Episode 183: March 24, 2022

--- tags: G&R --- # Episode 183: March 24, 2022 ## Agenda - [00:00](https://youtu.be/7rxxNBmcIFk): Introduction - [01:54](https://youtu.be/7rxxNBmcIFk?t=114): Votes and Polls - [03:32](https://youtu.be/7rxxNBmcIFk?t=212): MIPs Update - [07:50](https://youtu.be/7rxxNBmcIFk?t=470): Forum at a Glance - [12:37](https://youtu.be/7rxxNBmcIFk?t=757): Discussion Segment: Tokenomics and Growth ## Video <https://www.youtube.com/watch?v=7rxxNBmcIFk> ## Introduction ### Agenda and Preamble #### Payton Rose [00:00](https://youtu.be/7rxxNBmcIFk) ![Contents of The Call](https://i.imgur.com/zgWTsgh.png) - Hello to everyone. Welcome to episode #183 of the Scientific Governance & Risk for MakerDAO. My name is Payton, I go by Prose11 online, and I am one of the governance facilitators. On this call, we have many awesome people who work for the Maker protocol interested in what is going on. This is our weekly meeting where we go over what is happening on the governance side and discuss the protocol's risks. We will start with a couple of housekeeping matters. This is being recorded. Please, try not to speak over one another. You can use the chat or the raised hand function to let us know you have something to say. We will be happy to incorporate you into the speaking list or the flow of the conversation. We want this to be an open meeting. If you have questions, concerns, comments, please feel free to participate. I am happy to speak your thoughts for you. If you are unable or unwilling to hop on the mic, just drop it in the chat, and we will work them in. - Our Agenda Today: - We will start with a governance roundup going through the votes, MIPS, and the latest on the Maker forum. - There are no initiative updates today. - Our discussion topic today is tokenomics and growth for the protocol. - There will be open discussions if we have time in the end. If there is anything unrelated to what you have seen but would like to talk about, drop it in the chat, and we will get to it. ## General Updates ### Votes #### Payton Rose [01:54](https://youtu.be/7rxxNBmcIFk?t=114) *Polls:* - No ongoing weekly polls - 9 Ongoing Ratification Polls to be Covered in MIPs Update *Executive:* - No Executive Last Week - Tomorrow's Executive Proposal: - [Adding Support for new TUSD Implementation](https://forum.makerdao.com/t/2022-03-25-adding-support-for-the-new-tusd-implementation-address/14189) ### MIPs #### Pablo [03:32](https://youtu.be/7rxxNBmcIFk?t=212) [Weekly MIPs Update #79](https://forum.makerdao.com/t/weekly-mips-update-79-pinata/14106) ![](https://i.imgur.com/7QxxBAh.png) [MIPs General Update](https://youtu.be/7rxxNBmcIFk?t=212) ![MIPs General Updates](https://i.imgur.com/DQJRXDJ.png) [Weekly Cycle Subproposals](https://youtu.be/7rxxNBmcIFk?t=240) ![Weekly Cycle Subproposals](https://i.imgur.com/Hw1KOvU.png) [Ratification Polls](https://youtu.be/7rxxNBmcIFk?t=256) ![Ratification Polls](https://i.imgur.com/VSRuV53.png) ![Ratification Polls](https://i.imgur.com/AqyvqUW.png) ![Ratification Polls](https://i.imgur.com/oKwyZcD.png) [Proposals in RFC](https://youtu.be/7rxxNBmcIFk?t=328) ![Proposals in RFC](https://i.imgur.com/eO1ptL7.png) [MIPs](https://youtu.be/7rxxNBmcIFk?t=335) ![MIPs](https://i.imgur.com/ZbNByLw.png) [Core Unit Budgets](https://youtu.be/7rxxNBmcIFk?t=358) ![Core Unit Budgets](https://i.imgur.com/WZZBkOj.png) [Core Unit Onboarding](https://youtu.be/7rxxNBmcIFk?t=374) ![Core Unit Onboarding](https://i.imgur.com/F1WG2lR.png) [Amendments](https://youtu.be/7rxxNBmcIFk?t=389) ![Amendments](https://i.imgur.com/sgkZ1nk.png) [Others](https://youtu.be/7rxxNBmcIFk?t=421) ![Others](https://i.imgur.com/CUqKHH5.png) ![Thank you](https://i.imgur.com/ojwoBXo.png) ### Forum at a Glance #### Artem Gordon [07:50](https://youtu.be/7rxxNBmcIFk?t=470) Post: [Forum at a Glance: March 17th - 23rd, 2022](https://forum.makerdao.com/t/forum-at-a-glance-march-17-23-2022/14191) Video: [Forum at a Glance](https://youtu.be/7rxxNBmcIFk?t=468) - _Announcements_: - [A RWA DeFi ecosystem: more than just onboarding collateral](https://youtu.be/7rxxNBmcIFk?t=493) - [Quick Comparison of stETH lending markets Maker vs AAVE](https://youtu.be/7rxxNBmcIFk?t=519) - _Announcements(Español)_: - [Maker Operational Manual - Updates!](https://youtu.be/7rxxNBmcIFk?t=551) - _Discussions_: - [A16z MakerDAO Tokenomics Proposal Overview](https://youtu.be/7rxxNBmcIFk?t=572) - [Moderating "Suspicious" Accounts](https://youtu.be/7rxxNBmcIFk?t=608) - [[Informal poll] Actions to increase competitiveness of ETH & stETH collateral](https://youtu.be/7rxxNBmcIFk?t=632) - _Active Signal Requests_: - [[Signal Request] Onboard PAXG](https://youtu.be/7rxxNBmcIFk?t=664) ## Discussion Segment ### Tokenomics and Growth #### Payton Rose [12:37](https://youtu.be/7rxxNBmcIFk?t=757) ![Discussion Segment](https://i.imgur.com/FLavBhT.jpg) ![Tokenomics & Growth](https://i.imgur.com/7JfzrW1.png) - Today, we have a bit of a large topic, but one we felt would be good to talk about. It is the tokenomics and growth proposals. If you have been watching the forums lately, we have had a couple of different tokenomics proposals. Monet-Supply submitted one, and we had another that Porter posted from a16z. You can say Rune kicked off this recent method of tokenomics proposals with the Sagittarius Engine a few months back. In the midst of that, we also had a post from a cross-Core Unit group of actors about an aggressive growth strategy for Maker. - This is our discussion segment to collate all these different ideas, talk about what are good tokenomics fundamentals to have, how we should be evaluating different proposals that come forth, and in general, how we should be structuring our governance decisions and our community involvement to shape the growth of the protocol. - A few people on this call have proposed tokenomics revisions or growth plans. We invite them to talk about their framing for proposing those and why they thought it necessary. [14:23](https://youtu.be/7rxxNBmcIFk?t=863) - Porter Smith: I work for a16z on the Investment team, the Network Operations team. I want to provide some quick context on how we look at this, why we did a tokenomics proposal in the first place, and also recognize the prioritization efforts of scarce engineering resources. We came forward with this tokenomics proposal that was long in the making. It takes a while to get through the regulatory compliance process on our end before posting something publicly. The main thrust of what we are interested in is adding utility functionality to tokens. This provides a new regulatory dimension to the tokens. That is an important context for everyone to understand. We completely recognize that adding or changing tokenomics can be a complex endeavor that requires engineering resources. For us, it is a much longer-term focus. It is not something that needs to be done in the next week. However, it is structurally important long-term, and we are very long-term oriented, which is why we proposed it. - The second thing I would like to provide more context on is the regulatory side. If a token has utility functionality, it must add new dynamics to how it might be analyzed from the regulatory perspective. There are many ways to do that. We put some ideas out there about ways that could be interesting. We recognize the pros and cons of those ideas. We are not married to any of them. That was the best stuff we came up with. We are more than happy to get feedback. We would love to hear what everyone thinks. Lastly, I know Monet-Supply and Sam recently put out some other proposals. We are flexible and more than happy to integrate. We are interested in all good ideas and will bring a unique regulatory look at things. Often, if we phrase or do things a certain way, that is what is driving it. I am more than happy to discuss further with anyone. We would love to hear everyone’s ideas on it. We are very laid-back with this. If everyone thinks it is terrible, then no big deal. We wanted to put it out there and generate ideas. [17:44](https://youtu.be/7rxxNBmcIFk?t=1064) - Frank Cruz: I am a 3F Delegate. I had a chance to read some of the proposals you put up, but I wanted to hear from you. What are your thoughts on the Surplus Buffer? How is your team thinking about expanding the Surplus Buffer? With regards to regulations, how does that fall into the whole picture of what you talked about a second ago? How can we have the tokenomics of MKR fit the mold that makes sense, not necessarily for everyone in the world, but more for Americans like myself and you? I wanted to hear your thoughts on that. - Porter Smith: We will make a written response to that proposal. We must route it through our regulatory legal folks first. We generally view having a large surplus buffer as the right thing. Fundamentally, during a startup’s growth stage, where MakerDAO is now, capital allocation becomes a question. What should you be spending hard-earned retained earnings on? Should it be on growth, backstopping, or perhaps some black swan event? Maybe on other items? What makes the most sense is to continue to pull that capital and have that ammo at the community’s disposal to set forth on any channels that they see appropriate. The first step in that process has a much larger surplus buffer. That allows flexibility on the community’s ends to either direct it towards growth initiatives or as an insurance backstop. - One idea of our proposals was the idea of a secondary surplus buffer. It is denominated in the native MKR token, which we recognize is undoubtedly not ideal compared to a cash-based insurance buffer because of the token's volatility. Also, if something goes wrong, that insurance buffer may be worth quite a bit less than you initially anticipated. Interestingly, though, if you stake MKR in this secondary surplus buffer, you are actively participating in the enterprise. If you earn cash-based or Dai-based yield for actively participating in the enterprise and putting your assets at risk, from a regulatory perspective in the United States, that is a great way to distribute some of that value to token holders. They are actively participating in the enterprise, putting their assets at risk. They are not relying solely on the efforts of others, which is some of the key languages I am sure many of you have heard before. So that is the idea behind the secondary surplus buffer. I am more than happy to go further in-depth in anything that might be helpful. [20:40](https://youtu.be/7rxxNBmcIFk?t=1240) - Frank Cruz: To clarify, you are more of a proponent of handing out. For example, if we stake Maker as Monet-Supply has proposed, are you folks more in favor accruing MKR rewards or paying out Dai-like dividends? What is your stance on that? - Porter Smith: There are two things there. The first piece is that we would be more interested in cash or Dai denominated distributions for regulatory reasons. On the Surplus Buffer piece in general, again, that is a capital allocation question. We would like to see as large of a surplus buffer as possible while the community figures out the right direction on the allocation front. That enables that flexibility. I have talked to many folks, and many of them are somewhat in the same boat. Maker had certain policies in place for a while that has made sense. Perhaps it makes sense to continue them. But in our eyes, maintaining a larger surplus buffer makes much sense. [21:57](https://youtu.be/7rxxNBmcIFk?t=1317) - Payton Rose: One criticism we have seen online when these different tokenomics models come on is the attacks on people who are not paying attention. If you change a tokenomics model, people who participate get more rewards than those who are not paying attention or are otherwise blocked from participating. You dilute them. I am not sure if that might be a good thing to discuss, whether it will be fixed with certain time requirements or general philosophy. - Porter Smith: Yes. That is a great point. We certainly understand that. You want to incentivize active participation and reward folks that are actively contributing in a meaningful way to the community. We put out this idea of creating an MKR denominated vesting pool for delegates and active non-delegate voters so that their incentives are aligned in ways like how employees would be at any other startup. Web3 is fundamentally different because everyone is actively participating, and, to varying degrees, members have an active startup. That was some of our thoughts there. There is certainly a balance where you strictly do not want rewards to go to certain folks and not others. [23:48](https://youtu.be/7rxxNBmcIFk?t=1428) - Kianga Daverington: I wanted to hear from folks in engineering around the resource question and hear thoughts about priority. It feels like this conversation around changing the tokenomics may be correlated with an uptick in the MKR price the other week. Is there is a sense that addressing this issue of progressing the tokenomics could be positive for all the other things we try to achieve? This includes attracting counterparties and proving across all the dimensions we are trying to grow. In this conversation, I would love to hear about the resource question and prioritize how people are thinking about this. - Derek: I am Derek from PE. That is a great question. It is a question where we need to understand the requirements frame, the problems we are trying to resolve, and then map out what this means from the governance of voting perspective and the work needed to create a new chief contract. This is not a problem. That effort needs to be mapped out in terms of requirements, understanding the impacts, and how it plays out across the rest of the ecosystem. It would be very useful to align these different opportunities and document them as a concise list of requirements. That will take some discussion. I am happy to play a role and be involved in that. I am happy for others to add input as well. - Brian McMichael: None of these plans are free. Some involve major and fundamental changes to the core system and Maker token itself. We currently have mandates or at least guidance for deploying on every viable L2, preparing D3Ms for everybody that we can, working to streamline the RWA process from a technical level, and protocol maintenance. This will be a big interrupt on the resources and affect other core initiatives. There is a whole bunch of competing proposals right now. So it is hard to speak to any of them because we do not know which way people will go. [27:09](https://youtu.be/7rxxNBmcIFk?t=1629) - Payton Rose: A governance concern is that we want proposals to be addressed and understood before making the changes. And it is an unfortunate situation we have had in the past where governments have approved things, and then we do not have a timeline. We do not know when, if ever, they will be integrated. Usually, it comes from a lack of communication. We have not fully scoped out what the work would entail before bringing it to vote. I see some good comments here on the sideboard comparing growth versus tokenomics. Does anyone want to speak to that dichotomy of needing to invest more in one versus the other? - Kirk Hutchison: I am from PE. There is this classic debate of to what extent our tokenomics improvements are a growth mechanism versus something secondary to growth. I have gone through a personal journey where a year and a half ago, I was very excited about changing tokenomics. After thinking about it all that time, I am now not all that excited about it because it has become clear to me from the market that there is only one thing that matters, and that is scaling. Find ways to grow the Dai supply and expand to L2s or wherever the economic activity is happening so that Dai can become an integral component of the Web3, crypto economy, whatever you want to call it. I do not see a world where Maker succeeds or fails because it did not upgrade its tokenomics to be more appealing to stakeholders or have a little more or less regulatory component in some particular direction. - I view tokenomics as a tertiary concern compared to scaling and security and growing business efforts, like RWA, because the Maker token still retains the rights to all future cash flows and present assets. That is entirely sufficient to value a financial asset. No matter what form capital return takes, it can always be changed in the future. In particular, many of these proposed changes are very sweeping things that are big investments. Once you make a huge investment like that, sometimes you get locked into it. Then there is no time to go back and redo it in the future. We should think very carefully before making any large changes to tokenomics in the short term. Governance sets the priorities for whatever protocol engineering works on. However, if there is a disagreement, the voting weight falls on what we do. That is my rant. [30:38](https://youtu.be/7rxxNBmcIFk?t=1838) - JustinCase: I most largely agree with the last few speakers on the cost of the engineering tokenomics model. From the conversations I have been having with different CUs and the posts I have been seeing, I do not see tokenomics itself as a hindrance to growth. Nobody has raised that as an issue. With a pretty major backlog on some of the projects, it is prudent to push these proposals further down the timeline and capitalize on other kinds of growth. This is my take on it at the current time. - Porter Smith: We are not looking at this as something that needs to be done in the short term. We are looking at this to figure out just longer-term priorities. We generally defer to engineers and engineering talent on what needs to be done on that side of the house. As far as strategy goes, we look at this as more of just a long-term thing for community discussion that perhaps once we get past some of these core growth initiatives that are occurring right now, could be tackled down the line. I wanted to clarify that we are not looking to do anything immediately. We are not looking to displace current initiatives. We understand that. It was more to foster some general discussion around some of these ideas for things that hopefully are not core revamps of the token but perhaps new ways to use it. I understand that installing a secondary surplus buffer might involve some engineering work. Some of the other ideas, such as permanently increasing the current surplus buffer, are things we were looking to implement more in the medium term. - Makerman: I have been looking at the history. We are talking about an engine—Maker itself as an engine for financial achievements. I was thinking a lot about growth, and I see the proposals for increasing the Surplus Buffer so we can do 100 million deals. I am back to the same question when MCD came out. Are we going to get to a billion with a one in 10 million deal? The last year, what was growth like, what dominated growth: WBTC, the PSM, and ETH, basically going up a factor of 20. Those are the three key things that did our growth. Can we do that another factor of 10 using the existing engine when I look at that? If we think we will have 60 billion USDC as one of our core growth components, it does not work. I look at where the real world is at. My issue here is that I think that we are trying to run a car on an old engine, and we need to look at our competition. - My thinking is that we need to look at a Maker 3.0. I can hear the groans from PE. When I look across the space, how many different things can we do to supercharge this protocol when a surplus limits us? Even if we can grow that to 250 million, we are still doing 100, maybe 200 million things that may or may not grow to billions, and then we will still have the same problem with the Surplus Buffer? I keep thinking we have to do a Maker 3.0, and we have to recapitalize to the tune of a billion to 10 billion. We could do maybe ten deals a year, which is challenging. We need to do these deals in the one to 10 billion range, not the 100 million range. When I think about growth, I want to segregate and focus on what we can do with the engine now, with Maker 2.0, and make a nimble core group and look at the competition and figure out how to raise capital. I have a crazy idea. It is a Maker 3.0 token with 1 trillion minted worth $1 that we back. And then we VC that out for a billion, or two, or three a capital and drive a whole new Maker 3.0 system in a place that uses Maker 2.0, feeds Maker 2.0, and creates Maker 3.0. - I look at this, and I think we are struggling with too many issues. One of them is capitalization. The other one is operational, being able to opt to do deals. We are struggling to piece together an old facility. And we want to change things, which is a long-term vision, but we also want to strategize on the old, and we are having difficulty doing that. I would like to see an approach that is a little more forward-thinking and bigger than the proposed. [36:21](https://youtu.be/7rxxNBmcIFk?t=2181) - Prose11: You bring up a good point in terms of there being a lot of different factors to consider and things going on at once. For the tokenomics side, for instance, the current price is not a pressing concern of the MKR token in terms of system stability. However, if our total value locked were to keep increasing, there can be a real sudden vulnerability when the market cap of the governance token is far lower than all the assets it secures. The other thing that I heard from Porter is this idea of regulatory security. You can be doing something to make your token safer from a regulation standpoint that adds some value or some pause for consideration. There is value in balancing many factors, even just moving forward with the discussion. That is why we appreciate a wide variety of impacts. [37:39](https://youtu.be/7rxxNBmcIFk?t=2259) - Robert: I want to set the context as there is growth. I posted in the forums about understanding and agreeing on where we are in the organizational life cycle. I think we are in a growth phase. I agree with Porter; he has made some of the comments. I talked about productization and products from the beginning of collateral engineering services; I hope this is becoming clearer now as we have much technology. One of the challenges is that we sometimes try to find homes for this technology, searching for a solution. When we look at our collateral, it is quite the opposite. We want to look for use cases and understand the business behind what we are doing with Dai, how it is generated, where we invest our time and money, and the best places to put that. Much of that has to do with the market analysis and the quote-unquote competition. I know many people have done much work, but we must bring this together from a product perspective and ask ourselves: what do we need to build to grow the protocol? We focused a lot on collateral and other areas. I wanted to share my perspective of CES looking at our collateral and continuing to productize that. - Payton Rose: We have talked about the tokenomics side of things. I am curious if anyone from the group that put forward the aggressive growth strategy post - if there is anything you would like to say you are presenting this call and be a good time to do it. At the start of the call, Wouter made some points about separated operations. However, if I am not butchering the terminology behind that - I do not know if you would like to speak about that matter or not. That is undoubtedly a concept for growth we can be considering. Due to the structure of the SP, I do not need to explain this too much. I see Wouter coming online. [41:29](https://youtu.be/7rxxNBmcIFk?t=2489) - Wouter: I think it is simple. Right now, the surplus buffer serves multiple purposes. With the discussions about the growth that we have had, we need to think about how we can start setting a direction. How can we be more purposeful about the growth? We need to make a plan and ensure that the necessary resources are available. Some plans have a longer-term outlook rather than just month by month. From a convenient point of view, the immediate problem is that we can not meaningfully speak about our runway because everything is in the surplus buffer. These different purposes do not separate them. From a practical point of view, I think that a fix would be setting aside the runway for the operational expenses and separating it from the rest of the surface buffer. That is a requirement if we want to become better at long-term planning, and this is a theme I noticed throughout all of these discussions. - There is confusion about what is short-term and long-term. It is important to separate the two to structure these discussions. Porter commented that this is a long-term thing. We need to be able to have these long-term discussions. For example, we should know our engineering costs, but we should not look at our current backlog and say that it is not a priority if we have a long-term discussion. The question of how we will then fit this into our roadmap is a different question. We need to separate these things to have meaningful discussions. This change would start separating the operational runway from the rest of the surplus buffer, which would help us think longer-term and work on longer-term roadmaps. [44:20](https://youtu.be/7rxxNBmcIFk?t=2660) - Prose11: For those who did not read or are not familiar with the growth strategy plan, an aspect of that was either selling debt or equity in hopes of financing operations. - Juan: Many CUs, including ours, asked for buffers and runways that could be potentially pulled together if necessary. I am not entirely sure about the implementation of the execution, but that should be at least accounted for differently when we are thinking about operational expenses and cash flow. They are two different things. Hopefully, if CU runs into the buffer very often, they should review their budget. These are essential topics to be separated because it is tough to make decisions or have a clear picture of our finances. - Brian McMichael: One of the reasons I am not sold on the hypergrowth model is that there is no real plan for those hundreds of millions of Dai just sitting there. We talked about capital efficiency; I can use returns much better than letting them sit in the pool. On the other hand, that pool itself can be a target honeypot or a slush fund, even for new CU, overly aggressive spending, or just things not intended right now. There is no real limitation on how that can be used in the future. Some separations of where that money goes, maybe to a separate backstop pool where it is differentiated from the pile, would be a little more reassuring. - Justin: I want to expand on what Michael brought up. I think many demands are going to the surface buffer, it started essentially as a security thing, and then everybody got hooked into it. Having a separation to ensure we maintain that security bit of it and protect that one from ongoing expenses and other issues is worth following. Besides the pool size, I am concerned about the inflow rate into the offer because that has been steadily going down the past few months. We need to address that issue and how much is actually in there because if they dip into the negative, which is a real possibility, if it turns into a bear market, then we have too many obligations to make this work. We have to cover our running expenses and ensure the protocol stays safe. We want to spend the same money to speak on growth initiatives, which is not possible. At some point, there are too many obligations for too little capital. I think the most immediate concern is trying to increase the rate of inflow into our servers. There are two ways of doing that: increasing our revenue or decreasing our costs; I fear we have to look at both. - ElPro: Regarding another side of that trade, the aggressive growth proposal by our community members talks about the risks that the protocol will be taking on soon. One of them is the Starknet bridge, and the other two bridges: Arbitron and Optimism. There are other things that we will be doing hopefully in the future, which I know I have been waiting for forever, such as onboarding or RWA collateral types. A surplus buffer should be set to one side where a different smart contract protects it. We can take all these risks. We just had someone, Solana and jump trading, take a 300 million dollar hit, and it was covered pretty quickly because of the Solana wormhole. When you look at the proposal, you need to dig in and see what the authors were pointing out to the community - we will be taking on risks coming up. Somehow, someway, I do not want to relive March 2020. I am a big proponent of having a large cushion of a surplus buffer and whatever you decide to do as far as allocating it to operational growth or having it as an insurance fund. [50:52](https://youtu.be/7rxxNBmcIFk?t=3052) - Nadia Alvarez: I was listening to what Brian said. We have many ideas about why we need a higher surplus buffer. First of all, we need to expand with a multi-chain strategy. All the efforts we are making now about having Maker vaults on Arbitron, Optimism, and Starknet are fantastic, but why not have Maker vaults in Polygon and any other side chain where we can do something to grow that market. We need to increase the surplus buffer to achieve that because if you see all the Dai that we have in Polygon, it is about 200 million Dai. With the current surplus buffer, it will be impossible for us to accept that amount of Dai minted through the Maker vaults and replace POS Dai on Polygon for the canonical Dai that we will mint with the Maker vault. If we cannot replace that amount of Dai on Polygon, I think deploying Maker vaults in Polygon does not make that much sense. - When we wrote the proposal, increasing the surplus buffer was bad was because we wanted to create new products and services around the Maker. Of course, we know to create more CUs because if we want to deploy Maker on Polygon, we will need a team dedicated to Polygon, same as what we are doing with Starknet. We have to be more strategic on costs associated with CU and all these Dai that we will have in the new and higher surplus buffer. It is more like supporting the growth of the protocol by new collaterals by adding new domains having vaults in different side chains and L2s. Also, we want to grow the real-world assets initiative because that is part of Maker’s strategy. To do that, we need a higher surplus buffer. I think that is why we thought about increasing the surplus buffer. I agree with what Adrian wrote in the chat. We have to review how we will spend that surplus buffer because the idea is to use it to help the protocol growth in our services. Still, we have to be careful and not spend it on a million new CUs, but without new things that we implement in the protocol. We have to be careful about that. - Brian McMichael: I did not mean we should not have a higher surplus buffer. We need one, just in light of the amount of collateral we have on board. The concern is just that when we get those large numbers, we probably want assurances to ourselves that they will be used for those things and then just not dipped into to add a whole bunch of new people. We will need to add new people, but we want to ensure that it will be used as a risk buffer and not a runaway. [55:00](https://youtu.be/7rxxNBmcIFk?t=3300) - Prose11: I think you are touching on potential criticism of our tokenomics model, Brian. Essentially, we design it to take profits and give them back to MKR holders by buying back shares and burning or buying back tokens and burning. However, suppose we are to stop profits from occurring. In that case, that value goes to the insiders of the system rather than to the token holders, supporting our collateralization's potential risks. - Someone: Exactly, that is one perspective. - Prose11: There are many different perspectives, but I think the middle ground between these competing ideas will often be the most prudent decision. I appreciate you bringing that forward. I know this is a large topic, and it is somewhat nebulous, and it touches on just about all areas of our operation. I do not want to cut the discussion or have it short. With that said, you want to make sure that if there are other things we want to talk about, we have a chance for that. - I have seen several good potential side topics in the chat. I do not know if there is anyone we would like to explore fully, but one that keeps coming up. I saw it in your comment there, Josh. Is this idea of recognizing delegates and their role within the system? Several of you on this call are participating, so you might have some thoughts there. The recognized delegates, essentially, are a different group of stakeholders. We hear primarily from CU and CU facilitators; as one part of the stakeholders of our DAO system, recognized delegates are the newest kind of addition to our organizational model. There have been some good threads. I posted a good response regarding what recognized delegates’ responsibilities could be. - Someone: As we are talking about tokenomics, is there value in having a voter or delegate that remains neutral? They do not necessarily have a view but try to respond to what they feel the community needs or wants. This is the delegate's perspective versus the active delegate. All of us involved in the space have experience and a view of where we would like to see Web3, DeFi, and Maker go. Therefore, we could very quickly have a point of view that we tried to persuade the community towards. That is the mode I have heard in some conversations. The delegates should be working in terms of proposing and advocating. I am curious to hear on this call in this context if that is the strong sense that people have about a delegate role. I have approached this work from a judiciary mode. I want to hear both sides and be that disinterested party that tries to help the community come to the best result based upon this set of standards pre-communicated and agreed upon by the community. [59:55](https://youtu.be/7rxxNBmcIFk?t=3595) - Wouter: I think it is probably the most crucial point. We talk about the need for vision and strategy. When we talk about growth, it immediately leads back to that. The question is, who will create the vision and strategy? How do we connect it to the operations? That is where I think the most significant change is needed. I am a big proponent of delegates clearly stating their platform, vision, and political agenda and being elected based on that. I think it will introduce two new dynamics. It will help with this need for vision and strategy to align our efforts toward a long-term goal. Second, it will also reduce the tendency to micromanage on the other side of the equation. If delegates are not outspoken about division and the strategy they want to follow, then the alternative is that there is a great tendency to micromanage if things go wrong. We see the limits of the budget. This is one of the significant risks that we flip towards micromanagement, and we need to learn how we can work more efficiently. - I think that is all very important; CU, for example, retains a large degree of independence because things will not work in a decentralized organization if we combine certain tools from the centralized world. If we are not careful, we will end up with the worst of both worlds rather than leveraging the strengths of the decentralized organization. When there is a need for correction, the question is: how do you do it? Today, this may be one of the missing pieces: the very understandable hesitation. Still, some hesitation from delegates to clearly state our platform and push for a specific direction, and try and convince MKR holders that this is the right direction to go. This is probably the most important thing that we can change due to progress. Many of the issues we are seeing are starting to think about delegates, real delegate platforms, and apparent differences in opinion between delegates. Delegates sometimes put too much effort into agreeing about everything. I believe it is acceptable for delegates to disagree. It should be evident when they disagree so that MKR holders can make a clear choice. That might be the next phase that we need to progress with many issues that we see, as I said. - Prose11: I was wondering, in some ways, we set up the delegates to almost search for that consensus. It was often a pain to get executive proposals passed for those of you who remembered before we had recognized delegates. There would be more than a week where we would be left waiting to see our equal change consisting of all things that have previously been pulled, voted, and approved. Will this take place? Or will we suffer because we do not have enough people to activate it? [01:04:44](https://youtu.be/7rxxNBmcIFk?t=3884) - Wouter: I think that is another confusion: the role of an executive proposal. I did not believe that all the due processes were followed and that there had been the correct net procedure to make sure that delegates were able to vote on the governance polls, etc. The executive vote is signing the deployment of the functionality. It is different, almost a technical role. There is a safety feature there. Of course, that is a measure of last resort to stop malicious changes to the protocol. It needs to be separated from the political disagreements because it is more like an operational role in signing the deployment. - Someone: I agree. I think it says a role to play in setting a strategic plan. They should do it alone. However, this should come from Maker holders themselves. The delegates are barely carrying out the will of the Maker holders; the big strategic picture is what is Maker is about and what are we trying to achieve? That should, in many cases, be sourced from the Maker holders or the community. Providing such as should at least have some input from outside of the delegates themselves, and it should probably be a collaboration effort; maybe delegates are in the best position to start that work. That might very well be the case. I am also slightly wary about the whole separation of powers issue here. If you empower delegates to sit down, dream up their suggestions, and then go and vote on them, you are essentially short-circuiting everything else out of the decision process. As you can see, from the most comfortable going, almost all delegates are carrying the votes through different proposals. I am worried about that part as well. - Wouter: These are essential points. I agree that it should not happen in a vacuum. Delegates are supposed to work for MKR holders, and it is the MKR holders should decide which vision and strategy are followed. However, this is what an election mechanism is for—a political party. In a democracy, how it works is that it creates a platform and talks to its electorate. It looks at possibilities for execution, summarizes everything in a vision and strategy that they believe reflects the electorate's wishes, and hopefully has a realistic plan of succeeding. - The electorate shows what is being presented, voted on, and this is how this will is expressed. I do not think there is a contradiction between delegates making up their plans and MKR holders making the ultimate decision. I think they work the same. If the plan is articulated, then MKR holders have a choice. Whereas if the plan is not articulated, MKR holders vote blindly. They need to spend a lot more time, and the time they do not have to maybe come up with something themselves. That is not their role. They do not have the time for that as they are not full-time working for MakerDAO. I think the two are closely related. It would benefit delegates to state their vision and strategy that they believe will resonate with the MKR voters and have a realistic execution plan. - The other point about voting on your proposals is that I agree with them, which goes into the micromanagement aspect. It is one thing to define a vision and a strategy. I think the other part should be supporting CUs and execution plans. This is different from making concrete proposals about how something should be done or trying to dictate how experts should be doing their work that goes in the wrong direction. - I think it is topless on the side of micromanagement, which is the concern. Of course, there are more direct risks, as if you have enough voting power, you can put up an executive vote and vote on it yourself. There is a possibility of corruption, which we need to think about. We can devise mechanisms that would make that not impossible because there could be certain alarm procedures or safety mechanisms to prevent that [01:11:22](https://youtu.be/7rxxNBmcIFk?t=4282) - Wouter: The next question that will come up is maybe there are a set of decisions, and the first example of that is the delegate compensation itself, where we have what was mentioned in the chat before: should delegates even vote on this? Should they recuse themselves from that? Maybe there are several numbers of things that because delegates are conflicted. This is something that MKR holders should vote directly on or that at least delegates cannot change without creating enough visibility if they try to change it. It is against the wishes of the MKR holders that there is enough time to remove their voting power. If we look at political structures, there are solutions to this, but I agree it is something to be careful about. We need to ensure that the necessary checks and balances are in place. I do not think that delegates are indeed not in a vacuum. Still, delegates are developing their vision and strategy and trying to be elected on that platform - I do not think that is a contradiction. I think it would help a lot. - Prose11: It brings up a good point there. It came up as a panel discussion. I remember one of the panels I was sitting on because governance attacks often can look quite similar to legitimate government action. If we normalize delegates, proposing things and then voting on them, there is not too much difference between something the delegate earnestly believes is suitable for the protocol versus "taking advantage of the protocol." - Wouter: To clarify, a delegate's proposal is exactly what the MKR holders would vote on, right? Because they propose their vision and strategy, the MKR holders vote on the vision and strategy; it is not the delegates voting on it. Because the vote there is the act of delegating MKR to the delegate you believe in or the platform you believe in. The MIPS that the delegates vote on is an entirely different matter. I read that we need to be careful and ensure that the necessary safety mechanisms are in place and that the separation of powers and checks and balances are all respected. [01:14:14](https://youtu.be/7rxxNBmcIFk?t=4454) - Prose11: That is a good point: the more information, the closer to the vision conveyed in a delegate platform, like the closer we are to when MKR voters delegate to them. We have this assumption that they have laid out what they will be using that MKR for and then got MKR delegated to them because of that. It is a bit of a stronger signal than perhaps the groundwork we have laid out so far. - Wouter: I have one last comment. We are going forward with the initiative presented last week, an experiment. The cross CU coordination initiatives that we have seen around L2 collateral management of on-chain, collateral management off-chain, and security inspired it. Everyone recognizes that more coordination is needed. The initiative presented last week will be the first time we have the coordination process that brings both core units and delegates together, and delegates are explicit stakeholders. I hope that we can use the discussion about the better resilience of MakerDAO on an operational and financial level to try and come to an emergent strategy and vision. I want to have those discussions with all the interested delegates and then, at the same time, make sure that it is transparent so that everyone can see what is happening. - The discord channel has been created and is available for everyone. For the next step, I have outlined bullet points on how I would like to work on this as a facilitator of the coordination process. I will be reaching out to individual delegates to have individual conversations because we cannot have one big group of people who do everything together. As a facilitator, I will reach out to the individuals, and then we will have regular meetings. Maybe a little longer meeting than usual, one and a half-hour, two hours, but not every week. Instead, every two or three weeks, bring all the results together from those individual discussions. At the same time, think in practice about the resiliency mechanisms that we can use to improve Maker's resiliency and connect to those higher-level vision and strategies that I hope the delegates will know will play a significant role in. If you were unaware of the initiative, then make sure to check the Discord channel watch the recording from last week's GNR call, and before the end of this week, I will post the outline of the plan and start reaching out to people. - Prose11: Thanks so much for attending and presenting. [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 Suarezproduced this summary. - Larry Wu produced this summary. - Kunfu-po produced this summary. - Everyone who spoke and presented on the call.