MakerDAO Financial Reports, 6 Aug 2021

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From YouTube: MakerDAO Financial Report | July 2021

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This is MakerDAOs full Financial Report from July of 2021.

For the full Governance and Risk call this was taken from Aug 5th: https://youtu.be/t63sZrRNlEY

Financial Report Written Version: https://forum.makerdao.com/t/financial-report-2021-07/9686

Governance and Risk Agenda: https://forum.makerdao.com/t/agenda-discussion-scientific-governance-and-risk-153-thursday-august-5-17-00-utc/9671

A

All right, so, hey guys this is uh mark or ace from the forums uh mentioned, he's giving me the pledger to present july's finance results, and uh here we go so just kick things off. uh Net interest income fell by nearly 50 percent month over month. uh It's lower demand for credit and decreased stability. Fees from the recent ppg proposal led to lower income net trading and liquidation income also fell tremendously at 78 and 95 down, respectively.

A

uh There's less pressure on the peg and lower crypto volatility. There were the key drivers uh that led to uh um lower income in each case.

A

uh Workforce expenses- were you know, relatively flat from last month and uh altogether our net income was down 63 and recurring income was down 55 percent and, despite that uh maker price increased about 12 from last month um on a year-over-year basis, you know things look much better and personally, that's how I like to compare things uh and the results were quite impressive. You know every single metric is up um with net income and occurring income up. You know 27 and 93 x, respectively.

A

So, as you guys can see from the visual representation of the income statement, you know revenues continue to decline month over month, driven primarily by lower net interest income with the lower uh stability fee rates and lower demand for credit uh leading to lower uh income workforce expenses, a little purple bar on the bottom starting to creep up a little bit and that will continue to go higher in the coming months as more core units are onboarded for the lending income slide.

A

4.4 million money income for the month uh with our average yield falling to 2.7 percent from 4.6. Last month. uh Loan balances are stabilizing with two percent prior month, and you know it's collateral prices have started to rebound. We may see an increase in demand, as our collateralization ratios increase, uh so bitcoin and ethereum both climbed. You know the mid uh to high teens last month, and uh hopefully we see um you know some increase in loan uh and credit going forward.

A

So the rapid increase in the uscc psm is slowed from last month and we only grew. You know, six percent in our stable coins and uh the recent proposals from the pax team uh could be a great opportunity to reach our exposure independence on ustc. So hopefully everyone saw that post and, if not go check it out in the forums.

A

Taking a look at the balance sheet uh continues to grow mostly due to that liquidity reserve, which is the standard points mostly usdc at this point. uh You know: crypto loans are up slightly at about two percent, so good to see that starting to stabilize- and hopefully it will continue to uh recover as crypto prices start to rally a little bit and liquidation business has fell tremendously.

A

You know having low volatility is going to lead to lower liquidations, especially having lower downward volatility, and since we did see, you know, generally an increase in prices, especially in our large collaterals. um You know it's going to usually lead to lower liquidation income so only 56k last month, but uh not better.

B

A

In terms of market share uh on chain uh die month over month and year over year lagged the market quite a difficult comp. From last july, you can kind of see in the middle in july 2020. You know we had a huge spike from june to july due to that uh compound liquidity, mining that began and when d5 summer, and it really started to explode in terms of market share.

A

Now, looking at the on-chain volume been pretty stable the past few months, they're down one percent uh from last month and last july, we had that huge, huge bump, which you know was. Definitely you know one timer type of situation um generally been pretty stable the past few months, and it looks like uscc, you know, continues to take share from tether as well as uh finance usd, not really sure, what's ended by uh lack of growth, but looks like it's trending down more or less the past few months.

A

So risk is definitely one of the brightest spots in the financials this month. You know, we see increases in the key uh financial ratios. You know leverage and the ct1 ratio both up uh it's great, to see the ct1 rush ratio, especially uh starting to climb into that. You know three to four and a half percent range, which I think from risk's perspective. Is you know more uh suitable.

A

um We've definitely been below that, as it's been tough for the circle spot for to keep up with the growth and in our assets in our long portfolio.

A

um So our accurately inclusive of you know, operating wallets through 10 percent from june uh risk weight assets, greater three percent and uh the ct1 ratio and leverage ratio, uh increased 18 and 50 and five basis points respectively.

A

So it's good uh diamonds, very uh safe, stablecoin,.

C

Mark uh quick question where, when, when you say risk-weighted assets and equity, uh what would that be? Would that be the the total of the collateral types locked in volts over the state, the the buffer or.

A

uh So our risk risk with assets is anything, that's generating interest. Essentially yeah you have, the back stable, comes out to get that and it's gotta get the ratio just divide that by uh the equity.

C

A

Yep, uh so over to the earnings per mkr, I saw an uptick in the equity uh current m care of about five dollars. uh The earnings yield went down, is you know, lower income, we're essentially trading at a higher p e ratio. As a result, um you know with a big decrease in the ratio, but usually when you see a low earnings yield, especially in a business, that's as volatile as makers generally, you know the market is looking forward and thinking that uh in the prospects for that business will improve.

A

So uh you know it's good to see makers price rebound a little bit. I think that's shows confidence in the protocols for d5 for higher earnings going forward.

A

So another uh bright spot in our financials are our real world assets which screw 45 to 5.4 million uh this month, and I'm sure many saw the executive to raise the debt ceiling on the new silver ball pass, and now they have 20 million in capacity.

A

So we should see continued growth there and we should see, uh you know, continue growth from other assets as well. You know this deal flow remains pretty strong.

A

Current focus for the teams on solar x and the you came in foundation structure so again uh check those out in the forums if you haven't already and just so, to wrap up uh liquidity, pool growth more than doubled as compared to last month, and that was primarily driven by that die usdc.

A

uh You know, suave fault, you can see an orange here. We dropped the stability fees from you know, 50 basis points to zero, so that was uh quickly taken up and I think the dc has been restarted on that um and that's what led to the higher growth in liquid equals. But uh I guess with that uh anyone have any questions.

D

Yes, one thing I was curious about was kind of related to juan's line of questioning there, um with our risk ratios looking better, despite like revenues. Dropping is that, just because of the increased stablecoin exposure- um or am I misunderstanding,.

A

uh So the ct1 is excluding the stable coins and really it's been tough for our surplus buffer to keep up with the growth in assets, because you know you need if you grow your assets to mil. If we, if our risk assets doubled today right, our cet1 would just drop by half right. We have to actually stay at. You know a certain level of loans to start accruing no equity in the surplus buffer.

A

So if you grow too quickly, you know your safety measures are going to lag because you need time to you know, have those loans accruing trust, so you know with the decrease in loan demand. You know you just started to see. You know that income come in from from the loans essentially and that's why it keeps increasing.

A

If you know loans doubled tomorrow, our ratio would go down and take time to catch back up. Awesome makes sense.

D

Definitely encourage other questions, uh probably got another six minutes or so or no. I can do math 16 minutes. We can spend on this um so yeah. If you got something far away.

B

uh I have like a general question uh like about uh the ct1 uh like measure, uh if, if, let's say uh like, we just like we're in this environment right where the mkr price is fairly healthy, our asset, you know our asset.

B

You know the other part of the cet-1 ratio is growing, but our surplus buffer isn't would people in the dow be generally opposed or for like slight maker dilution, in order to raise that surplus buffer and not necessarily rely on our purely on our revenue streams for accruing that uh and I'm curious like why you'd be opposed or why you'd be for it.

A

Yeah, I guess it comes down to how much risk you know the community and governance wants to take in terms of our you know. Safety ratios. I think that generally risk has recommended higher ratios and I think I've been pretty vocal about not wanting to burn maker while we're below the recommended ratios.

A

um You know, I think long term. We definitely should align as a community on what inappropriate and targeted cet-1 ratio and liquidity ratio or leverage ratio is and then just start not burning maker when we're not at those ratios, and then that way, it's just kind of automatic.

A

um You know we could have certainly one-off situations where maybe the ratio is slightly low and we think it's a good opportunity to burn some mcare. Maybe we can handle that through. You know separate signal, requests and vote, but you know generally, I think, given how opposed people are to minting and taking higher risk to burn maker. I think there's just no appetite for diluting holders to reach. uh You know these appropriate risk measures.

B

uh So peyton actually brought something up in the chat. The fact that we still have the 84 000 mkr that the foundation transferred to the protocol in the pause, proxy, uh yeah and, and also just to give a little more context to this question like I'm, I'm I'm probably also leaning towards opposed. But my thinking is that like. uh If, if we do go for a dilution, it usually happens when the mkr price is bottoming out and we end up taking a really bad haircut.

B

Like that's what we saw on black thursday right like we ended up, uh you know selling a lot of mkr really really low, but if we are lagging behind in our risk metric right, this ratio uh and mkr price is high. It seems like it might be wise to actually try to raise cash from any. You know, maybe not purely diluted, mkr but mkr that we have free like that. 84K mkr might be an interesting uh tool to use, but yeah I'm just thinking out loud.

B

So I don't have an opinion one way or the other.

A

Yeah yeah, I think, ultimately, we should probably uh define like a targeted measure. I know you know talked about the. I think basel iii requirements that banks have in terms of risk measures. They must follow. So I think, as a community, we should look at these. You know work with risks, take the recommendations and then walk in what we think is appropriate.

A

um I don't know that uh you know people want to dilute to to get there, but uh hopefully we have time to get there before the market starts to rebound and the loan demand takes off again.

C

B

Cool thanks for the thoughts.

E

And maybe one thing to add is that currently we have a buffer and that's great, but the main risk we face are tail risk, whereas a buffer I mean, if you have one percent of four percent- and you are blacklisted on usdc or is- is falling like like a knife to one dollar, you lose everything so having one percent buffer or four percent doesn't change anything this. This will make sense more in the future, where we will have real risk, smaller risk but more diversified risk and where the buffer is really important for that.

E

But for now it's true that we have mainly uh t risk. So it doesn't change much, but it's important to think about that for the future as well, because if you have hyper growth, it will be difficult to raise so definitely.

D

Appreciate those reflections um there any other questions regarding financials this presentation uh before we move on to our last topic, all right not see me so uh mark thanks for presenting that was really great, always glad to see more faces through the presentations here.

D