# MIP104: The Decentralized Collateral Scope Framework

## Preamble

MIP#: 104
Title: The Decentralized Collateral Scope Framework
Author(s): @rune
Contributors:
Tags: endgame, scope-framework, constitution-mip-set
Type: General
Status: Accepted
Date Proposed: 2023-02-06
Date Ratified: 2023-03-27
Dependencies:
Replaces:
Ratification Poll URL: https://vote.makerdao.com/polling/Qmbndmkr
Forum URL: https://forum.makerdao.com/t/mip104-the-decentralized-collateral-scope-framework/19685

## Sentence Summary

The Decentralized Collateral Scope Framework provides the core principles, rules and regulation regarding Decentralized Collateral in the Endgame.

## Paragraph Summary

MIP104 establishes the Decentralized Collateral Scope Framework. This includes both decentralized collateral offered directly in Maker Core Vaults, as well as lines of credit to other entities that are collateralized only by decentralized assets. All rules for Decentralized Collateral for the DAO are contained in this framework, including the procedures of the Decentralized Collateral Scope Framework Advisory Council.

## Component Summary

**MIP104c1: Preamble**
Contains the Preamble to the Decentralized Collateral Scope Framework.

**MIP104c2: Scope Framework Articles**
Contains the Scope Framework Articles for the Decentralized Collateral Scope Framework.

**MIP104c3: Decentralized Collateral Facilitators**
Contains details on the Decentralized Collateral Facilitators for the Decentralized Collateral Scope Framework.

**MIP104c4: Scope Framework Articles Modification Subproposal Process**
Contains details of how the Decentralized Collateral Scope Framework can be amended.

## Motivation

The Decentralized Collateral Scope Framework is necessary to define the Scope as per the Maker Constitution.

## Specification

### MIP104c1: Preamble

The Decentralized Collateral Scope defines the principles and processes for all activity related to Decentralized Collateral Management. This includes both decentralized collateral offered directly in Maker Core Vaults, as well as lines of credit to other entities that are collateralized only by decentralized assets. The Decentralized Collateral Scope Framework is constrained by the elements of *MIP101: The Maker Constitution article 10.2: Constitutional Boundaries of the Decentralized Collateral Scope Framework* and tied to Benchmark Yields defined in *MIP103: The Stability and Liquidity Scope Framework*.

### MIP104c2: Scope Framework Articles

#### 1: The Stability Advisory Council

##### 1.1: The Stability Advisory Council definition

The Stability Advisory Council is a group of Ecosystem Actors that have been approved by Maker Governance to carry out advisory work related to improving the content of the Stability and Liquidity Scope Framework, the Decentralized Collateral Scope Framework and the Real World Asset Scope Framework.

##### 1.2: Stability Advisory Council membership management

Members of the Advisory Council are directly approved by Maker Governance through a governance poll, and must fulfill specific criteria.

* **1.2.1:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators must ensure that potential Advisory Council Members can apply to be approved by Maker Governance, using an open process with clear instructions.

---

* **1.2.2:** During the early stages of the Pregame Launch, Stability Advisory Council Members can also be Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators and can also use Advisory Council project funds to perform other tasks related to the Stability and Liquidity Scope, the Decentralized Collateral Scope and the Real World Asset Collateral Scope.

---

* **1.2.3:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators must periodically, when it is relevant, review the Advisory Council Applications, and if they find applications that are suitable, bring them to a vote through an MKR governance poll. Approved Advisory Council Members are added to **10.2.3.1**.

---

* **1.2.4:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators may, if they deem it necessary, hold a vote using the urgent governance cycle or the weekly governance cycle to remove an Advisory Council Member. If an Advisory Council Member has not done any paid work for the Scope for at least 1 year, then the Decentralized Collateral Facilitators can choose to remove them at will, if they deem it necessary.

---

* **1.2.5:** The current approved Avisory Council Members are recorded in *1.2.5.1A*.
* **1.2.5.1A:**¤¤¤Current list of Advisory Council Members:

|Advisory Council Member|ETH Address|
| --- | --- |
|BA Labs|0xDfe08A40054685E205Ed527014899d1EDe49B892|

¤¤¤

##### 1.3: Stability Advisory Council projects and funding

The Advisory Council Members are paid on a project basis to do specific work that improves all or specific parts of the Stability and Liquidity Scope Framework, the Decentralized Collateral Scope Framework, and the Real World Asset Scope Framework.

* **1.3.1:** Each Quarter, if they deem it necessary, the Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators must solicit proposals and find one or more suitable Advisory Council Member to perform a project that will result in output that can be used to improve the Stability and Liquidity Scope Framework, the Decentralized Collateral Scope Framework, or the Real World Asset Scope Framework. This work output will be presented to the CVC Subcommittee Meetings as the starting point for the CVC Scope Framework Position Documents. As many CVCs as possible should be supported this way, prioritized by the Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators.

---

* **1.3.2:** In case an ambiguous, uncertain or challenging situation arises related to the Scope Framework, the Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators may approach one or more Advisory Council Members to perform a reactive project that aims to specify the language of the Scope Framework to take into account the specific situation. The Decentralized Collateral Facilitators can then directly propose the change to the Scope Framework in a weekly governance poll, quickly resolving the ambiguous situation.

---

* **1.3.3:** The Advisory Council Members are may in some cases produce work output that is directly compatible with the formatting of the relevant Scope Framework. In this case the Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators must either transcribe it themselves, or use the Advisory Council budget to procure an Ecosystem Actor to perform the transcription. The transcription role does not require pre approval by Maker Governance.

---

* **1.3.4:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators may also in some cases produce advisory input on the content of the the Stability and Liquidity Scope Framework, the Decentralized Collateral Scope Framework, or the Real World Asset Scope Framework themselves. They are prohibited from being paid for the work beyond their regular Facilitator compensation.

---

* **1.3.5:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators have a budget available to pay for Advisory Council Projects per quarter. All spending must be limited to only what is deemed necessary and with a high probability of producing clearly measurable value, and this must transparently be accounted for in a forum post at least a week before any transaction occurs.

---

* **1.3.6:** The Stability and Liquidity Facilitators, Decentralized Collateral Facilitators and Real World Asset Facilitators should engage Headhunters or Executive Search Firm to hire a Stability Advisory Council Member that can focus on Asset Liability Management strategies that are based on the concepts of the Stability & Liquidity Scope Framework, The Decentralized Scope Framework, and the RWA Scope Framework.
---
* * **1.3.6.1** The Stability Advisory Council member ALM strategies should incorporate both rate-sensitive assets and liabilities into the portfolio decision making process, be able to identify and describe liability-driven collateral types, evaluate strategies for managing a single liability, compare strategies for a single liability and multiple liability and for multiple liabilities, including alternative means of implementation; evaluate liability-based strategies under various interest rate scenarios and select a strategy to achieve the desired results of the The Stability and Liquidity Scope Framework, The Decentralized Collateral Scope Framework, and The Real-World Asset Collateral Scope Framework.

---

* * **1.3.6.2** The Stability Advisory Council member must have previous expereience on a broad range of transactions including domestic and offshore debt programmes, high yield bonds, additional Tier 1 and Tier 2 issues, green bonds, sustainability bonds, social impact bonds, structured finance and securitisation transactions.

* **1.3.7:** Headhunters or Executive Search Firm Required Skills and Qualifications:

|Five or more years of experience in recruitment or human resources|Exceptional communication, interpersonal, and decision making skills| Prior recruitment of Traditional Finance Talent, Advanced knowledge of productivity software, database management, and internet search methods|Familiarity with job boards and computer systems designed specifically for HR|Proven success in conducting interviews for Traditional Finance Positions|
| --- | --- | --- | --- | --- |
|Prior success placing an Advisory Board and Chairperson who contribute via their network| Proficiency with content management systems|Experience in developing recruitment strategy|Desire to find the best possible talent available| Willing to agree on the fee structure and the timeline for filling the position.|

* * **1.3.7.1**: When researching for recruiting firms, the Stability and Liquidity Facilitators, Decentralized Collateral Facilitators, and Real World Asset Facilitators should focus on identifying Executive Recruiting firms that specialize in financial services and have experience filling similar roles to the Asset Liability Management (ALM) strategist position.

* **1.3.7.2:** Advisory Council project budget:

|Maximum Monthly Amount (DAI)|Maximum Monthly Amount (MKR)|Implementation|Start Date|Notes|
| --- | --- | --- | --- | --- |
|207,000|N/A|DssVest|2023-03-01 (Backdated)|N/A|
|73,000|15|DssVest|2023-04-01|For Data Related Expenses|
|83,000|N/A|Manual|2023-05-01|For ALM and RWA related expenses|
|¤¤¤|||||

#### 2: The Implementation of the Decentralized Collateral Scope Framework through Software

The Decentralized Collateral Facilitators must in collaboration with the CVC Subcommittees, periodically review possibilities of integrating DAO toolkit innovation into the processes and content of the Scope Framework.

#### 3: Ordinary Core Vault Type management

##### 3.1: Risk parameters of Core Vaults

The Decentralized Collateral Facilitators can propose risk parameter changes to Core Vaults that help increase the income of the protocol and mitigate risk of loss. The Risk parameters must be within the boundaries defined in the subelements of this section. Changes to the Stability Fee and Liquidation Ratio parameters cannot be proposed unless it is based on explicit instructions provided in the Scope Framework, or it is due to a solvency or liquidity emergency. Instead, the Scope Framework must first be changed in order to define the process for making further changes to the Stability and Liquidation Ratio.

* **3.1.1:** All Core Vaults must have a Stability Fee at least equivalent to the Yield Collateral Benchmark Yield defined in *MIP103: The Stability and Liquidity Scope Framework 3.3.5.1.1A:*. The Decentralized Collateral Facilitators must use the weekly governance cycle to submit executive votes that increases the Stability Fee of Core Vaults that are below the minimum Stability Fee.
* **3.1.1.1:** The Decentralized Collateral Facilitators can trigger a Governance Poll to designate a Core Vault Type as exempt from the Yield Collateral Benchmark Yield requirement. If the Governance Poll succeeds, no further governance polls are required to attempt to increase the Stability Fee of the exempted Core Vault Type.

##### 3.2: Minimum net surplus requirements for Ordinary Core Vaults

Core Vault Types which do not contain Strategic Collateral Asset Types as defined in Article 4, or Transitory Collateral Asset Types as defined in Article 5, must generate an amount of net surplus after direct related expenses (maintenance, oracle and other) combined across all Vault Types including same Collateral Type, that is equivalent to at least 10% of the average net surplus of the 4 largest Core Vault Types containing Strategic Collateral Assets measured by debt exposure. The absolute minimum net surplus generation permitted for a specific Ordinary Core Vault Type is 100,000 Dai per year.

* **3.2.0:** *Example: WBTC is a Centralized Transitory Collateral Asset Type which is included in WBTC-A, WBTC-B, WBTC-C Vault Types, and must generate 10% of surplus in aggregate relative to the average surplus generation of ETH-A, ETH-B, ETH-C and WSTETH-A. (In current state on Feb 23th the requirement is 235k Dai)*
* **3.2.1:** If an Ordinary Collateral Type is not generating the necessary minimum net surplus for longer than 180 days, or if a specific Ordinary Core Vault Type fails to meet the requirement of the absolute minimum net surplus generation for longer than 180 days, it must enter the offboarding process. The offboarding process consists of two phases.
* **3.2.1.1:** In the first phase, the Decentralized Collateral Facilitators must initiate an on-chain governance process to increase Stability Fees of the respective Vault Types to the level at which the conditions in 3.2 are met. If this increase would make the Stability Fee of the Core Vault Type become more than 5 times as high as the highest Stability Fee of any other Core Vault Type, the Core Vault Type is instead immediately offboarded according to *3.2.1.2*. An Ordinary Collateral Type or specific Ordinary Vault Type can be in the first offboarding phase for a maximum of 60 days. The Responsible Facilitator has the ability to reduce the specified duration of the first phase or entirely skip it, and must make a public forum post to notify when this ability is used.
* **3.2.1.2:** Once the 60 day maximum period passes (or the modified time period defined by the Decentralized Collateral Facilitators passes), or if it was not possible to raise the Stability Fee of the Core Vault Type, the Core Vault Type enters the second phase, which follows the process defined in the MIP62: Collateral Offboarding Process.

#### 4: Strategic Collateral Asset Types

##### 4.1: Strategic Collateral Asset Types

Core Vaults containing Strategic Collateral Asset Types are not subject to the requirements of *3.2*.

* **4.1.1** Strategic Collateral Asset Types are specified in **4.1.1.1A** and can be changed based on a Governance Poll by MKR holders initiated by the Decentralized Collateral Facilitators.
* **4.1.1.1A:**¤¤¤
The list of Strategic Collateral Asset Types is:
* ETH
* STETH
* RETH
¤¤¤

##### 4.2: Loss-making Strategic Collateral

In case a Strategic Collateral Asset Type is causing net losses to the protocol after maintenance, oracle and other expenses are accounted for, the Decentralized Collateral Facilitators must periodically make a Governance Poll for MKR holders to remove the Strategic Collateral Asset Type from the list in *4.1.1.1A*. The frequency of the removal Governance Polls should be based on the strategic importance of the Collateral Asset Type.

## 5: Transitory Collateral Asset Types

#### 5.1: Transitory Collateral Asset Types Definitions

Collateral Asset Types in Transition (i.e. Transitory Collateral Asset Types) are either (i) assets that have a high potential to be transitioned to SubDAOs once SubDAOs are established and functioning (i.e. SubDAO Transitory Collateral Asset Types) or (ii) Collateral Asset Types that are deemed too centralized to be included in the Decentralized Collateral Scope Framework, and hence will instead likely be further defined in future iterations of MIP105: The Real-World Asset Collateral Scope Framework (i.e. Centralized Transitory Collateral Asset Types). Once an asset is either (i) defined as part of MIP105: The Real-World Asset Collateral Scope Framework, or (ii) transitioned into a SubDAO, its definition and presence in Article 5 in the Decentralized Collateral Scope Framework immediately becomes null and void and the Responsible Facilitator must remove it from 5.2.1.1 and 5.3.1.1.

#### 5.2: SubDAO Transitory Collateral Asset Types

SubDAO Transitory Collateral Asset Types are not subject to the requirements of 3.2.

* **5.2.1:** SubDAO Transitory Collateral Asset Types are specified in *5.2.1.1A* and can be changed based on a Governance Poll by MKR holders initiated by the Responsible Facilitator.
* **5.2.1.1A:**
¤¤¤
The list of SubDAO Transitory Collateral Asset Types is:
GNO
¤¤¤

#### 5.3: Centralized Transitory Collateral Asset Types

Centralized Transitory Collateral Asset Types.

* **5.3.1:** Centralized Transitory Collateral Asset Types are specified in *5.3.1.1A* and can be changed based on a Governance Poll by MKR holders initiated by the Responsible Facilitator.
* **5.3.1.1A:**
¤¤¤
The list of Centralized Transitory Collateral Asset Types is:
WBTC
¤¤¤

#### 6: Decentralized Collateral Direct Deposit Module management

##### 6.1: Decentralized Collateral Direct Deposit Modules (DDM) minimum yield

Decentralized Collateral DDMs must provide a yield at least equivalent to the Yield Collateral Benchmark Yield defined in *MIP103: The Stability and Liquidity Scope Framework 3.3.2*, and must earn the protocol a net surplus of at least 1 million Dai per year after maintenance, oracle and other expenses.

#### 6.2: Decentralized Collateral Direct Deposit Module minimum net surplus

Decentralized Collateral DDMs must provide the Maker Protocol a net surplus at least equivalent to the minimum requirement defined in *3.2*.

##### 6.3: SubDAO Decentralized Lending Module subsidy

SubDAO Decentralized Lending Modules can be subsidized with Decentralized Collateral DDMs in order to ensure an active market with a minimum level of users exists. Such Decentralized Collateral DMMs can have up to 200 million Debt Ceiling at the Subsidized rate. The subsidized rate is equivalent to the Stability Collateral Benchmark Yield as defined in *MIP103: The Stability and Liquidity Scope 3.2.3*. During the Pregame this section can be applied to lending protocols that are under the control of Maker Governance, are regulated by the Ecosystem Scope, and are being incubated for adoption by a future SubDAO as a part of an Incubated Ecosystem Actor.

* **6.3.1:** If the SubDAO Decentralized Lending Module supports WBTC as collateral, it must ensure that borrowers using WBTC as collateral pay at least the full Yield Collateral Benchmark Yield, and that Maker is paid a yield equivalent to the Yield Collateral Benchmark Yield. The WBTC borrows do not count towards the 200 million subsidy limit.
* **6.3.2:** If the Decentralized Lending Module supports any centralized asset other than WBTC, it is not eligible for the SubDAO Decentralized Lending Module subsidy.

## 7: Decentralized Fixed Rates Module management

#### 7.1: Decentralized Fixed Rates Module management

The Decentralized Fixed Rates Module must be developed and managed through this article.

### MIP104c3: Decentralized Collateral Facilitators

The Decentralized Collateral Facilitators of the Decentralized Collateral Scope Framework are defined in MIP113c2.6.1.2.1A.

### MIP104c4: Scope Framework Articles modification Sub Proposal process

During the pregame the Scope Framework articles can be modified through the Monthly Governance Cycle using a MIP102c2 subproposal.