MakerDAO Weekly Governance and Risk, 19 Sep 2019

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From YouTube: Governance and Risk Meeting: Ep. 53

Description

Risk Segment

- Presentation by Fluidity.io on Tokenized Asset Portfolio's
- Vishesh Choudry: State of the Peg

Governance Segment

- LongForWisdom: Governance at a Glance

We'll then spend the rest of the time in a general Q&A session.

Discussion Threads: https://forum.makerdao.com/t/503

Podcast version: https://feeds.soundcloud.com/playlists/soundcloud:playlists:623643288/sounds.rss

Summaries: https://community-development.makerdao.com/governance/governance-and-risk-meetings/summaries

Transcripts (Delayed by 48 hours): https://community-development.makerdao.com/governance/governance-and-risk-meetings/transcripts

Foundation Proposal: https://community-development.makerdao.com/governance/core-principles

Governance and Risk Framework - Part 1: https://community-development.makerdao.com/governance/governance-risk-framework/part-one

Website: https://makerdao.com
Twitter: https://twitter.com/makerdao
Forum: https://forum.makerdao.com/
Chat: https://chat.makerdao.com/home
Email: info@makerdao.com

A

Hello, everyone welcome to the September 19th edition of the scientific governments and risk meeting at Mikado. My name is Richard Brown I am the head of Community Development at maker and the if' rat I'm. Also, the interim governance facilitator all right. I guess I should add that to my resume today we are going to mix up the the agenda slightly. We have some conflicts that we need to run around. We also have some special guests and this is going to be fairly exciting, so we have some heavyweights in the room.

A

Today, fluidity is here and they're going to talk about their tokenized asset portfolio mechanism that they release to the community. There was some a blog post that went out recently a paper that went out. There was some very high-level discussions, though, that went along with that post in my mind, not enough discussions on because it was worthy of more more investigation than it received, and so hopefully we can dig into some of the details. Today. We have a fairly committed and fairly smart crowd here.

A

So I'm, looking forward to the questions who might gets I, am going to skip governments until, like I said this, the second half of the call we'll start off with risk and then before we get into that. Let's talk about the standard preambles that we've all heard 53 times before, if you're a an active listener. We are intensely interested in in dealing with issues in the community and answering questions as they arise and hearing what this group is interested in.

A

What it's been up to you stuff, the question or comments, please feel free to interrupt us if you have a microphone just jump right in and ask your questions if you do not have a microphone find where the chat happens, to button happens to be on the UXA you're. Looking at take a question into the side, David or I, or someone else will find that question and we'll read it up before you and some we're really.

B

A

In getting feedback from as many people as you possibly can, there's also a forum thread that goes along with this call posting a link on the side just beat David to it. I saw him scrambling for if you have a question that doesn't get answer, please ask it there follow that thread to, because in the forum is where governance happens in earnest at maker down. There is a tremendous number of very weighty and important discussions happening right there right now. Yeah there I will also be posting.

A

A summary of this call at some point today with video audio of them and Trent spending on David schedule. Perhaps tomorrow soon we'll be publishing a summary of this call. Transcripts will arrive as soon afterwards as well, possibly by Monday, so keep an eye on the forums. I am going to turn it over immediately to vishesh for the state of the peg, and he can show us graphs. I've asked him to put a large, bold letters of good and bad with.

B

A

His graph, so I can follow them along a little bit better, but I'm not sure whether we'll see that today, recession.

C

And and I've refused to put the good and bad anywhere in any data, because I want to.

A

Do editorialized tell us what to do the show.

C

How about I show you some data instead, all right so yeah just to kind of cap, what's been going on actually start with this, so the highlight is dye supplies up a fairly significant amount cloud or value locked, also at a reasonable level, but the the main thing is that some refinancing some just reuptake an activity given what's been going on lately with eath price. You know we kind of called this shot in the sense that, as the stability fee is lowered, if eath price is doing reasonably, your people are feeling reasonably bullish.

C

You will see sort of this re uptick in leveraging activity. Good news is it's not been so much just a tremendous amount of risk with a very little collateral at it. It's been kind of little bit of both, so we're just sort of recovering some of that lost interest in NC DP activity before so overall I think a rather positive week is a good way of looking at it.

C

What's really interesting is this happened without sort of crashing die, which would you know we think we can talk about that in just a second, so yeah brasstacks, the dye supply started ticking up around 15. It was like four days ago, with a pretty significant amount of dye drawn out roughly about four and a half million on that day and very little dye being wiped during that same time period. What we also saw was, you know, a bit more collateral being at it.

C

So look like about 63,000 eath, so keeping the collateralization ratio roughly overall for the system around three hundred fifty percent, which is a pretty reasonable level as far as like long-term trend. So basically it's it's a very short timeframe blip. So it's not really gonna show in the long-term trends. Just yet, but essentially the pace of the amount of dye being locked has started to tick back up again, so we can keep an eye on that and the amount of collateral being freed still pretty flat and then same with drawers and wipes respectively.

C

So that's pretty reasonable. That's what you expect when you see more of that leveraging behavior. What is also interesting to note is on some of these secondary lending platforms so and enough to forgive the the data sink was interrupted here, but essentially, when that 12.5% stability fee drop occurred for at least a few days, there wasn't much of a change in activity, and so actually that weighted average borrower rate for dydx for compound was above that stability fee, which meant that it was cheaper to open your positions on maker.

C

During that time frame, which is fascinating. When that happens, that generally hasn't happened in a while and does should get you can think of it as armed way by refinancings.

C

So let's look at some of those volumes. I mean they. They started to dip around the 15th I. We need to track where this is at in the last couple days. But essentially the idea is that the the borrow volume that kind of slowed and started to dip as more positions were opened on maker itself and some of those utilization rates started to dip as well. So we'll rethink this. So, yes,.

D

I have a quick question so on the 15th. Wasn't it like one single CDP or very large loan that just refinanced from compounds who maker that was basically the majority of that blip? Yes,.

C

That, generally, it's it's one or two large positions, but what was really interesting is it's not just the refinancing? It's also not necessarily new positions being opened, but at least old positions being reopened through new tee pees on maker. So, in addition to what's going on the secretary lending platforms, which was basically just an arm of those rates, there was also legitimately, like new dye being issued a new activity on maker. So yes, as far as the refinancing, but that was how it happened.

C

The first time as well right, so we saw when there was that you know up taking activity on compound through insted app and a large amount of refinancings from maker to compound about four and a half million moved in one day, primarily through one or two large positions. So it's basically a flipping back is the way that I see that, but in addition to the flipping back, which is more about the stability fee change, there is also this more recent optical activity.

C

So basically, this dye supply around the 16th was about 8.3 to 8.4 or sorry 83, 84 million. But in the last couple of days that has ticked up further to about 86 million, so there's there's an additional like three million worth of activity. That's not necessarily represented here. In addition, the dye price. So this is particularly interesting this to the dye price. In the last 24 hours, volume is actually kind of low, which is really interesting too, not as much dye being traded.

C

So these are legit, just new positions being opened, not so much people then going and dumping that die immediately, not as much people you know buying up dye which which makes sense, because when you have new positions being opened, there's not necessarily a ton of appetite for reacquiring dye, but usually we do see large volumes in the other direction of selling dye. So so that's particularly interesting.

C

It may still come down the pike in a couple of days or over the next couple days, but it is fascinating to see that that has not sort of cratered the dye price I'm just looking and like the slightly longer timescale. So this is the seven days 17,000,000 pretty reasonable volume for seven days slightly higher than we normally see lately, but overall, that price was just below or at a dollar. So again, not a huge depressive effect on the price of died that we might generally expect or you don't worry about yeah.

C

So sorry, I'm going to be kind of quick today, but we'll kind of open it up to questions or things people on a double-click on.

A

I think you might be in the clear this one for this one recession, thanks for that, you get off scot free and all right. So let's say: let's keep the momentum up then so fluidity is here, and this is fairly excited. That's a great team they're doing a lot of really interesting things and they have a long history in space.

A

So it's a great opportunity for us to start asking some deep questions and a great opportunity for me to try and understand what like that paper was all about all right, so so flea who's gonna, be speaking for you today. You wanna do some introductions. Let us know who we're talking to yeah.

E

We'll do some quick interruptions, we're all going to be presenting different components, so we'll just share so I'm mark mark Fernandez I'm on the product team here at fluidity, I've been in the digital asset space for a few years now, prior to this, worked at a company called noble, which was a bank that was facilitating settlement for OTC transactions. His face I.

F

Am on the product team as well. Your validity prior to this was an American Express, much mx personal loans and before that was a consultant at extension, know.

G

I'm Jeff amico and the company's legal counsel before this was a corporate and securities lawyer at Cravath, Swaine more here in New York.

G

Let me just share here.

E

So thanks again for inviting us to present on this call I think it's a really good opportunity just to share what we've been seeing in the decentralized finance and overall credit space, II think through and present our ideas on what we think would be a really good inclusion to the maker down system. So, just a little bit of background before we get into tokenized asset portfolios, which will present it in detail, is wanted to give you a little background on who we are so.

E

As you may know, poverty is the company behind the air swab project. Air swap is one of the leading decentralized exchanges for those who are not familiar with it. I'd encourage you to check it out. It's an absolutely beautiful product and I. Think it's one. That's having a lot of value to the decentralized finance community.

E

When we launched air swap it really allowed us to step back and think through how we can build technology to really lighten the impact of the centralized finance and really integrate more traditional aspects of Finance that have have come about historically throughout the last several decades, and we basically turned our focus to how we can integrate capital markets into these centralized finance and so for the past year. When we focused on what applications and technology, we could build to facilitate that.

E

So we've done things like in the last year, we did at organization of a real estate debt issuance. We actually integrated the use of dye to pay for interest to investors and actually allow investors to invest in dye to buy security tokens. That was the first. The first example of that out actually ever occurring. We've also just tried to build mindshare around the capital markets and decentralized finance community, so we've hosted several events.

E

We had one earlier this year, which is our biggest event called fluidity summit and actually, during that event, the maker dow foundation presented the plan around MCD and bragged from the tee presented his views, and we actually incorporated a lot of those views into the tokenized asset portfolios that will will present.

E

So we as 40 were very invested in seeing decentralized finance as a movement and a technology grow and as we track this over the last several months years, really is we've really seen that diet becoming a cornerstone of decentralize finance and we think that for us to grow as a firm, we want decentralized finance to grow, and in order for that to grow, we want dyed to grow as well. So we've started to focus on how we can build mindshare within the community and specifically, do our part to help dye grow.

E

And so we release tokenize asset portfolios earlier this year under the intention of allowing synthetic assets to be used in MCD, and we think that's really going to be a way for dye to grow significantly beyond what it already how it's grown to now and what it will be. When MCD launches.

F

And as Mark mentioned, you know one of the things that maker Dow has as recognizes the need to bring in synthetic assets to really grow to grow dyeing, and one thing that we really focused on as he mentioned, was you know how we can bring some of the first assets into the system and one of the things that you know we've we've noticed it could be major challenges to that are the two meanings are the Oracles that will be needed to monitor the the price and position data Burnie, ass assets, that's introduced, and also all the mechanisms that are in place to ensure that the liquidation process can occur seamlessly and the keepers are insured, that they're gonna get the proceeds of that liquidation, and so we introduced the tokenized asset portfolio as a way to help solve that and and what that is, is essentially a structure that covers both the legal operational tech and how it brings together, one framework to be able to introduce that asset into the ecosystem and that asset to be used throughout the process.

F

Probably eight minutes.

F

We introduced that as mortgages at the in July, and we released a white paper along with that that can be found at the I/o will also give a little retail Jeff of going to that hearing that on exactly what that is, we use this structure in July in a pilot that we did with US Treasuries and we hasn't use. You have surgeries for a number of reasons marker going a little bit more. Why we chose us cartridges why we think that's a good fit later.

F

We put this through the top structure and essentially went through a process of mimicking how this would work in in the maker doll system in the test environment, and we broke this down into really three main stages. One was in the first being the pledging process, so we bought Treasuries and held that through grow group and custodian and created tokens to represent those Treasuries or that tap that portfolio of Treasuries.

F

We then pledged that token to initialize a die credit line, withdrew test diamond. We then created Oracle's to mimic what the MTD system would have in place to monitor the the pricing position and monitored that throughout the course of a few days and confirmed that the Treasuries were in fact held so with the stone Ian and that the price I'd fluctuated such a way that it was still above the oversee ratio. And then we went through the process of withdrawing the die.

F

So we've returned the test, die and closed out the CDP and then sold the Treasuries and burn those tokens. All this, we did over the course of a few days and there there's a lot more detail of each one of these steps and the white paper at tap done. Fluidity, I, oh yeah,.

G

So this is Jeff, so maybe I'll just briefly walk through some of the legal mechanics, both in the version that we set out in July and then some of the kind of revisions that we've made since then. So it's critical in our view, in introducing synthetic assets to ensure a few things, one that you need to ensure that the underlying collateral is not being replenished. It's not being really ated, it's not being sold off chain in a way that the MCD system can't detect and then in a liquidation.

G

You need to be able to minimize the counterparty risk of the sponsor, essentially defaulting and not allowing the keepers or the system to be made whole in a safe and efficient way. And so we introduced, as Britton mentioned, the white paper in late July, and that was really an effort to start the conversation about introducing synthetic assets in a serious way. And it was a serious effort to really design the legal technology necessary to facilitate synthetic assets being introduced to MCD.

G

And so, as I kind of mentioned, that the the feedback that we got from the maker community from the etherium community and really from the broader legal and financial community was terrific. And since then, we've been in the process of incorporating that feedback such that we could really bring to market an application for MCD. That was as strong and robust as possible, and so maybe, if we yet American Express whatever. So, this is kind of a high-level overview of the proposed flow and I. Think really. The takeaway.

G

For this at least. An initial glance is that a counterparty who was using this system to borrow from the dye system against their traditional assets, like Treasuries, would begin with depositing those assets into the account of a regulated trust company. And so we think that the way to ultimately address some of the concerns around synthetic assets regarding you know ensuring the safety and the integrity of the collateral and also facilitating liquidations.

G

We think that in the near term that the best way to address those is to introduce a regulated and chartered trust company to facilitate that piece of the workflow. And so another part here for just one second request.

A

Sense, obviously, it's yeah, interacting with the real world involves trust. Unfortunately, that's something we might have to accept. How is that trust, or how is the transparency managed? There is the recourse here regulations and the law, essentially that the custody has to be maintained in a way that's compliant, or is there some kind of mechanical oracle like on chain mechanism? That proves that the existence of these assets right.

G

Yeah, that's a good question rich, so it's a few things I! Think. First, you have an Oracle that will connect to the Trust's custody account at all times such that the MCD system will know that the securities are being held there and they haven't been transferred to a different brokerage account, for instance, and then that so that's kind of how you ensure provenance while the CDP is open and then in the event that a liquidation does occur. You know some of the feedback that we got when we introduced the white paper was well.

G

How do we? How does it keep her know that they're gonna be made whole in the event that CDP liquidates? If, for instance, a sponsor could enter insolvency, declare bankruptcy and put on a stay on all of the assets and the kind of the way that we're addressing? That is by designating the keepers. So the holders of token that are being issued by the trust those holders will the legal beneficiaries of the trust account and so that entity will have a legal obligation to maximize the value and to turn that value over to the keepers.

G

Even in the event that fluidity or whoever the sponsor is, has become solvent, non-responsive or not cooperative. So it's a combination of both the kind of chain, Oracle mechanism, as well as some kind of traditional legal safeguards as well. Yeah.

A

Feels like there's a.

G

A

Hole here that we could go down and list the globe ID if it's had to go to the courts, so there's only legal recourse here. Who would be the representative structure? Who would be in charge of accepting like those payouts from whatever settlement record.

G

Well so I think the the introduction of the trust really should eliminate the need for a keeper to say soo, fluidity or a different sponsor in a bankruptcy court, because, like I said this trust account will be bankruptcy, remote from fluidity and so once a liquidation happens.

G

The trust will have instructions to liquidate the collateral to hold the pool of money in its account and then once the keepers who have purchased the token from the CDP once they bring those tokens back to the trust by depositing them in the Trust's wallet, then the trust will simply give them one dollar for every token that they have they deposited. So it comes to resemble some of the other seer sorry asset-backed, stable coins that are currently in the in the ecosystem and I.

G

Think that allows the the makes of community to have comfort that there is always a sufficient amount of collateral backing. The the token and the the liquidation could happen in a seamless fashion, even if fluidity had disappeared. All.

A

Right so I think I understand the trust. Is an independent third party who's, these existences just to ensure that recourse happens effectively exactly.

B

Okay sure so I want to make sure I understand the redemption process. One of the features I really like, particularly about the maker system of this current competition, is the permission lessness of the keeping process, in other words, that anybody, a piece of software or anybody in the world can participate and be, and do so on par with everybody else, insofar as they have access at least when you change to be able to offload I whether that exchange be entrepreneur.

B

Not so is it the case here that the redemption flow that you just described was open to anybody, no matter where they are or are there restrictions to which types of persons or legal entities to participate in that redemption process? Yeah.

G

So the way that we're envisioning this and you know I would say that this portion is still being hammered out, but the way that we envision this is that for participants who want so I for keepers who purchased a token and want to kind of permission, lessly just received I in return. There will be a way for them to do that by interacting with fluidity, and you know, assuming that pleuity is in the picture, is solvent, then we'll happily, just simply, you know, return an equivalent amount of dye.

G

For every token, that's deposited the trust mechanism that I just described is really a last resort, and that's simply there in the event that no fluidity is no longer in the picture, and the keepers need some way to get value back for the tokens that they purchased, because it's a regulated, trust entity.

G

They're gonna need to do kind of regular way, kyc on the participants who are bringing that token back and so the you know, any any transaction would need to comply with applicable laws that they're subject to, but we don't really envision that materially restricting the type of people who could bring a token back so long as they want you know, sanctioned or on any sort of traditional kind of AML lists that would restrict our trust from transacting with them so outside of that small kind of edge case within an edge case.

G

This system should be open to anyone who wants to to kind of redeem. The token from from us and liquidation got.

B

It is it the case a little bit and relatively open, except for, as you mentioned, some edge cases. Is there a difference in cost in order to participate in that system? Arizuka.

A

B

Regs is that a u.s. person, the US entity of the US bank, account can be kyc. A u.s. bank can participate in this process more cheaply than a person that is on no list. That happens to be, let's say.

B

G

There wouldn't be a difference in cost as far as performing kyc or anything like that.

B

D

Question yeah: what is the anticipated like time? Duration of any given like recourse like, let's say, CBP, gets liquidated how long before the keeper actually gets paid.

E

Yeah so I think part. This is one of the reasons why we selected Treasuries to be introduced as a NASA type to be used as collateral is the introduction of MCD as Jeff mentioned part of the process, innovation would involve beekeeper, bringing the token to validity or the trust that would then be able to provide them with dye or USD in return. For that token, that pursues that that entity either the sponsored validity or the trust was able to liquidate the underlying collateral.

E

We that Treasuries, we will go, we have assigned on this a little bit. We think that Treasuries are in fact one of the most liquid assets. The market depth for Treasuries is enormous, and so we think that it would be very feasible for any sort of entity that needs to liquidate the underlying assets to do so in a very timely fashion. So we think that that could happen in all. In the same day, we don't think that the process would be much more lengthy, vens they eat. So.

D

Would you say that the process is optimized to minimize slippage by like trying to keep the spread of time between liquidation and actually liquidating it? The actual underlying assets, minimal, yeah,.

E

We think that that's the case. We also think that there would be safeguards to prevent this from getting to liquidation, as the manager of the assets in the trust. Solidity would be basically maintaining the fact that these assets are getting close to liquidation and we would be able to maybe facilitate any actions that need to be done in preparation for a liquidation. So it's sort of active monitoring, but if that was to happen, we think that these could be what we did it very quickly and yeah avoid and slippage or minimize slippage. As you mentioned,.

D

Cool. Thank you. You.

E

A

Quick question before you move on: um it looks like there's a lot of middlemen years. You know, there's the custodian there's the trust, as this doesn't.

E

All of this leave less of a profit margin for.

G

The end-users and like is there a way to get rid of some of these middlemen yeah. So it's a good question. I think it's ultimately a balance between reducing intermediaries and potentially, as you mentioned, increasing margins, but also, on the other hand, using a system that is robust and and kind of can maintain the integrity of the dye system, even in the event of a liquidation, and so the introduction of things like posterity and while perhaps not optimal from a margin, perspective I think is ultimately necessary.

G

Perhaps for the entirety of you know the synthetic asset segment, but certainly at least for something like this, in our opinion, to really give the system assurance that, in the event that a CDP, it was backed by an asset like this liquidated that the keepers would be made whole and it really kind of the the introduction of those intermediaries is designed to eliminate some of the counterparty risk that is inherent to introducing synthetic assets. And so, while it's not optimal, I think it's probably necessary.

E

So I think we could jump forward here. We talked through the liquidation process at a high level here, but we want to talk through now is the introduction of a new questionnaire to supplement synthetic assets? Yes,.

F

We back in July when we ran the pilot was around the time that the community had posted the warning guy federal all morning guide, and we had take a look through that and it was really comprehensive and really helped guide a lot of the questions that we need to ask ourselves and that process. But one thing that we noticed was that there were some room for improvement after we've gone through the process that we thought could be added for synthetic assets and some important questions that we thought could be raised.

F

There I'm posting a link in the group chat to a post that we did actually this morning about some of these additions that we are proposing for that, and we really bucket these into three categories. One is around the risks that the particular asset is introducing in some of the considerations that would they're just to make sure that a particular asset is not too risky for the maker system.

F

The second is warbles, so it's very important that any asset that gets introduced that the position.

D

F

You know that outside is told can be confirmed and then also that there is a data feed that has accurate pricing to know the value of that episode at you time to make sure that it's falling within the collaboration ratio and the system as a whole is collateralized, and then all that data is available. The third is the liquidation, and we spent some time already talking about that.

F

But the right structure needs to be in place for that to make sure that all of the scenarios that could could happen in that process are buttoned up and and the right mechanics are there and people rights are in place. So we've posted some questions. We could probably flip over just to show the post. I won't go into all the details, but essentially everything is the same on the text section than the original financials section. We've added some other items which can be seen they're bold.

F

That we think are some additional questions that we might want to ask. If there are other synthetic.

B

F

That are introduced, so cool feel free to take a look there. We welcome any feedback from the community on those and again it's just you know our kind of recommendation.

D

F

Some things and I'm sure there were many more questions that come up along the way as as more folks introduce synthetics.

A

What is the primary reasons between for augmenting that checklist? Is it because synthetic has so many real-world interactions, as opposed to straight crypto yeah, exactly.

F

Yes, since there is, you know, I can chef went over with introducing a trust and some of these outside third parties. You know making sure that that serves in place and that the asset to be introduced and fall into those structures correctly, that's one of them, and then you know, given that a lot of this data is not going to sit on shame it's gonna set off chain and meet an Oracle to bring that on. Then all the details on how that is generated and the capability that data is important to know yeah.

H

Just just to provide a tiny bit of context there when we were originally designing that guide, we we specifically designed it for crypto assets, because we at the time we weren't expecting this level of demand from off chain assets this early in the process. Our original version actually had some sections on security tokens, but we thought that there was sufficiently unanswered questions that we weren't even sure how to structure it, so we structured it for crypto acids specifically, but this is great.

H

We're definitely happy to have a kind of a first pass at what the process might look like for synthetic assets. So thank you for that, we'll be sure to give it a look. Absolutely.

E

Well, so our goal with this application and working with the larger maker community is to ultimately submit an application for Treasuries using the top structure to be introduced as a type of collateral in the MCG system. Our position is that Treasuries would be an essential, very, very important type of collateral to have within MCD.

E

We think that, in order for dye to scale, it really requires users to be confident that dye is backed by a sufficient amount of lateral, and you can really increase that confidence with dye holders by backing down with a collateral that has a low likelihood of liquidation, and we think that because because Treasuries are extremely stable, the likelihood of liquidation is very low. For example, in the 1990 5th percentile of a one-day movement of 3-month Treasuries, it's less than 10.

E

When you compare that to something like e, it's 16%, so we think that Treasuries are very, very stable, presents a very low liquidation risk and therefore maintains the integrity of dye. However, as we've somewhat alluded to before, there may be scenarios, hopefully never, but we think there could at some point be a scenario where these assets, the underlying collateral, needs to be liquidated. And in such a scenario, it is really important, as we mentioned, for the underlying level to be liberated. As I mentioned, the before the death of the market for Treasuries is extremely large.

E

The US Treasury market is around 15 trillion dollars worth of Treasuries, and a substantial amount is traded every day.

E

So we don't do not think that there would be any issues in liquidating Treasuries in a scenario of a CDP liquidation relative to potentially other synthetic types of collateral which may present some liquidity issues and then finally, we think that when we introduce Treasuries is a type of collateral, the maker community will actually gain a lot more control over the supply of dye and therefore be able to increase the control of the peg of dye to a dollar.

E

And this really stems from the fact that Treasuries are a fixed income product, meaning that they have a fixed rate per ton. When there's a fixed rate of return, CDP users can really easily assess the economics of if it makes sense to open up or close CDP's, because they have an understanding of what the rate of return of Treasuries are relative to the stability. This is really different from an asset like eve where it's unclear what the return on eath would be.

E

There's a lot of speculation, there's a lot of volatility and therefore it's tougher to make a judgement if it makes economic sense for you to open or close your CDP when you have a very stable asset like treasuries introduced, the system which has a fixed rate of return. It makes that evaluation a lot more direct and lot clearer, so the process of trying to be teen a peg of dye to a dollar or some other peg is very, very it's a lot more straightforward, a process.

E

So we think, for these reasons, then they're, probably some others where we think these are the most important we think Treasuries should be introduced as a type of flour.

I

So you make the point: that's the coast, Treasuries of a fixed-rate return, it's very easy to see when that rate return exceeds, or it's less than the stability rate right. Yes, so would that not just lead to like the entire collateral rule for Treasuries, either disappearing or like reappearing, based on what crosses that fixed threshold?.

E

We think that there would be some users that have positions that are based on their loans have died, that they can't immediately get out of, and so there won't be like an immediate action to close CDP's, but yeah. We think that, based on how users are using their die to get a return elsewhere, there may be a need to close the CDP.

E

If this ability to use too high- let's say if they opened up the CP in order to access die and not die, is really the only type of collateral that is used in another system to get a return. Maybe it's important for them to keep their CD their CP open, even though the rate is high.

I

Right I say thanks.

E

So what we have to do in the next several months is really work with the larger maker community to really see that MCD goes live in a smooth fashion and that we incorporate collateral types that will allow dad to scale, as we mentioned as a company validity, is very tied to the success of decentralized finance. And that means we're really tied to the success of dye and.

B

Let's say that percentage is you know, eighty ninety percent, what what then you think Frenchie eighths the makers system for creating God from let's say feather or any other Fiat collateralized stable points eat it so far as a lot of the week, courts and mechanisms stuck them up a little bit similar in this model. Why you think maker continues to be a better, more trust, minimizer alternative to those systems in that world.

G

Well, I mean ultimately, ultimately, users are still, or they have the option to still open up CDP's in the way that they do now. In fully permission this way, even as I mentioned, even if you know Treasuries do make up a substantial portion that doesn't restrict the ability of other users to continue in the kind of current status quo, method, of kind of opening, up, CDP's against ether or against other types of kind of crypto native assets, and so it's ultimately just a different option for potentially a different user of the system.

E

Additionally, the mechanisms by which the risk is monitored and controlled for synthetic assets remains the same, so a stability being over collateral is a that is still completely decentralized and voted upon body make your community. So even if Treasuries are included as part of the system, it's different from these other types of stable coin projects and that the decision-making is still decentralized across a wider base which has control over the risk and managing in the way that that's really benefits the entire community.

B

One of the things there that's that's interesting.

B

Some some of those mechanisms around over collateralization.

B

Let's say we were to adopt a similar scheme instead of names we just kind of literally are sitting in a bank account or in a trust.

B

And some of those mechanisms kind of become unnecessary. As far as we know, that diet is a target of a dollar and it's not dollars.

B

What you know how many dollars would be back? You died in that world, so I guess that's that's a long way of saying of you know. Let's say it wasn't Treasuries, let's save those dollars and again same question. Let's say the majority of the system relies on a system like this, or at least the majority of collateral is baseline system like this, and only a minority is based on eve.

B

Now it's true like a graduate, the point that we have access to other options, but it is de facto the primary way through which diets issued, and how do you think of fewer? A third party who looks at died, the asset from a risk perspective starts looking more similar to something like USC C. Or do you think because do you think it's mainly the option of having.

G

Yeah I mean it's a third point. I think another distinction, though, that should raised against something you like us. Dc is the option to obtain leverage and die which is not available in the kind of u.s. DC, at least within its own kind of operation. You can, of course, borrow something like US DC or lend it on something like compound, but it doesn't offer you the option to obtain leverage in the same way that the maker system does so I mean.

G

That is something that that continues to distinguish dye from the other stable coins and the fact that you can do that permissionless Li and that the kind of rates and the thresholds and the ratios are all set by when will continue to be set by the community. I think we'll continue to distinguish this from something like US, DC, I,.

I

Think the question might be more from the users point of view, so the point view from the person deciding whether they want to put their savings in u.s. DC or die or something the more or your story is nice to us. Those that come in to die the more it starts being similar to its USD CET USD. Whatever.

E

Yeah, we think that there's probably going to be you know in the ecosystem, several different options. You think that maybe there are certain applications that are really only focused on one type of stable coin: only focused on accepting transactions in the eye, so maybe advantageous for you to open up your CTP and die so I. Think as there there's growth in the ecosystem and their use cases for die that these cases increased for die.

E

There may be reasons for you to use too high over other stable ones, and so this would provide you with the mechanism to do so as an alternative.

D

Is there anything to say about the fact that there's a counterparty risk for centralized like we had back stable coins that, like backdoor risk that died, doesn't carry at least doesn't carry directly I like I know? But if it's backed by you know, let's say some stable corn or something that does have a counterparty risk attached to it like it's half or something right. That risk does end up being part of died, but maybe not as explicitly to the user right I'm thinking out loud yeah.

G

I know it's a good point: I would say two things and I think one I think that there's always a there's, always some degree of theoretical regulatory shutdown risk.

G

If you want to call it that, but we kind of backdoor a risk, and while it may not be as explicit with the kind of non synthetic version of MCD, there are still regulatory choke points that I think could be exploited if a regulator truly wanted to throw a wrench into the maker system and really even the broader kind of a theory I'm a crypto system, if they, if they truly want it to so I guess that is the first question. There's there's always that kind of risk that's present and I guess.

G

The second point would be that relatedly. There is just a big balance and kind of a trade-off that is present here, and we think that the value of increasing the demand for dye potentially significantly so and doing it in a trusted and kind of stable fashion, like we're proposing, is greater than the increased kind of backdoor risk. If you will, but I do agree that there is a trade-off there, but we ultimately think that the trade-off is worth it.

D

A

I really do you have access to a microphone.

D

I could read it out, so Chris Smith wrote. Perhaps I missed this. What are the use cases for Treasuries for users outside as clawed outside of collateral and MCB ie other to make a CDP? Why would a user want to hold his hat? Our taps gonna mean so extend this question. Our taps gonna be something of just even a basic investment vehicle for anybody that can like legally. Oh, no.

G

No, so we're actually designing these for the specific use case of collateralizing CDP's they're not meant to be kind of a general-purpose, stable coin or a security token, or anything like that. It's purely a receipt whose sole purpose is to sit inside of a CDP and to reflect the value of the underlying Treasuries that are held in the trust account, and so it's really a way. It's a technology that allows a kind of traditional participant to access. Leverage against Treasuries from the maker system got it I.

A

Have a question as well: so there's a lot of moving pieces here: how much of this mini ecosystem that you've designed how much as it has been built. And how far are you from launch.

G

So I'll maybe I'll leave the the the the tech build question to to mark and Britain, but we're pretty far along in conversations with trust partners who have who understand the structure that we're talking about who think that they can handle things like liquidations and managing redemptions of tokens, and things like that. So the overall structure were pretty confident from a legal standpoint works and maybe I'll turn it over to you guys too otherwise. Address yeah.

F

You can see a lot of this in our white paper, but we've built out the contracts and apparently the tokens that would be pledged, along with the accessory scripts, that we use interact with with MCD, and we also build work cools off of one of the custodians working within the, and all of that has been published is out there on on github.

F

Obviously, with some of the updates that have been made, there will be some new build required, interact with the trust and and I'll probably build in more comprehensive Oracle's once the risk teams on the maker side. You know really want to integrate those Oracle's, but a lot of this has been built and I'm ready to go and communities rule.

A

Alright, this exciting stuff. Thank you guys for your time at the top of the hour now so traditionally we wrap things up for people that actually have other work to do. Apparently there are things other than maker in this world it people do have some free time, though we will stick around for 15-20 minutes and just have a general Q&A session, so fluidity feel free to stick around if you want to or feel free to bounce. If you have to, but thank you for the presentation.

A

It was very enlightening a lot of really interesting questions, I'm, looking forward to seeing how it integrates in the future. So thank you guys thanks vision, all right as I just alluded to it's the top of the hour. So if you do have the bounce feel free, we are going to stick around and have do some general Q&A. We also need to get to some of our regularly scheduled parts of the call which are related to governance.

A

I'm- probably going to see, if there's free time for me to talk about what I was going to speechify on, but long for wisdom. If you wanted to give us a review of what's happening in the forums I.

I

Can't I can't do actually had one more question too: full fluidity, if they're still here in the round, not.

A

Sure yeah yeah.

I

Yes, so I believe you said that the keepers wouldn't be required to kyc in order to take power and collateral auctions. Is that correct was understanding correctly.

G

Yeah, so in the events in the kind of 99% of scenarios of liquidation, where fluidity was they could simply deposit the token and would be would receive an appropriate amount of dye in return and and would very likely not need to get KY cedar or anything along those lines. It's really only in the case where they're interacting directly, with the trust that they we need to go after. Oh I,.

I

G

I

So my question is an extension of that in there is, if we're forced to do global settlements, fluidity is still around. Can they then redeem those tokens for all holders of dying or previous holders or die.

G

I'm, sorry, what do you mean by a global settlement exactly so.

I

If the system shuts down and die becomes a voucher to get a share of the collateral, those in the system would, for the validity, be able to redeem that collateral for any die holder.

G

Yeah I mean I, don't see why not I mean market Britain, there's anything that springs to mind.

E

Yeah I mean the structure we built is that anyone who comes to us that has a tap token could redeem it for the value of that the global settlement is their.

C

Specific scenario: that's different.

I

I, don't think it's no I mean the scenario. Is that the die system issue? I credit system is shut down completely right. Every everyone holding die gets it's like a share of the collateral. That's backing the system right.

E

So the the holders who end up with the share of that's token would then be able to come to validity and or the trust and redeem that for the is.

I

It also tradable, so, if like every single toy holder doesn't want to do this, can they trade it to do someone else? Who then can redeem it.

G

Theoretically, yes, but even I mean yeah and I think the short answer is yes, but it should be pretty straightforward for a keeper to simply redeem for the equivalent amount of dye and so I. Imagine that that's what most keepers would do, but theoretically, yes, well.

I

In this case, people are trying to get rid of Dahle rather than keep dying. Right now is no longer stable in this novel says: I want the collateral behind I. Yes,.

E

So, in that case they would come to us. We would have the Treasury sitting in the trust. We would liquidate the Treasuries and be able to give them back US dollars as an example. Okay,.

B

Okay, thanks and if, of course, fluidity, isn't a going concern or is bankrupt for some reason or requires or is required by some government or some entity to do kyc on those users. Then the event of global settlement. Every dive holder would have to find a way to transfer that guy to somebody did have access to the ability to redeem, because you would not retain the ability to redeem that guy. At.

D

The same time, there's also a different scenario: where die holders instead of freaky mean for underlying collateral, can just sell their die on an exchange for their desired collateral and then they're, really the ones who actually do the redemption of die. 400 collateral or might be like the bigger keepers or kind of established kyc entities who have a lot of float. Who like have the capacity to to actually like deal with that. But again, like it's kind of conceptual I, don't know how it would work in.

I

Practice so that's kind of what I'm trying to confirm is the token fumble like it can kind of be traded between uses yeah.

F

There would be no transfer restriction, so the keeper were to acquire that and then, let's just say in the rare event, that Flutie was insolvent, then if they wanted to transfer that to someone else who then UK I see process with the trust and redeem those for the proceeds they give you death.

A

Great just don't look firm, the trust is a separate entity from fluey completely independent or a winger. It's.

G

A totally separate entity and it's a chartered Trust Company, so it has a charter that is essentially the same as a banking charter. So the highly regulated and sheltered from.

A

D

H

Have a quick question: my my internet cut out for last five minutes, so this may have been asked already. So from my perspective, it seems like the majority of the questions are generally regulatory in nature. That kind of the risk aspect of the underlying ask the treasury's is pretty well understood.

H

It's been assets has been trading for quite some time, so my question is: what are your guys's thoughts and the communities as well on bringing in some independent legal focused risk teams to to kind of evaluate the structure of the whole process and kind of put some answers to some of these questions? I'm, obviously, I'm sure you guys have done enormous amounts of due diligence on this, but how can we bring in some I guess, third party external counsel, to kind of help evaluate with some of these? Some of these questions.

G

Yeah, it's a good question, I think. To some extent the process has already you know: we've gotten a significant amount of feedback kind of informally following the release of the white paper, which has been incredibly helpful in kind of rounding out.

G

The legal mechanics here and in parallel with that, we've also been working with external counsel, on structuring this and getting assurance that it complies with all applicable regulations, but, of course, would welcome further feedback from the community and whether that's just informal or through kind of more formalized legal structures or panels or things like that.

G

Ultimately, we want to get this right and so we're looking for as much feedback as possible. Yeah.

H

Because what one thing- and this is just kind of my impression- is that there's just a fair amount of regulatory uncertainty in the crypto industry as a whole right I feel like plenty of the crypto. Lawyers are just kind of waiting for more guidance from the relevant agencies.

H

To what extent should that risk be mitigated by just, for example, waiting for more clarity or because I mean are there any?

H

What counsel is able to even make the necessary give the necessary opinions or or give any sort of useful guidance for the I'm care community? At this point, I mean.

G

There are, there are pretty significant law firms who are our counseling clients in the space I'm sure you guys know. As far as you know, the risk I think an agency like say the SEC is pretty. They play it pretty close to the best that said, I think there are. They do kind of provide some guidance as to certain structures that they think are okay.

G

We think that, at least with respect to those regulations that this instrument complies with their frameworks and we've also kind of examined this under other regulatory regimes and feel that it complies as well all to say. You know, there's always in any kind of new emerging technology, there's always going to be regulatory gray areas, and so you just kind of you. You develop technologies that sometimes develop and grow faster than the rules do, and so it's just a matter of the rules, kind playing catch-up and evolving as necessary.

G

But we I think have done the best job possible in structuring this along the lines of what the SSC and other regulators have established as their view on this industry, and so you know, there's there's ultimately kind of a balance that needs to be struck. But we think that we've come out on the right. The right side of it.

H

Okay, thanks yeah, so I guess on the heels of that answer: I guess: maybe the community should think about discussing how they can seek some independent opinions from relevant law firms. Regarding all this.

A

That would be an interesting exercise in self-organization.

A

Christmas you had another comment: did you find your mute button? Yet? Did you want to I? Did.

D

I was just I mean to the global settlement conversation with fluidity holding by under normal circumstances that, as I understand it to redeem former cap holders, the fluidity itself would end up with a dive Reserve during global settlement that they would have to cash in and redeem for their proportion of the collateral. That goes through global settlement, which would then potentially be useful for cashing out any remaining tap collateral against the the collateral taken from global global settlement without having to liquidate the trust.

D

So it's not a question. Rich I was just adding to the end of that conversation.

A

It was an interesting addition: listen all right, we're going to talk about governance at a glance, but that doesn't mean we're not going to ask questions.

A

So if people still have some things they want to clarify or the like something occurs to them over the next five or ten minutes feel free to type the question in the chat aura or interrupt us, but I would like to get an opportunity to see what's been happening because I know that there's a few interesting things happening in the government's world right now so tomorrow, if you want to go yeah.

I

Sure, okay, so open to many new discussions this week the main one has been around stable goings as collateral, so yeah. Well that wanted to derail things too much. There's been some discussion on that room sheds some sell his thoughts on the value of still opposes collateral and basically useful for market makers, and a couple made some comments on the downsides.

I

This is all sort of tied into the TUSD onboarding application, so the other discussion has been continuing. Is the discussion on the DSR and their shell values that Cyrus prompted last week, this blog post?

I

So again, just everyone's talking about that trying to figure out where we should start the s are generally people seem to think between zero and five percent, which is a pretty big range, but I'm sure will narrow it and certainly other interesting, interesting things that we're going on are the signal requests threats, so the exponential rate setting threads is to looks like an end. It looks like that's moving on chain soon,.

A

I could I was hoping that you would do it for Mila. Here we go, there's a there's, a very long thread, a lot of interesting things happen.

A

There I were kind of slightly out of time, so I'm going to dig up a link in one window, I'm talking another one for people to review, yeah, there's a summary I posted in that thread about the the journey that we went on over the last couple wants to get to the decision to introduce an exponential rate stepping to the stability feat, there's some interesting takeaways that we could possibly derive from this around levels of debates.

A

What we feel adequate consensus actually is: how do we measure majorities all kinds of other interesting, our exhausting philosophical questions that we've been wrestling with for a long time now, so it's worth a review. This short version of this story, though, is that the community has self-organized established process, pulled, debated and come to a conclusion, which is amazing, is it's actually astounding so what's happening now? Is the forum poll succeeded?

A

The contents of the governor's poll has been determined and it's now in the queue so on Monday maker token holders will have the opportunity to change the way we determine and with the way that we pull for stability fees in the future. It's no longer linear from negative 4 to positive 4 of the current stability feat. It is exponential, so people will have a range from a belief point to 5 up to 4 to alter the fee every time, so it it gives us a finer-grained tool for adjusting stability fees.

A

It gives us the same latitude that we have the existing linear world that we lived in and also- and this is what I'm most excited about- gives us the opportunity to get rid of that 0.5 off the stability fee. This it's a lot of typing week after week after week, so perhaps the community will align just to like clear up bring up the floats that we have laying around in these government systems. So that's the takeaway there we have. The community is also applying this same work ethic to the Acadians question. We have around stability.

A

If you do, we need to vote every week on this thing. Community is discussing that now and there's a new thread in the forum. I would encourage people to take a look at and make your voice heard. Yeah.

I

So, just just a bit of an eye on that. There's currently I think four days left, unlike the initial stage and like currently, it looks like people want to maintain the current cadence if you're one of the people that believe strongly that we should move to two weeks or three weeks or a month or anything other than one week, I go to that threatened vote and like discuss and share and try and convince people that that we should go to two weeks because I've always nothing.

A

We're still in this process of figuring out how much debate is adequate and that's a hard one. There's no algorithm for determining that kind of stuff, so we're feeling it out whether we, the community, we, the Royal, we arise at the decision. That's everybody gets a week to figure this out. If you you missed that bus, then it's too bad. It's going through the Horde Governance portal. Anyways, that's one world because live in the other.

A

One is maybe, after the conversations tail along our tail off long enough, somebody can stick a fork in and then we we start the countdown time where there's only one week left to complain. So there's there's interest and questions that still need to be answered around. How much debate is enough. How much consensus is enough? How do we determine whether consensus exists? How do we adequately pull for opinions? How do we there's all kinds of lots of them? There's an interesting question still to be answered.

A

So, if you're interested in the future of maker doubt if you're interested governance, please check out those two polls and gave all to the signaling process is going to have some outside effects on the future.

I

There's one last one last request which I created so that's referring to the debt ceiling, so this coin I came up before and we discussed it a bunch. This sort of before we figured out a little more concretely what the process should look like.

I

Basically, a couple people have said both in the forum and in the chats that it might be good to do a formal sort of discussion and see no requests relating to increasing the debt ceiling, so I put that up in the forum. So if you have an opinion on that, then go-go shirt.

A

Yes, another that's another slow, current conversation that has a tendency to disappear and reappear depending on market forces but and another potentially earth might be too dramatic, significant heavenly shadow, significant significant question: the Qt needs an answer about how much die we allow to have in circulation. So that's an opportunity for people that to speak on that as well. All right, thanks smoke was on those greats standard reminders, apply, join or I'm standing all the governance. If there's any more questions or fluidity, we could give people 30-second window to make themselves heard.

A

Otherwise I think it might be a good point to wrap things up.

A

Yeah, okay, it's good to read things that sexuality for joining us. That was great thanks. Vishesh I think you probably left the numbers. I said: walk for wisdom for parents in a glance and thanks everybody for joining us. That's a great phone yeah.

D

Thanks I really.