---
tags: G&R
---

# Episode 181: March 10th, 2022

## Agenda

- [00:00](https://youtu.be/GIa-7PnBfeA): Introduction
- [02:12](https://youtu.be/GIa-7PnBfeA?t=132): Votes and Polls
- [04:35](https://youtu.be/GIa-7PnBfeA?t=275): MIPs Update
- [11:26](https://youtu.be/GIa-7PnBfeA?t=686): Forum at a Glance
- [18:00](https://youtu.be/GIa-7PnBfeA?t=1080): Initiatives: Layer 2 Updates
- [27:55](https://youtu.be/GIa-7PnBfeA?t=1675): Initiatives: MakerDAO Twitter Updates
- [31:34](https://youtu.be/GIa-7PnBfeA?t=1894): Discussion: RWA Collateral
- [01:25:36](https://youtu.be/GIa-7PnBfeA?t=5136): Conclusion

## Video

<https://youtu.be/GIa-7PnBfeA>

## Introduction

### Agenda and Preamble

#### Payton Rose

[00:00](https://youtu.be/GIa-7PnBfeA)

- Hello everyone and welcome! This is the Scientific Governance and Risk episode #181 at MakerDAO. My name is Payton Rose. I go by Prose11 online. I am one of the governance facilitators here, joined by many awesome Maker people who both works with the protocol and are generally interested in it. These are weekly talks about what is going on, what risks the protocol faces, and what future discussions we need to have. We do have a bit of an agenda to get through, but I will go over some housekeeping matters first. This call is being recorded, so please try not to talk over one another; if you would like to speak, you can utilize the raised hand function or drop a line in our chat. Also, I am happy to read out any questions or comments if you are unable or otherwise unwilling to hop on the mic. If you have questions or there is anything you want to contribute, please do so; we love to get as many perspectives as we can during these calls.

- Our Agenda today:
- We will start as usual with a brief Governance update going over the votes, the MIPs, and the Forum.
Then, we will jump into some initiative updates: Layer2 and MakerDAO and some of our Twitter and social media accounts and how they are performing.
- And only one discussion topic: RWA Collateral
- After that, if there is time, we will have some Open Discussion.

## General Updates

### Votes

#### Payton Rose

[02:12](https://youtu.be/GIa-7PnBfeA?t=132)

_Polls_:

- 2 Weekly Polls
- Offboarding Parameters for TUSD-A: **PASSED**
- Reinstate Surplus Buffer Lerp: **FAILED**

- 1 Greenlight Poll Conclusion
- PUNK (NTFX CryptoPunk)
- Vote Breakdown:
- **NO** 45.58%
- **YES** 30.03%
- **ABST** 24.40%

_Executive_:

- Last Week's Executive - **PASSED & EXECUTED**
- CU Budget Distributions, Recognized Delegate Compensation, MOMC Parameter Changes
- Out Of Order Executive - **PASSED**
- Mitigate Post-Shutdown Flash Loan Vulnerability
- Tomorrow's Planned Executive Contents:
- Onboarding Curve stETH-ETH
- Introduce Rate Limiter to Flapper
- Immunifi Bug Bounty Payouts

### MIPs

#### Pablo

[04:35](https://youtu.be/GIa-7PnBfeA?t=275)

[Weekly MIPs Update #77](https://forum.makerdao.com/t/weekly-mips-update-77/13706)

[MIPs General Update](https://youtu.be/GIa-7PnBfeA?t=294)


[MIPs](https://youtu.be/GIa-7PnBfeA?t=319)

[CU Budgets](https://youtu.be/GIa-7PnBfeA?t=334)

[CU Offboarding](https://youtu.be/GIa-7PnBfeA?t=346)

[Amendments](https://youtu.be/GIa-7PnBfeA?t=384)

[Keeper Network Onboarding](https://youtu.be/GIa-7PnBfeA?t=404)

[Declarations Of Intent](https://youtu.be/GIa-7PnBfeA?t=414)

[Proposals In RFC](https://youtu.be/GIa-7PnBfeA?t=426)

[MIPs](https://youtu.be/GIa-7PnBfeA?t=439)

[CU Budgets](https://youtu.be/GIa-7PnBfeA?t=487)

[CU Onboarding Set](https://youtu.be/GIa-7PnBfeA?t=502)

[Amendments](https://youtu.be/GIa-7PnBfeA?t=521)

[Others](https://youtu.be/GIa-7PnBfeA?t=615)


### Forum at a Glance

#### Artem Gordon

[11:26](https://youtu.be/GIa-7PnBfeA?t=686)

Post: [Forum at a Glance: March 2nd - 9th, 2022](https://forum.makerdao.com/t/forum-at-a-glance-march-2-9-2022/13804)
Video: [Forum at a Glance](https://youtu.be/GIa-7PnBfeA?t=686)

- _Announcements_:
- [Protocol Engineering CU Workstreams](https://youtu.be/GIa-7PnBfeA?t=700)
- [Post-Shutdown Flash Loan Vulnerability](https://youtu.be/GIa-7PnBfeA?t=743)
- [Quarterly Strategy Review](https://youtu.be/GIa-7PnBfeA?t=783)

- _Discussions_
- [Fire Drill](https://youtu.be/GIa-7PnBfeA?t=834)
- [Content Production CU (MKT-001) Offboarding Post-Mortem](https://youtu.be/GIa-7PnBfeA?t=881)
- [Issue Discussion Call #5](https://youtu.be/GIa-7PnBfeA?t=929)

- _Active Signal Requests_:
- [Promote "MIP4c3-SP1: Amend MIP64 to clarify critical web bounty amount" to on-chain poll](https://youtu.be/GIa-7PnBfeA?t=971)
- [Onboard D3M For Notional Finance](https://youtu.be/GIa-7PnBfeA?t=989)
- [Onboard PAXG](https://youtu.be/GIa-7PnBfeA?t=1009)
- [Real World Asset Fast-Tracking](https://youtu.be/GIa-7PnBfeA?t=1035)

## Initiatives Update

### Layer 2

#### Derek

[18:00](https://youtu.be/GIa-7PnBfeA?t=1080)

- _Contents_:
- StarkWare Slow Withdrawals
- Fast Withdrawals & DAI Wormhole
- MCD On Layer 2
- L2 Milestones & Roadmap

- [StarkWare Slow Withdrawls](https://youtu.be/GIa-7PnBfeA?t=1114)

- Regarding the **_delivered work_**:
There have been many architectural discussion reviews between PE and the StarkWare team. That's been completed and led to a chain security audit on the DAI Bridge implementation, and that was followed up with a PoC that the StarkWare group shared with Oracle's Team earlier in Denver.

- Leading onto the **_in progress work_**:
- There's a technical assessment that's currently underway between PE and the StarkNet team; what we're trying to do here is akin to the collateral onboarding process, where you have collateral, it gets reviewed by Risk, by the Technical teams, and you have a disclosure discussion of these risks on the forum. We're trying to do the same thing with L2. And we're hoping to release that in the next week or so.
In parallel with that, there's also an ongoing audit for events and message cancellation on StarkWare, which should be due for completion at the end of the month.
There's also an ongoing discussion around circuit breaker considerations, and we'll expect to have something in the forums next week or so on that topic.

- About **_work to do_**:
- The outstanding tasks are wrapping up the Oracles integration, deploying the UI SDK, and integration on the front ends --- the StarkWare team is working on that. It's providing them with a software development kit to integrate that.
Then, there's also cross-team integration to ensure we have the forum posts and the community awareness already set up. Louis is already working on the circuit breaker piece but hasn't merged it yet.
- And then on the **_target side_**,
- Deliver Slow withdrawals by the end of March upon completion of audits.
- The dependency here is completing the audits and making sure that the events and message cancellation are all good by the auditing team. That is targeting as originally communicated.

[Fast Withdrawls & DAI Wormhole](https://youtu.be/GIa-7PnBfeA?t=1280)

- What's being **_delivered_**:
- The Optimism Wormhole contracts are being developed, audited, and deployed on Kovan. The last time we gave the update, we were waiting on doing that deployment to Kovan, which has been successful.
Oracles have also done a bunch of work this last month around the design document, the PoC, and the integration and addresses on the Testnet deployment, which has been great.
- SDK has been delivered to Optimism and Arbitrium UI teams.

- In **_progress_**:
- Next step is to make sure they integrate our Wormhole capabilities into their front ends.
- We also had a call yesterday with chain security around doing an audit of the Arbitrum Wormhole contract.
- The next item in progress is testing the Kovan deployment and Oracles integration to ensure that these deployments are working and functioning as they should in a Testnet environment.

- The **_upcoming work_**:
- The upcoming work is completing all the Kovan and Optimism and Rinkeby (Arbitrum) tests.
- Then, setting up comprehensive monitoring and alerting for bridge invariance. Again, this is one of those cross-team coordination tasks where we need to integrate with different teams.
- Finally, integrate those UI and test them out.

[MCD on Layer2](https://youtu.be/GIa-7PnBfeA?t=1419)

- **_Delivered_**:
We talked about how we take MCD from Layer1 into Layer2, map out all the different modules that exist, and understand which areas need to be researched in more detail.

- **_In progress_**
- We are defining the MCD module behavior for L2
- We need to do some upgrades to the Solidity version to ensure it's compatible with L2 environments.
- And some complexity needs to be documented and discussed, especially regarding Emergency Shutdown: it's a complex module, and to understand how the way the end works and how that's going to function when there are multiple environments or domains of MCD operating needs a little bit more mapping out.

- **_Future work_**:
- Further investigation into MCD modules. The complexity of MCD needs to be mapped out in a Layer2 world. And also how we manage that and surplus management in an L2 environment.
- We need to Bootstrap a Keeper ecosystem
- As part of governance processes, we'll have the standard Technical and Risk team assessments that have to happen to move this forward.

- **_Targets_**:
- We've got MCD on Optimism and Arbitrum, tentatively targeting Q2, but I restate their **tentative** aspect here because it does depend on Wormhole, the MCD Layer2 definitions, the modules, any changes we have to make, and any changes as a result of the Solidity upgrade that needs to be done as well. But I think that's all to be expected and it's all being tracked as part of our stakeholder alignment initiatives as we progress.
- MCD on StarkWare target TBD.
- Pending Solidity upgrades and further understanding of the Cairo code.

[L2 Milestones & Roadmap](https://youtu.be/GIa-7PnBfeA?t=1604)
- _Milestones_:

- StarkNet DAI Bridge: End of March
- Fast Withdrawls: End of March
- StarkNet: Target Mid Q2 depending on already mentioned conditions
- L2 MCD Implementations: Target End of Q2

#### Questions

[27:19](https://youtu.be/GIa-7PnBfeA?t=1639)

### MakerDAO Twitter

#### Mariano

[27:55](https://youtu.be/GIa-7PnBfeA?t=1675)

**NOTE**: The post regarding this topic can be consulted [here](https://forum.makerdao.com/t/content-for-the-makerdao-twitter-account/13819).

- _Important Points_:
- Discord Channel to coordinate with CUs
- Calendar
- Preparation
- Publishing


- We create a **Discord channel** to coordinate with CUs.
- We will share a **calendar** in which you can post the information you want to publish.
We help you to **prepare** your post: if you don't have the actual tweet, we can help you with that and the graphic content if needed.
- After that, we can coordinate the **publishing** date with you.

- What things do we consider publishing?
- Discussions around the future of Maker and DAI
- Maker community updates
- CUs updates
- Monthly updates showcasing the DAO's work
- MakerDAO announcements

#### Questions

[29:56](https://youtu.be/GIa-7PnBfeA?t=1796)

## Discussion

### RWA Collateral

[31:34](https://youtu.be/GIa-7PnBfeA?t=1894)

- Will: We have got a presentation for next week that David and I are working on together. It is not there, but I can start at least with a flavor to the conversation this week. In terms of the team's work, we had a long February with a couple of assessments that occupied the vast majority of some of the team's effort. The first one was published, version one of Monetalis, in the forum. There was a negative overview of that one, and your reasoning is explicitly stated in the risks of that. I had that and have a session as well to explain to delegates. We are happy to replicate the same session with the rest of the community if they use an appetite. It is mostly a summary of the same content but with more background and flavor. The other key work for February was the review of 6 structures or successfully had expressed intention to submit an upgrade of its existing vaults, but it has not been published. That is a request, but it had been expressed. That triggered an event to have a review of that. So we started a review of that one with a legal engagement with Shearman and Sterling, and we discussed the risks that meet against the report pointed out as an output of that discussion. That is currently with Matt's team to review. And there is an attention to implementing a number of the MIPs pointed out by the law firm. I will let Christian use the call coming further if the community has gotten more updates.
- On the 6s, we did not have a review of the credits simply because that 6s has not moved further with the data upgrade. They will come back to us once they are ready to officially submit the request for an update of the vault.

[36:49](https://youtu.be/GIa-7PnBfeA?t=2204)

- At some point, I could speak as a party trying to onboard borrowers and dealing with our RWF CU.

- Someone: That is the two key odds. We have got many other counterparts trying to draft their MIP and engage the team in the premier process. This has been confusing the community. Our pipeline is not our pipeline; it is the DAO's pipeline. They are trying to engage the community to get the best possible written MIP for delegates to have the most information before a MIP is published. There are several initiatives in that early stage. So other vehicles and their existing initiative are one of them. Max, if you want to comment on your experience, it would be useful for the community.

[38:15](https://youtu.be/GIa-7PnBfeA?t=2295)

- Christian: I want to say this before Max jumps in. There are a couple of other things that the community should be aware of that we are working on. One is that we are continuing to work on the SocGen transaction. SocGen probably has some technical issues working out jointly with Collateral Engineering Services. We are working with them to document the SocGen transaction. We have a draft loan agreement that we have commented on. Soc has come back on. We have got several other documents that we have been working on with SocGen. That is in process. The other thing that we have been working on is Centrifuge. Centrifuge has indicated a new structure. At the beginning of the year, we put together the methodology for structured finance transactions to give borrowers a sense of the type of deal structures we were looking for and the type of protections and structures that a senior secured lender would expect. I do not think anything that we have published regarding our methodology is different from what you would see a senior secured lender looking for in the real world. We were not very creative. We borrowed heavily from everything else people were doing. Centrifuge took that, then working with me, we went through a couple of different iterations of potential structures that would be flexible enough for them to use going forward. However, at the same time, we want to be responsive to some of the protections that we want to see in the documents. And let us be very clear; these are protections for Maker, not anybody else. Centrifuge took that and came back to us. Then we looked at it and said, yes, this looks like it is going in the right direction. Centrifuge then prepared the first draft of one of the agreements. I am working on going through that and providing comments to Centrifuge on that agreement.
- We have also had many discussions with one of the MIP6 applicants and trying to reshape their proposal that involves the creation of security interests under local law. We looked at how that would impact their operations and give us, at the same time, the security that we were looking for. We had discussions with external local counsel in Europe to help you understand nuances of local law and perfection of security interests and local law, which is all very different. I can assure you that what is done in India and the US and the Netherlands, in the UK, Brazil, Chile, and South Africa are all very different. We have to engage with the local council to do that. We have also been working on that. I wanted to supplement that a little bit.
- Will: SocGen is one of the main evaluations that are currently ongoing. It is a pleasure to provide us with all the flavor of that. The goal for SocGen was, of course, the end of it by the first quarter of 2022. I want to manage the expectations here with the community due to a few delays, particularly contractual delays on the SocGen sides. And there is also a smart contract review. There might be a few weeks of delay between the expected delivery date, which was the end of the first quarter, the end of March. It might be more towards April.

[43:05](https://youtu.be/GIa-7PnBfeA?t=2585)

- Max Glass: This is like building a road across mountains. It takes a while to build that road. But the second it gets built, we will have to flow through it. I showed up in August joined up with Greg on this RWA Company to start to help get some of our clients onboarded. My first experience was bringing this client that was doing the film finance and then getting rejected by this CU. When that happened, we went back to the drawing board. And it ended up being for the benefit of MakerDAO that rejection happened. Because what we decided to do was just let us raise the bar, let us see if we can get some higher quality counterparties. What is the highest quality counterparty? How about an American publicly traded commercial bank? And we went out and tried to find that, and I am very excited that we have got a MIP6 almost ready to go with an American publicly traded bank regulated by the FDIC and the SEC. And working with the RWF CU has been instrumental in getting that MIP6 into shape. They have been the counterparty to which we have put it up and gotten feedback and iterated. And yes, it is slow, but it is slow because this is a complex transaction. We are doing something that has never really been done before. MKR holders should understand this topic because we have an opportunity to raise the bar and set the standard and do this right. If we do it right, it will accrue enormous benefits to both Maker and DeFi. What goes into making a deal? There has to be a legal entity set up in the real world. And there have to be transaction documents. You also have to have a counterparty that understands what is going on. You have to, of course, get them through governance. These are all things that have yet to be done in full before.
- Although 6S Capital is live as a model that has taught us a bit, what is Maker doing to professionalize our approach in borrower versus lender perspective and for designing a deal? Luca has tried to, and these guys at RWF CU have been tasked with finding the highest quality counterparties. Everybody involved has to seem very professional and buttoned up to interact with those regulated institutions. I see that as the culture right now. I am optimistic that this is a very professional thing. And there will be a well fleshed-out pipeline and process that anybody can come to MakerDAO as a counterparty and go through. There is no need to fast-track. What will happen is that this will perpetually get faster and faster. This is the slowest that will ever be. Let us just put it that way. It will get faster and faster as we essentially automate this thing, and we have template documents that we can reuse and plug and play. I understand the urgency. It is an enormous opportunity. Maker needs it. DeFi needs it. I am working every day to make it happen. I feel very confident. We will have some killer counterparties, phenomenal high-quality counterparties, numerous coming through the table with getting their deals done, getting them approved through governance, having a model template, legal structures that are open source. Then this thing is going to flow like building a road across mountains. We are building the road right now. But once the road is built, there will be much traffic through it.
- Christian: Thank you for that, Max. The other thing that is helpful for people to know, and Max touches on it, and it may seem easy, but it is quite complicated, which is the legal and jurisdictional issues. We are looking at transactions from all around the world. The first thing I think of is a tax because ultimately, somebody, almost always the borrower, has to pay withholding tax. We need to think about it, and the borrower needs to think about how we structure that. If we are doing a deal in Brazil, there are many different considerations: Does the legal entity get paid in Brazil? How does that legal entity, pay Maker? 6S has provided a model for US deals, and I do not think it is the only model. As we see deals coming from different jurisdictions, we need to look at those jurisdictions to understand what the local law allows us to do. The Delaware statutory trust is a creature of the state of Delaware that does not exist in a lot of other jurisdictions. Even the concept of trust does not exist in many jurisdictions. Civil Law jurisdictions like France do not necessarily have a trust concept. As we look at various transactions coming to us, we need to ask all of those questions and understand the cash flow and its implications. How does the DeFi integration to the World World Peace happen? That in and of itself is complicated.
- Then you have regular deal documents. The other thing I would add to professionalizing: one of the things that I have been working on is to make sure that we have law firms that are supporting the RWF team. Law firms that have transactional experience in particular subject matters. I am in the process of trying to onboard more law firms that can provide us the support for Max's deal, for instance, where you are talking about an American regulated bank. That is the Belly of the Beast right now. We want to make sure that we have the best counsel advising Maker in doing that type of transaction, so we address and know all the risks and issues. So that when we prepare the risk memorandum, it is complete, very put through, and very thoughtful. It is very much a process. And as Max said, it is building, I would even say a railroad, across mountains. Roads might be easier. Railroads are more difficult. Over time, we will develop a collection of documents that we can reuse and reuse for borrowers. We have got half a dozen different borrowers bringing eight different deals to us. There is a wide variety, and it takes time to understand those, assess them and then implement them.
- Will: I am happy to complement the point that Christian and Max were making touched on it around the professionalization. One of the first discussions that I had as soon as we started, pressing a bit of a reset button into what we were doing, was a conversation with Christian. If we want to do things properly, then we have not got a segment but scale the legal path of RWA because it is a critical one. If it was probably just about collateral risk evaluation from a commercial credit perspective, things could probably be faster. Nailing on the legal path is important. One of the first actions I took was conversing with Christian, asking if we could create a supporting function that is almost separated functionally from commercial and risk. However, it can also bring them different intermediary solicitors that can help Maker have two, three, four Christians that understand the law in key jurisdictions around the globe. This can help create a panel of those law firms across the globe able to scale that function. That is currently another aspect going through the incubation of our legal terms. There was deliberate effort to be able to do it so that can support every activity from credit and commercial play in.

[54:36](https://youtu.be/GIa-7PnBfeA?t=3276)

- Max: At MakerDAO, we treat engineering seriously. Software engineering is severe. We would not say that we need to fast-track pushing this production code. This stuff is legal engineering. And we do not want to fast-track pushing anything to production because there is a tax surface area. We want to minimize that. We want to have everything tightened button up. We do not want to put a boat in the water with holes. The point is that we should understand that this is legal engineering happening. We should treat it in the same way we treat software engineering, with the same security principles.
- Christian: When we are engineering, safety is paramount. But we do make many sorts of risk trade-offs. We do a little bit of calculus on stuff that may not have the perfect construction. We put that out sometimes because, let us say, the probability is low that it would occur; maybe the risk of impact is high. It is usually a multi-varied equation when calculating risk. My only suggestion to you guys would be that the DAO desperately needs to deal with its PSM USDC problem, which is a type of RWA. We need to diversify that. We should not let the perfect be the enemy of the good. If we can take calculated risks on certain collateral onboardings, we should make an effort to do that. I have done this on a governance call before. There is something to the mantra of asking forgiveness rather than permission.
- I have noticed through many companies that I have worked for that are trying to be in complete compliance or go by the letter of letting us say what the internal legal teams suggest. Often leads to those corporations being not competitive and stagnant. If we lean too hard on the risk-averse aspect of the DAO, we are less likely to get anything done. Considering that, let us try and assess how much risk exposure we think there is. We have got a surplus buffer. MKR holders can maybe decide if they want to lose some of that surplus buffer. We certainly do this with regular collateral onboarding. There are risks when we talk about Layer2s. We tried and scope that to how much possible losses could occur in the surplus buffer before we had to dilute MKR holders. We should probably make similar assessments. If we have been working with people for a good chunk of time, 6S would be a good example I can think of. We have worked with them for years. There were many discussions in the foundation. We have done software engineering. Matt has put enormous time and money into the legal constructions. We have more trust built up over the years that we could lean on in that case. Even if maybe legal constructions are not going to be perfect, we should consider how big our risk of USDC is and do our job to try and risk-manage the collateral basket that backside. That was a lot there. I may have said a couple of dumpster fires. Apologies.
- Christian: In terms of legal being a beam, perhaps the delay, I can assure you that that is not the case. I have been doing this for 25 years. I have worked on transactions in over 40 different countries. I have told anybody who wants to talk to me that I am a deal junkie. What I like to do is the deals. From my perspective, the way that I approach it is how do you get a deal done? The other thing that I would say is when I was working at a law firm in Japan, and I had first-year law students come to me and say, I want to come work in Japan and get my experience there. The first thing I would say to them is: do not go to Japan, first, start in New York, start in London, learn the basic ABCs, learn how deals should be done. Then come to Japan, Asia, the Middle East, or wherever you want, and then see how deals are done because there is flexibility outside of the basic ABCs that you learn in New York and London. There is balance. I have no doubt. But I can assure you that I am a deal junkie on my level. I like to find ways of collaborating and getting deals done. But sometimes deals do not get done because they should not get done. Because there are gaps, holes, and problems. We need to be mindful of that. The intention of setting up a legal CU is along the collaborative getting deals done, within reason, approach. That is what Maker wants. That is how Maker succeeds is by bringing on transactions. But it also succeeds by not losing money. And that also has to be balanced.
- Max: There are two types of risks. There is this counterparty risk and the legal structuring risk. We have been delayed on the counterparty risk because some top-notch counterparties have approached these CUs and us. We know the type of quality we can bring here. The delay has been not wanting to lead to lower quality when we have the opportunity for such high quality. Even if it takes another couple of weeks, the high quality will be worth it. For example, in sales, if you want to have $100 million of revenue, as a salesperson, you cannot do that $100,000 at a time. You want to be looking for the $10 million deals. Maker wants to be capable of deploying essentially billions of dollars. If not, an enormous amount. We want the biggest, highest quality counterparties and the fewest number to manage. This is a philosophical question for Maker. But at least from a management standpoint, we have fewer higher quality counterparties with which we can do larger business is much easier to manage than much smaller and lower quality. And we have limited bandwidth as a community. In terms of engineering, we want to focus on the biggest opportunities.

[1:03:44](https://youtu.be/GIa-7PnBfeA?t=3824)

- Katie: Is there a process for onboarding RWA?
- Prose11: From the governance side, up until this point, we have not had any MIPS that direct the treatment of RWA differently. This is why we have been applying our regular collateral application process to RWA, with the major difference being who issues the risk report there. The risk report is potentially much more difficult to issue as it involves going into legal structures and all the challenges they have been talking about. Anyone can propose a MIP, and Will was one of the new MIPs put up last night to put forward and guide the process slightly differently for RWA collaterals. I am not a little well learned or not. I just wanted to get the government's take there.
- Will: I saw a couple of comments in terms of my project. Let me know if it is not getting through. The MIP6s' application process is as the existing MIP6's application. That does not change. That entails a MIP application that any counterparty can submit and then be treated by the existing team that is in there. It does not mean that it is the only team that will be there forever. They are working diligently, and hopefully, they can dictate a little more time to also the scaling up in the longterm. And at least the beginning is with the legal partner because it is an important one. We have just realized by working for more than a year with that existing MIP6s' application process is that the understanding of the counterparties of requirements for a full-fledged MIP6 is various. You have counterparties that fully understand just by looking at the questions.
- We updated these questions a few months ago on MIP6's application. Before, it was just a check boxing exercise that was to be done without understanding the context required to have transactions that were subject to market standards. The question is relevant, but the depth of how they are answered was probably not there. Through that long and painful experience, we realized that MIP6s were putting the work together and putting votes for prioritization. The existing MIP process is the green light vote; it determines the priorities when you sign to the teams. It means that the process is still as it is, but we just realized that there were shortfalls in how it works operationally. Even applicants who were getting through the process of submitting applications have been proactively engaged to the team, and we gave a little more guidance on how to structure it. And I think the very first guidance that came in this process of resetting and professionalization over the last couple of months was the MIP6 methodology for structured finance transactions found in the forum. The MIP6 process asks you to answer 15 questions, but what we mean by that is x. This is a methodology. You can put things that mimic that, making your application complete. This was not only for our team in particular. It will favor MKR token holders to make a more informed decision on what they are telling teams to prioritize versus a marketing piece with very little information on it. Once it exists, it slows down the process if it is not done to a reasonable degree.
- Suppose I had a key message like a MIP6 application drafted with flows and quality. It slows down the process simply because it takes just as much time or up to four times longer than the original proposal once it goes through greenlight. Once the diligence starts, they say this is what was provided as a MIP6; we must work on many details to assess it. We realized that the post in MIP6 for MIP6 did not have some guidance. They would essentially have to rework the MIP6 to get to some level of standard that we could have a view to assessing it. That is a realization. MIP6 is still and will remain forever an open process. Projects can and should go forward if they have a proposal that they really think is in line with the Maker protocol and submit it. They then must realize that when it comes to its treatment, there might be some real work done. From a borrower's perspective, this might increase their costs because they will have the potential to be doing the same thing twice.
- Eric: I am on RWA. I want to make a few comments. There is a question of risk appetite and standards for Maker. On the one hand, you could say there is a great investment. It is venture equity; this is an Ex-Google; you think we will make a good return. But the other issue in Maker is that we need to back Dai with very stable investments. That peg to the dollar is relentless. We are issuing these demand deposits, and people can cash out of a will. You need to have solid assets that can be liquidated quickly to honor that. I do not think the community honestly has thought through what it needs in terms of a risk appetite. We are showing what we think makes sense. But to get these high-quality investments that can be turned into cash reasonably quickly. You cannot take many risks, and you do not make much return on them.
- We have been proposing and guiding; let us make high-quality investments. And let us look at where the real world is investing. We do not need to do the same stuff. But if someone brings us an investment in the real world, we would do this deal only if it is a million-dollar deal. They say, great, I will give you an $800,000 loan, but you put in the final $200,000. Often, we will get counterparties coming to us saying, give me a million dollars; I will not put anything under it. They are asking Maker to take a lot more risk than the real world. And that will be a fundamental question of why. Maybe the real world is off on this. You can always innovate. But then the fundamental question becomes: what basic rights and principles as a lender should make you give up that in the real world, it would insist on it? There are some difficult discussions here.
- We are typically trying to look at things versus the real world. And again, you do not have to do it the same. But if there are markedly more weaknesses, what is being proposed to us versus what the Real World would do. I think it asked some key questions. Over the last hundreds of years, lending has been a business that needs improvement. There are some basic principles about lending; it is easy to lend and hard to get paid back. How can you manage that risk? We generally want to be open to innovation, but we also want to use those basic lessons because people have lost money over the centuries learning these things. You want good collateral, you want more collateral than the low, you want to be able to see the collateral. We are asking for basic lending one-on-one things, and some parties are pushing that we do not ask for the basics, the tried and true stuff. That is a fair ask, but the Maker community needs to know what they are asking and why we view it so off the market as what the real world has done historically.
- It needs to put the onus on the borrower to explain why, in this deal, you do not need to have any first lost money under you. Every other deal in the world like this would, but we are special and different. And you do not need first loss protection. We struggle with finding the standard that the community wants and supports. The community wants us to take very aggressive lending standards. We can, but I like to tell people that I think Maker has some profound innovation. We do not want to innovate in ways to lose money as a lender. There are a lot of us. We do not need new ones.

[1:16:31](https://youtu.be/GIa-7PnBfeA?t=4591)

- Nadia Alvarez: Eric, can I ask you something? Like many people here, we do not understand the risk of certain asset originators. At least I was surprised when I read the risk assessment of Monetalis. You suggested a zero debt ceiling because usually, what the risk team does with crypto collaterals is when collateral is super risky; we give them a lower debt ceiling.
- Eric: Can I respond to that? I think that is a great one. If someone came to you with something really risky, you would charge more. But would you also adjust the advance rate? If I have a super risky coin, you will not give me an 80% advance rate. You might say, I will give you a 30% advance rate. Monetalis is asking for a 100% advance rate where the real world may get an 80% or 85% advance rate. If you read our assessment and look at our observations and risk pointers, you could flip that and say, is there a deal here that would make sense? There probably is, but it will start with real first loss money underneath us. You can think about everything we say negatively. Wait a minute, how would I make this work? How do I structure or change something that these guys would say? You guys do not have anyone who has ever run a credit fund. Everybody understands there is a deep credit manager. It is easy to understand in our minds what would fix that. We are just laying out principles. There are just basic principles in lending. How not to lose money. We are lining those basic principles up and commenting. I do not want to pick on Monetalis, but on how they stack up against those key principles, like the manager quality and experience in the asset, the money, our first-last position underneath us. There is an existing platform where they can manage all their business. Are they starting up from zero? We are ticking down the usual list of what are all the ways we could lose money? And what have they done to mitigate these?
- Nadia Alvarez: Yes, that is super clear. You can compare it with a token or a project without an audit. Maybe for projects like that, you will consider not even like one million debt selling because it is too much risk. It will be something like that.
- Eric: We got a presentation we have drawn up. Maybe we should give it to some people where we walked through what is it like being a Maker crypto lender versus being a real-world lender? And we look at what is similar and what is different. Then we try to show that you do not have liquid assets in the real world, do not see their prices, and cannot grab and sell them easily. So then the question becomes, if we do not have some of these really strong principles that you can use in crypto lending, what are our compensating factors to help manage the risk? Because we do not have nice liquidity or price transparency. We have made this presentation and applied it to Monetalis and systematically gone through that. And this is how we think about it. I will be happy to share it.
- Nadia Alvarez: Yes, please. I think that helps. Thank you.
- Eric: We would like to be more open and transparent. We should be more involved with discussing how we form opinions and listening to different views. We surely want to show you how we look at things so you people can understand why we have this view of things, like trying to show you what the glasses are that we put on when we look at these things.
- Will: I think that is a good point, Eric. We definitely should make an effort to have a Focus On session. We did that Focus On session on the methodology a couple of weeks ago, and it would be valuable to have a similar session on the topic.
- Eric: If I had my preference, it would never work. Anyone interested, let us go away for a week and have eight hours a day going through structured finance in great detail. I would probably get three people showing up, but there is a lot to do.
- Will: Yes, I do not think we will have that bandwidth. A lot of that is about educating. The worst thing that can happen is part of why some of these discussions have been bubbling up, which is the feeling of alienation. We should make every possible effort to reduce any feeling of alienation in the community. It would be very supportive of having a session like that.
- Max: Eric, count me in for that offset. You mentioned that there are principles. One of the principles of banking or lending in the real world that I am aware of is the golden rule, which is that he who has the gold makes the rules. Maker has the gold. The borrowers should not bully Maker. And that is a really important principle.
- Eric: If I had to pick one principal. And I did not hear that said before. You picked probably the defining one where the lenders should design their lending strategy. You do not want the borrower telling the lender how to view risk. If you are the stockholders in the lender, you do not want the borrower to dictate terms. If you are the shareholder in the borrower, you would prefer the borrower to dictate terms.
- Payton Rose: If there are any last comments, questions, or suggestions, I encourage you to voice them now. Huge thanks to everyone who helped put this together. Thanks to our speakers, to everyone commenting on this and engaging in the discussion. Let us keep the chat going in the forum and on our Discord channel. I appreciate it.
- Eric: We have got our RWA office hours tomorrow. Please show up. We want to be overinclusive. We prefer people to say shut up about structured finance because we do not want to hear it anymore instead of being perceived as not open.
- Payton Rose: What time are those office hours?
- Will: 5 pm on Thursday UTC. Every Thursday, we have office hours to have these types of discussions but maybe with more depth. Then people can tell us to shut up because they are tired of hearing the same things repeatedly. Or have any thoughtful discussions from the borrower or the lender side of things and how we look at them.

## Conclusion

### Payton Rose

[1:25:36](https://youtu.be/GIa-7PnBfeA?t=5136)

- Awesome. Thanks for the chatter. We will close it out there and see you simultaneously and place it 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

- Kunfu-Po produced this summary.
- Ivan produced this summary.
- Larry Wu produced this summary.
- Everyone who spoke and presented on the call.​