to post a MIP like MIP65. While many people have commented on the thread, it is a step back. It might be good if we can see this as an opportunity and an extra motivation to get to this transparent and well-defined privatization process. [51:50](https://youtu.be/kj92mk6qbHA?t=3110) - Justin: I was one of the first delegates to voice my opinion on the MIP65 and was taken back by the responses' forcefulness. We need to be careful about allowing organizations inside the MIPs themselves because it can easily lead to an arms race, which we have already seen examples of. I am not happy about that part of that. I do not think it behooves us to do detailed privatizations for the Core Unit because it will lead to overwhelming governance. We will have to create these nitty-gritty details on the DAO level. However, we do need a level of strategic prioritization on the level of the DAO. Then, the MKR holders feel they have a say in the prioritization process and the details of the Core Units. Once you get into the weeds of the details, it reveals things you did not necessarily know once you started this process. This makes a difference on what types of collateral it makes sense to onboard. As we have said before, the bigger issues ask if we should focus on the RVAs or the clean money initiatives. These kinds of strategic privatizations should probably be at the DAO level. - Prose11: Thanks for sharing your perspective there. - LongForWisedom: That is close to what we are aiming for in our production. We need methods for MKR holders to communicate those priorities. [54:10](https://youtu.be/kj92mk6qbHA?t=3250) - Wouter: Regarding prioritization, I put in the concept of budgets and expanding budgets in my delegation. You want to do prioritization periodically. During a meeting, everybody comes to grips with what should be prioritized, what will be done, and then you go off and do the work. Then, you come back and do it again. Let us get pasted this idea of reprioritizing every month. We will be lucky to do it every quarter or semiannually. We need to think about timeframes, processes, and how to prioritize. We also need to consider the point of view from outside parties. If I am a party that put half a million into legal fees and getting an RWA, I would want a quick answer to: 1.) Should I even make that investment? 2.) If I did invest, will I get in? There is a genuine issue of a mismatch between outside parties and how we can do process and timeframes. I see these as real issues. We can do them, but I think we need to do them organizationally and across the board. [55:39](https://youtu.be/kj92mk6qbHA?t=3339) - David Utrobin: I am against hard prioritization rules within MIPs. People external to the prioritization process should not have strong guidelines to block people from doing other work. There are objective shared metrics with any collateral that we can compare. When you are dealing with the collateral, there are nuances to each. Let us say you are mandated to work on this collateral to exclude everything else. There is also some problem part of that process that requires, let us say, eight different back and forths with the collateral applicant and the engineering teams. Why should that block other collateral that might be on the wayside? Let us give core units the proper amount of autonomy to make these decisions because they are more involved with seeing those nuances. As Long said, I find it crude to include these things in MIPs. - Prose11: To present the other side that we have heard on the forums: collateral applicants claim that it is challenging for them to engage with the process. In reward lending, you can sign a letter of intent. If everything checks out, the deal is good. Whereas with the DAO, it can go back on its word anytime. It is much harder to anticipate when deals might be finalized. There is also always the unfortunate deal-breaker that MKR holders could vote down the proposal at the last moment. The feedback we received states that prioritization is included in some proposals because it allows teams to ensure that spending money on legal structure will be fruitful. This will play into our process as we scale, regardless of if we choose to accept prioritization frameworks self-contained within MIPS. [59:01](https://youtu.be/kj92mk6qbHA?t=3541) - Prose11: Do we have more to say about the current management, either cycle or general ongoings in the forum? - Unknownspeaker: If we include prioritization in the MIPs themselves, it would have a chilling effect on the future. The organization's goal is to increase the throughput of our ruled assets that we are getting in as collateral. We start letting MIP prioritization happen in this way. Future RWA's will look at that and say, "well, I am sixth in line with the current priority prioritization. I am not even going to attempt this until we get through some of this". We will see fewer RWA collaterals get proposed. We may be less willing to take on smaller RWA's if they take this prioritization approach. We do not want to block some future unknown RWA that might come through and must be deprioritized because we passed a ten-million-dollar trial run with priority. There may be other collateral prioritization costs beyond the Core Unit perspective. [1:00:35](https://youtu.be/kj92mk6qbHA?t=3635) - Eric: I came from the real world regarding RWA and worked in finance for too long. I want to speak on what we are doing and what we do not know how to do. In the real world, you would work with a potential borrower. You agree on a reasonable set, not all the terms, but high-level terms. You would sign a term sheet on both sides. It is not legally binding, but we always sign it because your reputation matters. The idea is further diligence confirms what the borrower told you; you will do a deal with those terms. We have a bunch of challenges. Borrowers will come to us with a proposal. They will want an 80% advance rate with a 2% stability fee. The market would give them a 65% advance and a 5% stability fee in the real world. So, their request is markedly worse to Maker than they could ever get in the real world. - We are not there to negotiate. But then what do we do? There are stages of when this will happen, but we are getting a lot of proposals that are arguably very unfair to Maker in real-world market terms. If Maker subsidizes someone, they want to know how much they are subsidizing them. Since we are not negotiating, how does this ever get dealt with? Do we post in the community and say they want 80 loan-to-value? The real world is supporting 60, and here is my evidence. Token holders, do you want to vote on this? Part of the next-level challenge is not just about the debt ceiling. Christian may speak to this if he is here. - Before you get a deal done, there will be dozens of points that matter. We can have them all posted and negotiated on the forum by the Maker token holders, but it will be boatloads of votes and things to think about. Let me be honest about part of the challenge in the real world. Maker could get all 20 terms at once with a smart borrower. But if the smart borrower receives the following 150 terms, you could never get your money back, and they would not violate the agreement. There are many ways to hollow things out and put in unfair things to Maker. When people are asking unfair things to Maker, at least in our professional judgment, how does the community want to handle this? [1:03:17](https://youtu.be/kj92mk6qbHA?t=3797) - Wouter: Eric is bringing up good points. However, there are two different discussions. Prioritization does not necessarily mean that the deal must be accepted. That is another discussion and another challenge. How are Core Units supposed even to know what is acceptable and not acceptable according to Maker governance? It is a big one and should be discussed separately. The other thing I wanted to bring up is that sometimes the assumption is made that there is one way of doing things correctly. If Core Units are following the right way, then it is a matter of showing that to MKR holders, and then everyone will be happy. But of course, the complicated reality is that MKR holders and delegates do not necessarily agree on what is the right way. - That is the specific issue with collateral onboarding. People bought up this point before. Your belief in the right priority depends on which vision strategy you want to follow for the DAO. This puts the Core Unit in a challenging position to make their own decisions regarding prioritization because they are following different rules. It does not matter how diligently and objectively you stick to the rule. There will always be MKR holders and delegates who are upset that you prioritize one way or another. Due to that situation, transparency is the only way for Core Units to defend their work. You may disagree with a CUs prioritization method, but that is a different discussion. At the very least, we can show that we follow a consistent and objective set of rules. We do not take or pick favorites. - I think it is essential to separate these discussions. It is very different from having someone unhappy with the prioritization order followed. Having Core Units following objectively defined rules and someway agreed upon is better than having CUs work in a less transparent manner built on the blind trust of professionals to make the right decisions. Of course, some degree of trust is needed. Sometimes, there are genuine disagreements on which approach should be taken. In those cases, transparency is your best defense because you can show that you follow an objective set of rules and not pick favorites. That is very important. That is very important. [1:06:57](https://youtu.be/kj92mk6qbHA?t=4017) - Kianga: I would like to hear from the Core Units: how much time they are spending on defense. I appreciate that we need transparency and communication. However, I am concerned about the energy, focus, and capacity to execute the vision with the offensive leaning in. We are like sitting ducks to be flooded with proposals and questions. Then, you all must respond, communicate, and defend. At what point are you feeling sabotaged by that dilemma? How do we find that balance of expectations around communication? I love to see you all be able to spend time getting your goals accomplished that does not change in terms of prioritization every week or month. Are we going to keep going like this? - Eric: I hope Christian is here to give you his input. However, we spend a lot of time on stuff that is arguably way off-market in what the folks are asking for. We need to be more proactively transparent. We have tried not to share the dirty laundry and say, "we think you are not qualified for these 15 reasons". You do not want to slam people in public. We need to share more politely. Then the community wants to do it; they should do it. However, this is why we think it is not a good idea. As everyone knows, we spent much time around a few big-name transactions. When you tell them, "we are off-market, and we think these six items are very problematic," they end up being political and finding many ways to make it happen. We need to rush to give our top six reasons. They disagree with us, so Maker and token holders, what do you want to do? - Luca: I can add to what Eric has said. We need to acknowledge that while the parties that want to do business with Maker may have the best possible face, they do not have their incentives aligned. They have business interests that do not necessarily align with the DAO. Instead, we should assume that the Core Units are working as servants of the DAO. This is a preamble to say that we would expect adverse selection on the communication intensity. Those with the lowest quality proposals will be the most vocal on forums. So, we need to trust the Core Unit to handle it. Otherwise, as Eric said, it will be biased toward those whose proposals most distance from market standards. These will be enhanced and hijack most of the attention. As Wouter mentioned, this will ultimately be a matter of trust in the Core Units. - Eric: That is a good point: the lender is never really aligned with his borrower because every dollar of interest he must pay us is $1 out of his pocket. You can try to make it more aligned, but there is a bit of a zero-sum going game. You are not making friends as a lender. You want to be fair and respectful, but you are not out there to make friends. [1:11:00](https://youtu.be/kj92mk6qbHA?t=4260) - Prose11: Thanks for the good input. I see a lot of comments in chat about proactive transparency. The facilitator must be the touchpoint for the Core Units with the DAO structurally. While you as a facilitator might be spending a lot of time on transparency and discussion, you could have a team working on your objectives. While reviewing the questions, the Core Unit's facilitators handle and structure what within their teams. [1:11:43](https://youtu.be/kj92mk6qbHA?t=4303) - Juan: I wanted to hammer down on the voters' point. We spent a lot of time on defensive communication. Maybe it is true that the loudest people are the worst. We need to do as a Core Unit to focus on transparency. Otherwise, the MKR holders do not see progress or how things are moving forward. We do need to make sure that this happens. This might not be the best. There are many things that I will address, but eventually, the community will say it does not see the priorities. Please do something about this because this needs to be fixed. [1:12:42](https://youtu.be/kj92mk6qbHA?t=4362) - Prose11: Awesome. We are getting towards the end of our typical time length here. Are there other last comments or questions we would like to submit before wrapping up today? [1:13:15](https://youtu.be/kj92mk6qbHA?t=4395) - Eric: We do need a better process with a lot more transparency. However, we need a process that works for potential borrowers as well. Maker's in the market wants good borrowers to come to us when we are out there. They must think there is a fair, reasonable process to work with. At this point, it feels like we have got a two-legged horse pulling a one-wheeled cart. It is very hard. I am not stating what the right process is. But when we are trying to do business with quality counterparties in the real world, it needs a reliable and consistent professional standard. If it gets robbed every two months with a new process, it will not get good borrowers. People do not want to put up with our drama. Frankly, I would not be a borrower. - ElPro: Eric, pushing back on that, though, we went from an arranger model; to a proposal of looking at an arranger model, and that has been forgotten. This is Frank from 3F Delegate. I was super excited about a ranger model. A few MIP6 RWA applicants lobbied me. I told them to be patient and wait for the arranger model. Suddenly, it disappeared. From someone who has been here for quite a long time (it feels like forever), it has been quite frustrating waiting for our RWAs to come to fruition. You mentioned that 80% LTV is probably impossible in the real world. But then, what is the advantage of the product-market fit of Dai and MakerDAO if we cannot give borrowers 80% at competing for stability fee rates versus interest rates in the real world? Why should they come to us if we do not give them maybe 75% to 90%? There are defaults in the world. You know this, Eric. It is going to happen; Maker is going to take a default. We need to stop sugarcoating it. I get that RWF, the legal team, and everyone wants to protect the DAO. However, there comes the point where we need to accept that defaults down the road are to be expected. Where do we draw the line and say MakerDAO is the place to come on board instead of JP Morgan or Goldman Sachs? - Eric: I like the arranger model. I hope it comes through, but it has never been voted. I have never seen a serious proposal to do it. And it is not entirely clear what it is. I think it's a cool idea, but it has never been voted or flushed out. [1:16:30](https://youtu.be/kj92mk6qbHA?t=4590) - Luca: We have been discussing the arranger model for a long time. There is a bit of misconception. In finance, everybody is an arranger. Unless you meet the specific borrower, a bank and asset management is an arranger. Everybody is an intermediary. I led the input of the arranger model that we tried to incorporate in the so-called sandbox RWA work. Instead of working with many borrowers, we wanted to work with a few large, relevant counterparties. That could have been a great channel for us to do at scale. We still want to do that. That is why HVB is a bank and is a great potential arranger. Asset managers are great potential arrangers. Other startups like Monetarists also hold great potential. The arranger model does not mean endorsing a black box with hundreds of millions or billions of dollars to people that might have limited experience in deploying money. It is creating a gatekeeper, which is a bit different. - Your second point is that no one wants to be in a business with zero default. Eric wrote a methodology that says we want to do investment grade. This has a certain level of default, which is prudent. If we are deploying hundreds of millions, we want to do this with big people incentivized alongside us to do good quality work. So, we get hit. They also get hit. If not, we work with counterparties without skin in the game that will beef up risk because they will not get hit. Only we will get hit. We want to avoid this. We have been doing this for the past few months. - We are going back to Wouter’s point with RWF. As incubated lending oversight, I am one step remote. However, I can see what RWF does daily. If RWF spends 90% of its work defending why it is not working, this will increase the work time needed by ten times. It is that simple. Myself included, we need to give these gives some level of trust in finalizing the deals. Otherwise, we will go backward. We discuss a proposal that is not market standard. We convince the delegates and community. Good. Then, two weeks later, there is the same proposal with another spin. We discuss it, and we move on. Two weeks after that, there was the same proposal with another spin. It is like a Catch 22. We need to stop this cycle. Otherwise, we work with only 10% of the effective time. This ultimately goes back to trusting the transparency. From here on out, we hope to work on that. I know that RWF has a lot to improve. We are all working as a CU to do that. [1:19:42](https://youtu.be/kj92mk6qbHA?t=4782) - Eric: I have a response to one of Frank's points. I mentioned 60-80 LTV as an example; it is not anything specific. But let me try to paint the point. Maker should make off-market deals. However, it should also understand how off-market it is. Let us say a deal where the real world does a 70 LTV and Maker wants to do 80 LTV. With the same interest rate, that is fine. Do it. However, if you had to sell our loan the next day, they would probably pay 85 or 90 cents on the dollar once we did it to another sophisticated investor. So, for a $100 million loan, we give that borrower $10 to $15 million out of our pocket in subsidy. I have nothing against that, but know you are explicitly subsiding that borrower in their activities versus what the real world would fund it. It becomes an important question: Who do you want to subsidize, and how much? - Prose11: Thanks for that perspective. Are there any other thoughts or comments before we wrap up? [1:20:59]() - Kianga: To Frank's and Eric's point, we want to do something off-market (this might not be the appropriate term if we are talking about the real world, this Web3 or DeFi), we should know we are doing it for a reason. To your point, Frank, why would people come to Maker unless we give them better terms? It should be aligned with our strategic vision or that counterparties can help us achieve an obvious and tangible goal. That is a decision nice to make in strategic terms. For example, here are why we would do something off-market relative to the real world rather than on a case-by-case basis. This would help educate the community to know what the difference is. So, if a proposal comes in that is nice in terms of its concepts, it's about presenting why people may like it. The community does understand what we may be giving up or just what those differences are. We are voting in an informed way and in a strategic way. ## Conclusion ### Payton Rose [1:22:30](https://youtu.be/kj92mk6qbHA?t=4950) - Thank you, everyone, for attending today. Discussions have simmered down, so we will end the call here. Join us same time, at the same place next week. Thanks again. [Suggestion Box](https://app.suggestionox.com/r/GovCallQs) ## 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 - Andrea Suarez produced this summary. - Larry Wu produced this summary. - Everyone who spoke and presented on the call, listed in the headers.