On the MakerDAO governance and stability fee increase

Editor’s note: the following week (3 8) after MakerDAO will improve the stability of the currency stable fee DAI to 3.5% DAI, due to the current price is still below $1, MakerDAO is considering a fourth increase fee. Contrast, the author Matteo Leibowitz through observation and description of this week’s MakerDAO governance and risk conference call, puts forward the existing MakerDAO current governance problems; Matteo also pointed out that the direct impact of the cost of raising the interest rate for DAI price stability is not obvious, the current continues to increase stability fee is not desirable.

From the original the block, author Matteo Leibowitz, compiled by the Odaily reporter for the daily planet aloe, reproduced please indicate the source.

 On the MakerDAO governance and stability fee increase

(March 15th MakerDAO governance and risk conference call)

This week’s MakerDAO governance and risk conference call meeting is more urgency than before.

In the past few weeks, the etheric Fang generated $Dai price stability pledge has been less than $1 based on the result of MakerDAO shareholders to be stable fees average interest rate increase of 2%, reaching 3.5%. This is the five time to vote history center of credit institutions short, a stable rising cost of the highest.

Start a conference call to discuss the process of governance. As an autonomous organization to the center and digital cooperatives, risk MakerDAO parameter change proposal must be voted through to a wide range of community.

MakerDAO governance can be divided into four different processes:

1. weekly conference call to move, and to discuss and debate between conference call participants. In most cases, the motion is put forward by MakerDAO in the selected risk management team.

2. if you have a broad consensus on the motion or interest, discussion will be transferred to the social media channel is mainly Reddit– there can be further analysis and debate.

 On the MakerDAO governance and stability fee increase

Source: reddit.com/r/mkrgov

3. then moved to polling, this is a portal through the portal, MKR Chibidaigou (MKR is outside the MakerDAO system DAI management type tokens and utility tokens to pay loan costs as well as the representative of the interests of management system) can be secured by tokens to support motion or default status quo. The polling process lasted three days, but can be adjusted by voting.

 On the MakerDAO governance and stability fee increase

4. if the motion by polling, it will enter the final stage – executive vote. Similarly, in order to make new proposals by MKR, Chibidaigou to vote through mortgage tokens. Executive voting is a continuous process of voting: in order to make the new proposal is adopted, it must be more than before the proposal by the votes.

 On the MakerDAO governance and stability fee increase

Source: vote.makerdao.com

A stable average interest rate increased by 2% of the fee proposal, at the beginning of the vote after 10 hours 27 minutes passed, a total of 98169.27 MKR (worth $65 million 770 thousand). In such a short period of time, able to coordinate and gradually through the important parameters (mean increase rate), this ability should be considered as a decentralized autonomous organization victory. After all, with the continued growth of the Maker economy, and the stability of the DAI more and more affected by exogenous factors, the ability to act quickly is crucial for the success of the system.

But if, upon closer inspection, the governance process there are still many shortcomings. The chart below shows, only 9668 MKR holders in the 37 address vote for a rate hike, 57% MKR in an address. It is worth noting that the MakerDAO development fund has promised not to vote, and the second MKR holders a16z has not adjusted its hosting solution, in order to support the vote from the point of view of technology.

 On the MakerDAO governance and stability fee increase

Source: Richard Brown MakerDAO, director of community development

A low turnout can be interpreted in different ways:

1. perhaps the most important is that some symbolic small voters seem indifferent. In fact, apathy is often considered the main reasons for the low turnout.

A hold only Chibidaigou small MKR is for or against, to a great extent for the proposal is of no great importance, if they think their stock is not enough to have any significant impact on the voting results, they are unlikely to participate in.

This indifference is particularly serious in the MakerDAO ecosystem, the top 100 account has a total of 91.52% tokens.

 On the MakerDAO governance and stability fee increase

Source: Etherscan.io

2. of the vote in the MakerDAO Management Portal (Governance Portal) in mortgage tokens. In the occasion of mortgage scrip cannot be transferred or sold, so voters to participate in the cost of liquidity management. In addition, and will save the token compared to the cold wallet, token mobile portal to governance may bring some degree of risk platform.

3. to the center of the stable currency monetary policy is not a particularly simple process, so if many MKR hold people think they are not eligible to participate in the decision-making process, it would be not at all surprising.

Two – 4. yuan property vote will stabilize premium rates 2% or 1.5%- may remain for some support for stakeholders or increase slightly unattractive.

As pointed out by the conference call that MakerDAO is still in the early stage of its life cycle, the governance process may be adjusted in the future to adapt to these factors. In fact, an underappreciated aspect of MakerDAO is similar to DAO structure: so far, significant growth and success of Dai makes many people forget the project is the first large-scale operation of the system in a reasonable decentralized manner, one share one vote.

The factors listed above, including apathy, difficulties, lack of information and a series of limited choice dissatisfaction and other factors, will affect all official elections, is particularly important in one vote system. With the continuous adjustment of MakerDAO governance process, block chain project formally implemented chain governance structure should careful attention to the validity of MakerDAO is difficult, and subsequent remedial measures.

In a conference call staff made four changes, these changes or may reasonably increase the voting rate:

The 1. vote of economic incentives. May take the form of inflation: reward voters, or for those who do not vote for procedural cuts: final results are actually the same.

2. the establishment of an application, the upcoming poll MKR holder, and update the latest results regularly.

3. according to each proposal to provide experience for driving.

MKR 4. allows holders without betting its tokens can vote, so as to avoid the cost and reduce the risk of gas platform.

The five change is not mentioned in the conference call is the “governance and risk dialogue” is extended to more than per hour per week, in order to further analyze the problem at hand. At present, most of the people to participate in the conference call are directly or indirectly related to MakerDAO, which means that it should not be a special time limit. Of course, with the continued growth of the ecological system, two hour telephone conference to become less sustainable, and stakeholder growth also presents a logic problem: for example, 5 thousand people or 50 thousand people, and how to participate meaningfully in a telephone?

However, as the founder of MakerDAO Rune Christensen points out, the percentage of participation is not necessarily accurate evaluation index system of the governance process of success, because malicious behavior is not determined by the proportion of voters. In theory, a proposal to most by stability but will eventually damage DAI.

On the contrary, the governance mechanism is the most important emergency shutdown, when triggered, it will paralyze the entire system and return the Ethernet Dai holders. Emergency shutdown must also vote by the MKR holder although it only by a few people and is expected to activation threshold will relatively low. Therefore, perhaps the focus should be from the low turnout, to ensure that there is always a sufficient number of voters ready to oppose “bad” governance is more important.

risk

The talks continue to evaluate and enhance the stability of the cost effect, the risk management by MakerDAO director Cyrus Younessi presided over the discussion.

Before the beginning, it is worth noting that the expected effect is stable fee increase is also increasing demand for DAI and reduce the outstanding loan, because of the increased cost of debt (CDP Collateralized Debt Position, to encourage mortgage holders to purchase and warehouse) DAI to end their loans with it in the market. If successful, the enlargement of the demand and supply of atrophy will push DAI’s price rise to $1.

Since the interest rate hike, DAI supply increased steadily over the past six days rose about 0.82%. In the past couple of months, DAI rose 30.07%, an increase of 3.57%.

 On the MakerDAO governance and stability fee increase

Source: mkr.tools

At the same time, comprehensive data from eth2dai and 0x relay network show that since the March 3rd low of $0.94 since the price of Dai has been steadily rising, the two network is considered to be the most active liquidity pool (except Uniswap).

 On the MakerDAO governance and stability fee increase

Source: Vishesh Choudhry

Unfortunately, due to a variety of external factors, it is difficult to separate the quantitative measure to improve the effectiveness of stable fee. Although there may be speculators and CDP holders in the expected DAI will return about $1 up, but DAI increased the supply of outstanding loans that have a direct impact on the stability of DAI did not increase.

There are two other possible explanations:

1.DAI price is mainly led by ETH, and ETH in the past week fell lead to increased demand for DAI. When do you think the CDP use case is overwhelming leverage to do more etheric, this argument is compelling: if the etheric fell, then linger for a long time people will sell their etheric, on the contrary, when the etheric rises, speculators will sell their DAI. This confirmed this view, reveals an inverse relationship between ETH / USD and DAI / USD activity price.

 On the MakerDAO governance and stability fee increase

Source: coinmetrics.io

2. / Choudhry volume weighted average price chart shows the volume decline in the past week, which means that the effect of relatively small transactions will have a disproportionate price for DAI. Therefore, MakerDAO stakeholders should avoid the recently concluded price activities.

 On the MakerDAO governance and stability fee increase

As mentioned earlier, in the DAI below $anchor exchange rate, currency policy dilemma, there are two other indicators can more accurately reflect the effect of stable fee hike:

1. perhaps the most accurate indicator is seen as business and OTC DAI stock market. When the market net selling more DAI, DAI inventory relative to ETH higher, on the other hand, when the market net buying more DAI, DAI than ETH lower inventory. Report on behalf of the Makerdao foundation and Wyre Capital Trading Department said, since the interest rate hike, inventories remained basically unchanged.

As discussed the conference call that establish a zero knowledge method may be favorable for MakerDAO, through this method, the market maker can share the accurate data, but do not have to reveal their exact location.

2. the second value index is DAI in different loan platform lending rates, can form a comprehensive reference rate, the temporary name “to the center of the agreement between the borrowing rate” (Decentralized Inter-Protocol Offered Rate, DIPOR). The loan interest rate varies with the supply, therefore, in this case, increased borrowing rates should indicate that the decline in the supply and stable charge has been producing a desired effect. On the contrary, DIPOR is low indicates that there are still a lot of supply, so the stable fees need further adjustment.

Some conference participants said the submitted data suggest the need to consider the fourth cost increase stability. I do not agree with this assessment.

The interest rate should produce a large number of transactions can be based on, since the last interest rate hike, it is too early to determine their impact. “The rate hike will immediately affect the demand for DAI” this is wrong: if you think the median CDP loan is 500 DAI, the rate of increase of 2% stable fees will only lead to additional costs 0.19 DAI per week. Expect CDP holders to spend some time to feel the effects of any interest rate is reasonable.

 On the MakerDAO governance and stability fee increase

Source: Placeholder Capital

Of course, any fee hike must stable by voting and execution of voting. In theory, those who do not agree with the MKR mortgage holders can vote for status tokens. In practice, the new proposal as Schelling point (tendency in the condition of no communication of the people in the game theory), its existence seems to make its effectiveness legalization. As Christensen said in a conference call, the voting process is actually a process rather than a decision-making process, so there is no strong opinion but still willing to participate in the voters may be the latest proposal to attract.

So far, there is no new poll. In the next week, the discussion on the MKRGov web site is likely to continue. For those who wish to develop a strong MakerDAO s monetary policy, I encourage you to share your thoughts and feedback there.

Recommended reading: MakerDao analysis of stable fee standard

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