MakerDAO Endgame - Lucas Manuel

Transcript

[Music] wow that's actually so dope that just three people just came up to speak about Community feels very organic um to to be able to host so many people so um next up we have Lucas manual there you are um Lucas manual is currently a senior smart contract engineer at Phoenix labs and Spark protocol and working on the very fascinating field of tokenizing real world assets he's got a ton of blockchain experience from Ernst young

to maker Dao to Maple finance and now at spark protocol he was also the founder and chair of Queen University's blockchain Innovation Community where he became involved in the Grassroots movement among the students that developed a rapid interest in the space in 2017. I love the student involvement in the blockchain space he was gracious enough to accept the speaking slot as of last week so uh yeah and the title of the talk is maker Dallas endgame and Spark protocol so without further Ado Lucas manual what's up [Applause] all right hi everybody thanks for coming

out all right so today uh I'm gonna talk about spark and end game but I'm mainly going to focus on maker Dao uh endgame so I'm going to give an overview of it um today I'm going to give an overview I'm going to talk about the problems that maker.n game is trying to solve I'm going to give an overview of sub-dos I'm going to talk about Ai and governance the new allocation system that maker will use the tokenomics of the new system and insolvency protection in the new maker Dow so what is endgame uh endgame is a major update so I'm going to call it an overhaul to the maker Dow system

designed to enhance efficiency resilience and governance participation so maker Dow has been around for a while in defy they've grown to manage massive amounts of capital and have had a lot of members join their governance system and has operated as a dow for a long time and over that time there have been some problems that have Arisen four main problems that end game and is aiming to solve is high complexity and governance voter apathy politics and growth so I've witnessed this firsthand the maker Dow governance process has become increasingly complex over time there's

been you know over a hundred maker Improvement proposals the whole system has become very esoteric and less and less people understand what's what's truly going on in the system voter apathy is another problem so due to the fact that mkr voting and governance is on chain as well as this esoteric nature of this like highly complex system a lot of people have just decided to stop participating in governance which is a is a big issue um and another thing is that since it's a very large single threaded slow-moving governance system uh in order for entities to get funding to work on maker Dow they have to form relationships with people and a certain degree of politics

arises within the system and no one is a fan of that so the the new structure aims to address that and the last problem is growth so the main goal of maker Dao is to sustainably and scalably distribute dye to as much people as possible and a recent way that they've been trying to do that is it through real world assets and the single threaded like really slow moving governance system has made this process of onboarding real world assets and making real world deals very difficult and very slow and just introduce a lot of friction so it's been harder to scale die to the place that it

needs to get to so now I will talk about sub-dos so sub-dials are A New Concept that will be introduced under endgame and so subdo is basically what it sounds like it's a dow that will operate under maker Dao it will have its own governance token and community and it will operate as its own Dao but it does have oversight from from maker and the idea behind this right is to have a maker core start to become this extremely simplified immutable ossified core governance system that is very simple and everything that is more complex and evolving and requires more

thought and complexity will be delegated to these multiple sub-davs so these sub-dials will start to have they'll naturally form and they'll have a highly aligned and specialized communities that share a common Vision this is one of the things that was really tough in maker was it's it's such a massive ecosystem with so many participants that it's very hard to get alignment and move forward towards a common goal but with these sub-dials people can can group together in what they want to accomplish within their own vision of Distributing dye and can go and do that and they can go and do that and actually compete with each other and continuously evolve together and actually improve together over time

and the idea is that the best sub-dials will get the most allocation of dye and will grow and will become the most successful so it'll be continuously evolving they'll be competing with each other so there's going to be two types of sub-dials to start they'll be facilitator sub-dos which will facilitate governance provide arbitration and scope Frameworks but the one that I will be focusing on for the rest of the presentation is allocated as so allocator does are going to be managing a portion of the maker Dow balance sheet and we'll be managing this in a diverse portfolio so they'll be generating revenue for maker core but they'll also be generating revenue for their own

sub-dial so how this new system is going to work is maker is going to lend die to all of these sub-dials at a common base rate and each of these sub-dials will take this capital and allocate it into defy into rwa they can Market make die they can do whatever they want you know within reason maker governance has oversight um but the point is is that they keep the spread above the base rate so this is a really key concept is maker is happy to lend out die at a lower yield in order to have a simplified safer system where they're only managing a very small set of borrowers which are

the subdials and in reward for doing that these sub-dos are able to allocate that Capital as they would like and can keep the spread so they they're all going to compete with each other to generate the best risk-averse distribution of dye and eventually the plan is to actually remove the existing CDP mechanism out of maker so this will actually entirely delegate any decentralized collateral borrowing outside of the core maker system so that the only people or the only entities that are borrowing die out of the core maker accounting are actually these sub-dos so you can see it's a massive massive simplification of makers accounting instead of managing

thousands of cdps that can be you know are governed by oracles and can be liquidated and it's you know highly complex system with a lot of moving parts and moving positions the maker core system will only care about each of these allocator dials and just making sure that these are all safe um so before I go any further I have to mention that maker will be going undergoing a Rebrand so uh over you know the last couple years we've noticed that mkr and I largely are treated as two separate Brands by newcomers to the space they treat them as two separate Concepts and so we look at

um end game as an opportunity to introduce to introduce a new cohesive brand that can unify the governance token and the stable coin so that people can come in and understand what's going on basically immediately it's really important to understand that dynamcare will not be altered in any way they'll continue to exist on chain and perpetuity and and will serve their original uses so going forward in this presentation I'm going to refer to die as new stable and mkr's new governance token so NST and ngt so the next thing I'll talk about uh really quickly is AI and governance so

as you guys are all I'm sure well aware there's been a massive explosion of usage of AI technology in in practice and so one of the things that we wanted to incorporate into endgame is leveraging large language models to increase accessibility of information for governance participants and lower the barrier of entry for people to participate in governance so like I mentioned earlier governance and makers become like a highly complex esoteric sort of ecosystem of actors but incorporating AI into the system will allow people to come in and feel like they can participate very quickly and this is really important because the more people that you have involved that

understand what's going on it actually reduces the possibility for corruption Whenever there is a system where very few actors actually understand what's going on there is a possibility for them to behave in a way that's beneficial for themselves but not necessarily beneficial for the broader good of the system um so having this impartial actor that has a focus on the public good of maker uh kind of facilitating different interactions with the governance system uh we'll we'll just massively improve governance and and ensure that a lot of checks and balances are put in place all right now I'm going to talk about the allocation system hopefully the font is big enough here but what you can see

is you've got the maker core engine you've got the allocator Dows and then you have different places to allocate funds so each of these allocator Dows has the permission to Mint NST and then allocate it they can't mint you know a trillion NST in one shot they're you know rate limited by the maker system but they are able to Mint NST at will and deploy it so you can see here I've tried to demonstrate that each of these allocator dials are allocating the NST to different strategies so some of them are like Market making NST usdc on univ Swap V3 some of them are swapping into usdc and deploying into U.S treasuries in the existing you know monotalas coinbase

custody block tower structures allocator Dow 3 is deploying into spark land and providing uh a venue for people to borrow NST against their decentralized collateral much like the existing maker system and what's nice about spark is that the existing CDP mechanism in maker is um was developed a long time ago and it's as you guys know it's like isolated for each position and so one of the things that as a user I really wanted was to be able to borrow um collateral or sorry borrow Stables across like a portfolio of collateral which Ave offers but one of the things that Ave has that I didn't necessarily

like was the variable interest rates so this accomplishes both by lending at a constant rate to spark spark has a constant rate that's like very predictable and only changes with maker governance um so yeah this is how NST will get deployed throughout the defy ecosystem and I added you know your protocol here because uh anything can be considered um so the the reverse of this right when when we want to reduce the supply of dye we can just claim back from all these positions but what I found really interesting is every quarter the profit from all of these positions will be collected in maker Court like

they'll be continuously connect collected into maker core but what will happen is every quarter maker core governance will go back and retroactively evaluate the each of the allocator Dows actions over that quarter and will apply Rewards or penalties given on their actions so each allocator Dao is given a specific set of rules so Capital requirements there's like certain rates that people pay for holding idle Die For example stuff like that they will the maker core governance will go in and evaluate all of this blockchain data from a whole quarter and will keep the funds that maker core will

take from that but they will reward the spread and any rewards and apply any penalties to the allocator desk so the allocator Dows will earn this uh the source of revenue from that so this is really interesting because yeah maker core can influence how these allocator dials behave by applying these these monetary rewards and penalties all right so now I'm going to talk about tokenomics so to start so first of all ngt will now have the ability to expand the supply continuously this will be really important for growing the subdial ecosystem so to start we're going to just have a very simple mechanism which is a constant issuance of ngt to each of

the sub-dos this is to encourage this is the bootstrap their ecosystem to incentivize participation to allow these subdives to compensate developers and contributors and all this kind of stuff um but what's really cool is the next phase so um the next phase is is maker core will allocate ngt on a weighted distribution according to how much Junior Capital each of these allocator Dows has posted up so this junior capital is denominated in what we call Elixir so this is ngt NST univ2lp positions

so this is seeding liquidity for the ngt NST tokens and holding those LP tokens as Junior Capital so each of these sub-dials have a junior Capital requirement that's enforced by maker core but this is actually going above and beyond and going above those requirements so in order to incentivize that behavior maker core will proportionally reward each of these sub-dials with ngt tokens according to how much Junior Capital they have posted up so to make this diagram simple I kept it in ngt tokens but will at what will actually happen is for each of these sub-dos there will be a token valuation that's performed by maker core

so whether the token is overvalued or undervalued the subdow token the maker core governance will perform a different action for each of the subdas so in this example allocator one is overvalued so we're using the proportionally minted ngt to buy unit ngt NST univ2lp positions or Elixir tokens and just basically sending those directly to the allocator down if the allocator Dow is undervalued which it will be for the majority of its initial existence the point is for this action to happen for a long time until this action happens the

ngt will be minted and will be added as liquidity for sub Elixir which in this case is four I'm just calling it four sub Dow token ngt uniswap v2lp position so what happens is microcore Will mint the ngt by this LP position and then actually burn those LP tokens so they're they're buying the subdial token Market buying the subdial token to help increase the price seeding liquidity for it and then adding like basically permanent liquidity because they're burning the lp tokens all right and then the next thing that's happening that's exciting is uh sub dial farming so each of these sub-dos will have a fair launch which means that

there will be no pre-allocation of any of these sub-dot tokens so any Founders or VCS or anything like that it's all starting from zero each of these subdials so users that stake NST into each of these Farms will earn the respective subdial tokens proportionate to their position so what's really exciting about this is anyone can come in at the ground floor of any of these sub-dials and actually have a seat at the table of their governance because they can come in and actually you know put in a large stack of NST and earn like a significant share of the sub that tokens and be able to influence governance so that's that's very exciting the next thing is these subnaut tokens

will then be able to be used to farm ngt so these subdial tokens will have a value for for two reasons right off the bat first they will be able to have inherent value because they can Farm ngt which has a previous value they will be continuously earning ngt from maker core and they will be continuously earning large amounts of revenue from the spread of allocating allocating NST so each of these allocator dows will be managing very large portfolios and keeping the spreads and then earning

revenue on that all right so this is my last part which is in solvency production so this is one part that I really like about this new system it's a lot more resilient so as I mentioned before the current maker system with cdps has thousands of positions with highly volatile collateral with oracles to dictate when to liquidate the funds and we have to rely on the defy ecosystem to liquidate that capital uh what's really nice about this new system is that maker core only has to worry about four borrowers and continuously monitor their position and if maker core deems that they are

getting into some risky uh territory they have three they have two uh layers of protection before they get to the core assets first is the junior capital so maker core if they deem that the debt is higher than they would like it to be based on their assets they can come in and liquidate the allocator Dow's Junior Capital position so they can seize their usdc sees their eth sees their Elixir tokens that they'll definitely have and then convert that to NST to pay off their position to reduce their their exposure that's the first line of defense the second line of defense is equity liquidation so this is really

interesting because um maker core has the ability to Mint these sub-dos governance token and sell that on the open market to get to get NST to uh to cover that subdot's position so this is a very scary diagram for governance token participants right because as a large governance token holder the last thing that I want is for maker core to dilute me out of my position right so this heavily heavily incentivizes all of the governance participants within each of the subdials to allocate NST very conservatively because the last thing that they want is

an equity liquidation that would wipe them out of their position and then if you have a situation where you've exhausted all of the junior capital and have literally minted you know infinite governance tokens and completely exhausted the entire market cap of the governance token then maker core can seize all of the assets and then deal with them internally um so this is you know a very unlikely scenario because of these two initial um protections but this is the last thing that would happen all right so why am I excited about this so there's four things first um there is really a lot of reduced

complexity in the core system so moving the complex decision making to these like specialized fast-moving highly aligned sub-dos and Distilling the usage of maker to what it's good at which is you know minting stable coins at a highly at a really low cost of capital and managing tail risk and just managing the solvency of the of the core system um I am excited about increased governance participation uh like I said before it's fair launch for all these sub-dials so there's really a unique opportunity to get into the ground floor of these sub-dos and participate in a governance ecosystem that will be managing very large portfolios of capital very quickly

leveraging AI to reduce the complexity and increase the auditability of the system I think accomplishes two things it gets more people involved and it keeps the system more honest which is really important um reducing the responsibilities of maker core governance and just focusing on the crucial Core Concepts I think will be really good for maker core as well I think you know anyone in in core governance will agree like makers spread very very far and wide and thin uh currently with their governance system and having them focus on what they're good at is what's best third thing I'm really excited about is increased system resilience so having this junior capital and having this

valuable sub-dot Equity uh protecting maker core from insolvency is is really um just a very good thing uh having to make a core system accounting vastly simplified I think is also really beneficial makes it much easier to audit and much easier to understand and what's really great too is having a significantly more Diversified risk profile so each of these sub-dos will each have their own individually managed diverse risk portfolio and the idea is over time to onboard more and more subdas so that it becomes this Rich ecosystem of competing allocated as that are all you know allocating to different

strategies and the last thing is increase scalability so specialized sub-dials are able to move a lot faster make smarter quicker more efficient decisions and allocate capital the competitive nature of these sub-dials will um I think will bring a lot of financial experts to the ecosystem because it's a really exciting opportunity for someone who knows a lot about you know traditional Finance to come in and just really optimize these systems and and beat out other sub-dos and make you know a really big impact in the system reduce governance overhead is a huge thing for allocating Capital to new positions having more streamlined

aligned communities will just allow for much quicker decision making and more effective decision making within each of these subdials which just leads to a larger supply of dye and more adoption of the stablecoin and the last thing I think is that this the Rebrand will lead to Greater adoption for newcomers it will come in they'll see this like unified brand that makes sense to them and encourages them to participate I think it will help realize the vision of dye becoming the global unbiased stable currency all right thank you um here is a QR code if anyone's curious roon um the founder of maker Dow just did a five and a half hour long podcast

explaining and gaming a ton more detail than I just did so if anyone's curious you could scan that QR code right there does anyone have any questions or something a few number of actors

yep yeah great question so yes definitely this will happen in multiple phases um the allocation system will probably get introduced uh first into into governance actually potentially even before sub-dos just to make sure that the smart contract infrastructure is working correctly before introducing into the broader system uh it's it's all kind of influx in terms of the roadmap in terms of like timelines but it will come into a phased approach definitely and then regarding the safeguards yes absolutely like maker core will be watching each of the subdos like a hawk making sure that they're managing their assets correctly and that they're not getting too centralized in their governance decisions basically

yep what do you mean by correlated with the yourself now then like I would need to buy some of this Electronics independent thing yeah so these all of these sub-dials will be operating like their day-to-day

operations will be fully independently managed by their own governance Community they do have oversight but the idea is that the day-to-day operations that make our core governance doesn't want to get involved in will be facilitated entirely by the subdas regarding the tokenomics I'm sure that in the future the tokenomics will evolve then proposals will be made and potentially new new ideas will get Incorporated I I would be surprised if that didn't happen but yeah each of these sub does it is intended to operate individually so that they're competing with each other so you have the three Swiss cleaning assets I'm sorry for the junior capitals I was curious how you can guarantee like

the assets are seasonal or it seems like they can be applied variety of positions mark yeah so it's not going to be more of just supports like the other two or is there yeah so the the hardest sort of um I mean first of all everything will be able to be facilitated on chain regarding the like accounting of the positions so the subdas will manage all these different assets and they will be seizable on chain um the liquidation of the assets um like real world assets will be performed um by the the relevant entities under maker Dao um but I yeah I don't see any any situation where the assets wouldn't

be seizable because it would be like encoded into the smart contracts that would be possible I hope that answers your questions representations yeah yeah that's true anything else um no theoretically there could be you

know 100 sub deaths in the future um the more after a certain point the the more sub-dials the better um for maker because as long as they have functional decentralized um you know efficient Dow structures um maker core benefits from the diversity of having many subdas so it's in the best interest of make a quarter facilitate the launch of new sub-dos uh we're starting with four is the plan um and then we're really gonna I think we're gonna let the tokenomics mature and like you know get put into practice and grow out the structures

um but I I do hope to see you know 30 40 sub-dials Someday I'm not sure on what time Horizon that would be but I think I think it's possible and I think it will happen um the it's a good question so the um the engine like I guess what do you mean like the um they're generating the most Revenue yeah yeah I should have I should

delineate the sub Dow from spark so spark will be um a protocol that subdials will allocate to um so spark will be operating as an independent D5 protocol and the ngt emissions will go to the sub-dos that can generate the most revenue and hold the most Elixir tokens so they'll each be competing with each other they can all allocate spark the um I think what you might be referring to or asking is like like yield farming into spark that that remains to be seen that there could be some deals that get worked out between the subdivs and Spark um to kind of facilitate that sort of thing um that it honestly remains to be

seen but um the idea is that um the the best risk-adjusted returns will sort of converge and the sub-dials should scale at like roughly the same rate because there will be sort of obvious options over time to go into like like treasuries for example anyone else all right all right thanks guys all right one more round of applause for

our two speakers David and Lucas today man it's honestly so awesome like my heart is so full just to see all of you all gathered here and it's just yeah kind of very organic and yeah we got a lot of pizza we have a little too many too much beers left still so um stick around Network a little bit and yeah get comfortable um oh is anyone working on interop or cross chain here by any chance yeah um you might want to speak with Corel this gentleman right in front of you um yeah we're trying to incentivize cross-chain use cases uh with the builders program cool um yeah thank you guys all

um thank you all for attending and coming today we'll see you guys at the next one so thank you