MakerDAO’s Growth Strategy | monetsupply and Sam MacPherson

Transcript

[Music] [Applause] [Music] all right everyone back with another really special episode of empire i'm taking this one solo santee is traveling today we've got hexanaugh and we've got monet supply in the room welcome guys good to be here yeah thanks for having us yeah of course of course uh let's jump into just like the elephant in the room i want to jump straight into things uh last week we saw the us treasury add tornado cache to the ofac list usdc freezing related tokens infiera alchemy github d5 front ends and other providers began to censor the addresses now crypto twitter got in this big debate uh about like lower level validator censorship uh sam i wanna maybe start with you to kick this off like what are your takeaways uh

specifically about like how this relates to maker and obviously there's a big conversation around die and should die be you know a lot of the over 50 of the collateral comes from uscc which can be censored uh like what is your take away from this whole situation now that you know maybe you've had a couple days to reflect on this yeah sure um so it's been definitely a new development um so and we're kind of in a different situation now a little bit but i i kind of am the view that this is sort of the first phase of this where uh the u.s in my view has kind of overstepped here um by just blanket banning like a smart contract a permissionless smart contract

on ethereum uh i think it was an overstep and sort of the next step seems to be happening where there's sort of legal pushback on this it like it reminds me a lot of sort of the uh the crypto wars in the 90s right where they were trying to outlaw um privacy uh like encryption and stuff like that for individuals and it was uh ultimately sort of uh like i don't know who exactly maybe the eff i think they were around back then but whoever was like fighting back against it and ultimately they got these uh these like overreaching rules uh reversed um so i think we're gonna see how this plays out i think it's way too early to know like how how this ends um ultimately

like maybe i'm a bit too much of an optimist but ultimately this could be providing much needed regulatory clarity for the space which which could be a good thing in the long run yeah monet what do you think does this change how you just assess risk in general at maker and and maybe even more specifically like the high concentration of usdc within die yeah i think it was uh it was somewhat of a wake-up call because i think the assumption was all you know always that there would be some sort of due process involved in like uh government actions that end up you know freezing usdc on chain particularly in like pooled um tools like smart contracts like the you

know bankers peg stability modules and yeah those kind of showed that that's not necessarily the case so i think that it puts like a more more emphasis on being able to being able to survive essentially until we can get that legal review process started and try and roll back some of the you know kind of government oversteps from opec or from other places yeah i mean how big of a threat do you really think this is there's a lot of there's a lot of panic when this comes out obviously but how monet how big of a threat do you really think this is to to something like die in the immediate term i don't think it's a big threat um i think that it's

indicative of maybe greater challenges over time where like slowly you know kind of the government is going to be hemming in options for what defy cannon can't do so um i think it's like kind of the opening shot it's it's not like an immediate threat but it's pointing towards kind of a bigger battle that we have to come yeah i feel like there are two i feel like there are two battles going on in parallel here one is related to uh sanctioning assets like something like uscc that has gone through something that they don't like which is a tornado cache then there's another side of this which is uh sanctioning uh platforms that they don't like for example uh d5 front ends maybe that they don't like and obviously the important part of

this is making sure that the the the protocol behind the scenes remains open and permissionless um sam are you guys like how do you think getting away from dye in usdc for a second how do you think about just like building front ends that can actually last or excuse me building building pro a protocol that actually lasts where we know the the government might be coming after the front end over time yeah so i i definitely believe in sort of having the core protocol be open and permissionless as much as possible um so wherever there are sort of weaknesses um centralization we need to kind of uh work on that as much as we can to improve that um

in terms of d5 front ends i actually i you know i i don't want them to be blocking people but i ultimately i think it's up to them even the official ones these are more in the realm of legal private companies and i think it's more important to have a a bunch of competition on the edges for providing the best user experience but as long as the core protocol remains permissionless and open and sort of in a worst case scenario you can just directly interact with the smart contracts i think that's okay in my view and one of you guys i don't know who should take this sam or monet can you just explain what the psm is like why it was implemented this was such a a big innovation i would say i think it was

last year in 2021 like why is what what is the psm why was it such a big innovation and then from there we can start talking about some of the the future collateral models sure um i can run over it uh so basically uh let's go through a little bit of a time travel to back when uh dye was launched so multi-collateral dye was launched in november 2019 and basically uh we had a situation where dai was consistently trading under a dollar and that was something we could deal with fairly easily even with as the only collateral at that time uh because we can just raise uh stability fees or raise the uh and stability fees would

basically encourage people to uh buy die on the market raise the price and repay their loans and or we could raise what's called the dice savings rate which is to encourage more people to hold die again uh which would increase the price so that that was a pretty well known uh sort of uh situation and it lasted right up until uh march uh 12th i think it was uh 2020 also known as black thursday um when the price of youth crashed uh about about half in in one day um so in that situation people were panic repaying and people were fleeing to safety so this sort of increased the price of die

above one dollar and really what we had is this excess demand um and we had no tools at the time to really uh put it anywhere so the peg broke up to about a one dollar ten cents um and i think about a month later we introduced usdc as a new collateral type to kind of store this excess demand give people an option to basically short the peg back down so this lasted up until the december 2020 we had usdc on his regular vaults you could use it just like eath um but there was sort of the realization uh it makes a lot more sense to sort of have the protocol on this

usdc and basically just use it as an arbitrage mechanism to uh keep the peg uh at one dollar uh or less so basically the the psm works in such that if die is trading uh over a dollar let's say it's trading at 1.01 um anybody can take a hundred dollars of usdc and then use that in the psm to mint 100 die which is worth 101. and then convert that back into usdc to close the loop and that that is a profitable arbitrage um the same thing happens reverse on the way down when the peg breaks low and there's available usdc in the psm there's an arbitrage opportunity in the

opposite direction so uh basically as long as there's sort of capacity in the psm or uh usdc in the psm we can hold uh the dye peg at a hard one dollar two years later i mean you guys now have what three and a half billion dollars worth of usdc some somewhere around that is this um uh is the the pia is the psm how how's monet maybe about those two how similar do you think the psm is to um like curve stable swap offering um and like curves three pool does that there i've seen analogies i've seen hasu talk about this a little bit how much of an analogy is uh is there to draw there or parallels would there be to draw

there i think um i think a lot of other decentralized stable coins have kind of used curve pools as like their own version of the psm they just they externalize us a little bit so they have users you know own those those lp tokens um and usually they're paying them to to you know put their capital into those lps to provide liquidity um but i think it ends up being a really similar uh mechanism where it provides um a lot of liquidity selling your stable coin if it's above the peg and then buying it if it's below um so yeah i think it ends up being a similar stabilization mechanism but it's um

you know it's external to the protocol so there's an argument that maybe there's somewhat less like censorship risk or regulatory risk from governments freezing it [Music] and the other thing is that it's um it kind of like uh it doesn't hold the peg as hard as the psm it allows the price to deviate a little bit um depending on like the supply and demand of these stable coins so um yeah i think it ends up serving a similar purpose for most stable coins as as you know the psm does for maker but it's um yeah it just has a couple like differences there of externalizing it um

having less of a hard peg but then also being much more costly for these protocols that are using curve as their their source of liquidity yeah all right so let's kind of draw the timeline out here and get it get into what i want what i really want to dig into in this conversation which is the collateral basket and get your guys take on this so end of uh 2019 you guys introduced multi-collateral die march 2020 uh obviously the black thursday price of eath falls like 50 in a day die pushed up to like a buck 12 that day bad for the protocol a couple days later a couple weeks later you guys introduced i think it was actually like a couple days later introduced usdc um you guys introduced usdc 2021 you guys introduced the psm fast forward to today

you've got like three and a half billion dollars worth of usdc in the psm uh a couple months ago it started becoming really really clear and i know this has been worked on for more than just a couple months but became really really clear that you guys were making this big push into real uh real world assets rwas right uh monet can you maybe kick us off here and then sam will throw to you like what what kicked off this this urge uh and this desire to get into real world assets was it a lack of collateral uh was it a lack of cryptocollateral uh which would maybe cap the the scale of of dye or what what was the reason for for real world assets yeah i think um you know over time after after black thursday and we we faced this huge

excess of demand for holding stable coins compared to like demand for you know levering up on on ether and other crypto native collateral assets um i think initially people thought this was just like a temporary sort of market movement but over time it became pretty clear that this was just like an intractable kind of state of affairs of the crypto space more people want to hold stable coins and there's just more demand for stable assets versus you know leverage longing ethan margin um so we we kind of knew that we were never going to be able to meet the demand for dye just purely through people levering on east or even on like rap bitcoin or

other you know staking derivatives or other assets um and then the sort of the situation was we have all this um it's not it's not very risky but on the other hand we're earning no yield on it so it's not contributing to our income whatsoever it's not really compensating for the you know the small amount of risk that it does have and it just kind of provides a much better you know risk-adjusted return and risk compensation if we can deploy these assets uh all this you know billions and billions in the psm into productive uses so um stuff like we've got you know asset originators

that are funding real estate uh investments and you know various other real world assets they they actually do provide a yield to maker which is more than enough to compensate for risk and also you know pay for the protocols overheads um and it just you know basically is just kind of a better deal for maker to deploy these productively to do this though if you start bringing on more and more real world assets eventually you push further and further on the risk spectrum now so and then that gets into why you have to build the buffer as i understand it what do you mean by the uh the risk like what what kind of risk um riskiness of the lender uh just i mean just the basically yeah the risk

profile of of whoever you're giving loans to uh the riskier the lender the the higher the deep the default rate is gonna be the higher the default rate might be meaning means the higher the buffer that you'll need am i think thinking about that in the right way yeah yeah but i mean usually uh what we're striving for is more uh senior positions and usually like over collateralize like you could do over collateralized lending in the real world as well so um getting these sort of safer positions with lower yields is are more of our goal less about sort of uh under collateralized lending and all that kind of stuff yeah and what is the ideal basket of collateral for dye and i'm

curious if you guys agree on this or disagree monet maybe start with you and then go over to sam yeah um i would love to see more um more ether collateral more you know liquid staking uh more bitcoin uh more of those kind of core large cap crypto assets um but i think what we've seen in the past is you can't like draw blood from a stone in a certain sense like we can try and lower the interest rates we're charging and loosen risk parameters but there's just a limit on how much demand there is for people to lever up against those assets so we need to find the right balance with those we can't we can't force the market to borrow from us against crypto

um so i think ideally i'd love to see you know 50 or more in like really um censorship resistant collateral assets but i don't think it's realistic except for maybe in bull markets um so maybe you know somewhere between like a quarter to half and just large cap cryptos um a little bit i think of psm backing so you know the stable coins that maker is holding in reserves i think is a big benefit because it makes dye very liquid and people can be really confident that diet is going to maintain that that one dollar value so i i think that you know 10 to even 20 percent uh psm back team in the long term is

acceptable and and maybe even good um and then beyond that i think there's opportunity in what we call d3m so it's direct deposit modules where we can inject liquidity into other protocols people might not want to borrow you know on maker but they might be willing to borrow on ave or compound so we can supply die into those markets and provide the market with liquidity where it wants it and then beyond that i think real world assets will be kind of how we fill the gap um i'm sort of most most in favor of uh at least while while uh yields are

high with just kind of sticking with like treasuries and short-term assets really low risk really easy to assess um in the long run i think maker will be able to kind of run the full gamut of stuff but it's it's really difficult to uh assess the risk and manage the risk of like private credit investments so um yeah there's there's been some interesting proposals of like uh real world assets that are funding you know big projects like solar farms various stuff like this but they are difficult to really manage the risk and assess if it's a good deal yeah sam what do you think agree disagree yeah that was spot on pretty much my my

collateral portfolio as well nice uh do you so then do you guys think that real world assets are a short-term solution let's so let's say okay what's the total what's the total market cap of crypto today some somewhere around roughly a trillion or 1.5 trillion i don't know the exact number today but ballpark around a trillion let's say crypto the total market for crypto grows to um uh let's call it 20 trillion right the does that mean that the would you still need real world assets as collateral there and maybe a different way to phrase that is like a real world assets just this kind of like band-aid solution uh for collateral that we need until while we wait for crypto to grow to the size that we think crypto

will eventually get to um i i don't think so but i'm hopeful they kind of morph into something that's more on chain first so right now we're kind of having to you like makers sort of on the forefront we're having to push out into the real world and get these deals done i'd like to see more like tokenized real world assets i mean the first one was people don't think of it as a real world asset but all these uh us dollar coins are real world assets right they're just tokenized off-chain uh positions and like cash and stuff like that so i would like to see more of this uh with sort of like maybe the next one is sort of tokenized positions in corporate bonds government bonds uh that kind of stuff um if there can be some sort of

independent provider that puts this on chain and does redemption all that kind of stuff uh and then just has these secondary markets for mon chain this is sort of uh ideal candidates for collateral for maker and it may feel less like sort of the real world assets that we've been doing so far and uh just just a much nicer way to go about it so i'm still hopeful these this is sort of coming in the hopefully near future yeah do real world assets uh what's the advantage that real world assets have over something like uscc right a lot of people are saying move away from uscc because these sanctions are real world assets not similarly sanctionable yeah um i think like playing as if we're like having to avoid these sort of

overreaching sanctions i just think as a non-starter i think we just need to push back on this and you know worst case scenario we'll have to deal with it right but i i i still am optimistic we can kind of work out something that's more reasonable and uh you know not have to plan everything as if we have extremely hostile actors uh from the largest government in the world uh so if we have to fight the us government like i think the space will just be completely decimated and we it's not as interesting as it could be monet what do you think yeah i think i i would agree that you want to be decentralized and resilient but um i think you know

we we don't necessarily need to like plan for like a government takeover apocalypse um i think that uh one of the best things we can do is like try and really build um public support for decentralized money and um yeah it's a much much more realistic way to like try and address these like sort of government risks instead of just saying okay we're gonna you know sell all of the usbc into east or you know some other far-fetched idea like that yeah one of the things i was thinking about i told you guys i'm uh i told i was talking to sam before this about uh ramping up to become a recognized delegate within maker i was trying to think of some of the maybe

concerns i might have with real world asset strategy something that came to mind was um when you lend to real real-world assets like a bank right they're they're probably gonna dump the the borrowed die for for us dollars the the psm can support this right now but as you start ramping that strategy up i'm assuming there's a scalability there i'm assuming that that is capped is there is that a fair concern or that just means i don't understand it well enough or or or this is a concern but there's a solution monet what do you what do you think about that um yeah it's definitely a fair concern um we have you know so much psm reserves right now uh so many stable coin reserves that i don't think it's a very immediate concern like

um if we're able to scale up real world assets enough that we actually start running into that issue that would be a good problem to have the solutions um at that point i think it's you know we can kind of lean back onto our previous peg management mechanisms of turning on the dive savings rate you know creating more demand to bring people in to die to help you know kind of balance that supply and demand if we can get that that much real world asset adoption um and i think it's uh it is it is kind of a new new type of risk to manage though like to date all of our all of our assets uh so to speak like

vaults and such um they all basically have no duration we can change the interest rate on those whenever we want or we can you know kind of incentivize people to repay those whenever and with real world assets that's that's no longer the case you know you have specific agreements generally the rates will be fixed or quasi-fixed so i think it just requires an extra layer of kind of like portfolio management and risk management to make sure you're not overextending on really long duration assets unless you're sure that you can kind of balance that against your liabilities correctly die savings rate just to make sure i fully understand it the die savings rate is the the variable rate of accrual that

you earn by locking it uh into like into the dsr contract the goal was to allow maker governance to influence demand for die through changes in monetary policy if i understand it correctly and it's right now it like said it like 10 or 15 pips one bit yeah one okay one bit it's the token amount right now yeah okay um sam you agree with uh the concern around real world assets dumping for us dollars good problem to have we can figure that out if we we get to that scale oh definitely um you can look at as sort of a flywheel effect right now we have uh like uh i don't know five seven times as much demand for dye as we can fill on the

supply side so that's why we have this huge excess of stable coin backing if we can replace that with more uh useful assets uh as soon as we start filling a good chunk of that we can then forward these earnings on to die holders and start boosting the demand up again where we get more uh stable coins coming in we can transfer those to more productive assets and it just cycles and it's sort of a positive feedback loop do you guys think that um like when you go into new markets like this you you guys are basically gonna need to uh the more the more asset the more physical assets that get tokenized the better uh maker will end up doing because you'll be able to pull those tokenized assets probably into um in into maker as

collateral for for dye as you guys think about you're what you're basically doing is you're creating a new market do you think that it's on you to or do you guys have some sort of strategy to help tokenize assets uh this has been a narrative i remember in 2017 it was like security tokens and we're going to tokenize all this real estate and here we are five years later and it really hasn't happened so do you think that that's almost on you uh or do you think it would benefit maker and benefit die to maybe form a core unit to help tokenize some of these real world assets yeah so maker's sort of been i think one of the protocols that is kind of pushing for this and it's definitely uncharted territory so there's lots of stumbling blocks that we

have to go over um i think a lot of the issues right now is just uh bridging the smart contract world with the legal world and you know i'm not a lawyer but there's i think a lot of people working on this especially now with interest rates rising uh there is a lot more um sort of demand for these types of products so see how sign legal agreements with off-chain entities you're saying is not too easy no it's like uh you know we've been kind of experimenting with with a few things on this regard there's definitely a number of legal structures that we're exploring um but the idea is that like you know once we get this once and it's scalable we can just sort of uh ratchet this up whatever the solution is um and

ideally it sort of provides a lot of safeguards to the protocol so we're still kind of in the experimentation phase but they're starting to be uh like things developing for example like we are extending loans like as of right now extending loans out to uh huntington valley bank uh as well as a society general these are loans going out to uh real world banks and there are legal agreements behind them and all that kind of stuff so there's lots of experimentation going on the the so the huntington valley bank was an interesting one so you've got that 100 million dollar die debt facility are you do you lend to huntington valley bank or are you lending does that pass through huntington valley bank it goes to huntington valley banks customers what does that deal look like yeah so the

huntington valley bank um and i think society general is yeah they act sort of as an intermediary to the end borrower which uh they'll just do their normal bank thing and issue loans out to whoever that is right and those loans are in us dollars uh the end loans i am i'm not familiar with okay yeah i have no idea so you're lending a hun you could lend up to a hundred million dollars and die to hvb and then they would probably convert the die into usd for the for the loans to their end consumers okay interesting yeah so this is sort of the thing about replacing the psm a lot of people say we're just lending out the usdc and the psm but there's sort of just a two-step process to this they'll mint the die and then they'll convert it through the psm and then there's because there's uh

it's easier to redeem large quantities uh through usdc versus uh die so they can get out to us dollars pretty much at one to one yeah interesting um sam you i think did you propose the um real uh real world assets and like onboarding new assets in general ties back to the system surplus like the risk buffer i did you put together that proposal back in what march or april earlier this year was that uh yeah are you talking about the aggressive growth strategy i think there was a proposal talking about how makers should raise its system surplus by a factor of like 5x or more via a debt or an equity issuance meaning i think it was like a 300 or 350 million dollar surplus goal

the surplus was back then like let's call it 60 million 65 million now it's at like maybe 80 million roughly was it was that you i mean i'd love to hear more about just like what is makers system surplus like how is it funded what is it what is it for and like where is it now and where should it be yeah sure uh yeah that was me who put out that original proposal uh back in march i think it was so uh first just a little primer i guess on the system surplus or the surplus buffer um basically uh this is sort of a excess cache that we have around that we can it's there in case of a shortfall event with any of the collateral um so let's say uh eth price drops really rapidly so much

so that we cannot liquidate before certain people's uh positions become uh under-collateralized if we liquidate and it the final position is under collateralized then there will be some uh sort of debt bad debt there that we need to uh recapitalize with the system's total sort of cash flow so uh that the system as a whole remains uh solvent so this is a automated process and uh this that that is sort of the main reason for the system surplus now lately it's also being used to uh pay uh operational expenses um ever since the foundation dissolved um and we are entirely operating as a

dow we have to fund there's expenses to building and you know maintaining the protocol and all that so we have to fund expenses from somewhere and that somewhere is uh the surplus buffer and how we've have we've filled that so far it's been entirely uh filled by uh revenue there has been no um sort of uh cap raise uh directly inserted to that it's just sort of been the protocol running uh for how long it's been three years almost three years now um just the accrued uh interest has been just piling in there and that's uh how we how we built it so far um yeah monet do you think there should be a cap race um i'm definitely uh receptive to wanting a

higher surplus and i i think sam kind of mentioned this as like the the reasoning behind the proposal but if we have more capital then we can afford to take a little bit more risks like right now i think and historically we've been really really focused on not losing money on those liquidations and on you know feel like debt going bad so we might have liquidation ratios for some of our crypto collateral vaults higher than we could um just because we want to be sure that we're not going to end up losing money and putting die holders at risk um so if we can you know raise a lot more

capital and have a much bigger surplus we can take a little bit more risk we might be able to get a little bit more demand for for borrowing out of the market and help shift that that collateral balance a little bit farther away from stable coins and back towards crypto assets um similar logic applies for real-world assets as well where you know if we have more capital we can um you know we can be more confident in deploying assets into into real-world assets without being afraid that we're risking you know die holders money um i think it's um it seems like it's you know politically a little bit touchy within the dow though because

first of all no one likes to get diluted um you know it's people you know with crypto in particular people have like a meme about dumping and it's tough to like convince people that this is an investment in growth and kind of what the benefit is and also there's you know sort of a somewhat delicate balance of power uh for for voters so um if you you know increase the supply of mkr um you know who ends up buying that and where do they align on different sort of like decisions that the dow needs to make um so i think people are um

yeah they're just they you know they're unsure of how that would all work out so it's um there's a lot of moving pieces to like how you raise the capital and what it's used for yeah i want to talk more about the maybe a couple misalignments maybe that in inside of maker but save that for for the end talking about governance stuff um so just to make sure i understand it sam uh and this buffer because i want to really make sure i understand before we move on right now the buffer is like one percent of outstanding die or two percent roughly mental math like one to three percent of outstanding supply is is in the risk buffer right now if you look at traditional banks they would never have a two percent risk buffer they'd probably have a 10 to 15 to 20

risk buffer if you guys increase the risk buffer you can invest in more real-world assets you can deploy maker on other maybe like less not less secure chains but maybe like push a little farther out on the risk spectrum within crypto you can lend to to probably different market makers you can lower the collateralization ratios you can that that that that's the thesis as i understand it for increasing the risk buffer yeah exactly okay um what's your when you guys think about i want to talk about the d3 model when you when you think about maker the last couple of years maker's been like almost very b2c right people go to maker they they deposit they get die um it feels like where makers going is moving from like b to c to b to b or

more like dow to dow as is popularly talked about so you've got the the d3 right the direct deposit die module uh and i mean can you just tell like why this is beneficial for maker and how someone like who's an example of this maybe ave is utilizing the d3 today d3m yeah the uh the only d3m that's deployed right now is the ave one uh but we will be releasing the compound one soon as well um definitely i don't think we should be abandoning uh retail users i think uh the issue right now is that ethereum gas price at least until recently have been like really high so we've just like lost a lot of the retail and and more our customers were like

larger like c d phi type exchanges like nexo and celsius and all them uh so we do want to get uh retail back and so this is why we're our one of our highest priorities right now is getting maker deployed on uh l2s and other chains such that uh the gas prices will be much cheaper people can kind of mess around and get you know dip their feet into defy and use maker directly again so we're there's definitely i don't think anybody wants to abandon but the observation with the d3ms in general is that it's it's just a much more scalable model than sort of having maker try and do everything itself uh it's much better to have these other protocols such as

ave compound and you know there's other like rwa ones like maple and trufy centrifuge et cetera that sort of are highly focused and specialized on what they do best and it's much better to just look at maker like exactly what it is and it's basically to me it is the die stable coin and a credit facility so switching to just being a more high level wholesale creditor to these other protocols i think we'll just scale much better yeah i mean as an outsider looking in it feels like don't reinvent the wheel here right yeah there are a lot of folks who need cheap credit um you need folks who are maybe have a more direct relationship with retail or have

more expertise deal like assessing individual loans maker should stay very very competitive on providing the lowest rates and and innovating on like credit wholesale on the credit wholesale market instead of like trying to assess these individual loans both both inside of like both crypto native loans but also on the real world asset side of things i mean that's an outsider looking in but i agree and i think um our experience too like we we have a really a decent amount of adoption with like large cap cryptos east um state geese uh rap bitcoin um but haven't really seen the same with like small caps or mid caps

stuff like d5 tokens governance tokens um and it seems like people who are using those assets on collateral uh really do tend to prefer somewhere like ave or compound where they can you know they can use cross margin they can actually earn a return on their collateral from people borrowing it um so yeah i think for certain certain types of assets uh it's really a good fit for you know working with these these sort of liquidity protocols like compound and ave rather than trying to go it alone yeah interesting so the so the d3 d3m you guys pick some complex names for these things you guys got to uh i think

stanley picked that name actually i'm like why why why is it a direct deposit dime d3m uh yeah so the way i understand it for ave uh it's been it's it's mutually been beneficial right for ave um the d3m as i understand it generates and deposits this like freshly minted die to the ave to ave's die lending market for ave this is good because it kind of stabilizes the borrow rate um in their lending markets and then for maker you get to distribute die liquidity to different protocols uh or just right now ave but soon sounds like compound and then coming more like two different protocols and chains and l2s it's a source of income because you get this collection of like what is what is the

die on of a a die interest um you get like it just becomes you you increase die's attractiveness essentially for d5 borrowers on secondary markets uh because there's like lower borrow rates so it feels like a win-win for both parties yeah yeah exactly i mean uh really our goal is to just improve the experience for people using die it's not to be the best at everything so yeah this is definitely a situation where it's a win-win in my view if i was running a business that had that where it was really really obvious that the business was going b2b and a lot of the revenue and a lot of the traction and growth was coming from the b2b business and then i had this like existing b2c business and it took up a lot of time and like dealing with the

community and i'm not even talking crypto i'm not talking maker right now like and dealing with b2c uh i would probably think about cutting the b2c business um now is the like why not do that yeah i think um it's because it's already developed we can just once we get on uh these l2s and stuff we can just deploy it for free so i mean why not and i i don't i don't think if it's sort of uh just in general we shouldn't be abandoning uh end consumers uh but like especially because it's not a huge lift i i think we should still you know try and go after those markets and because you know it there's sort of a

a more intangible where like people are when they get started with defy and all that stuff and they're just learning sort of having a positive direct experience with maker can kind of be invaluable in some ways that are hard to measure um so having that available i think there's added benefit there monet what do you think because you got to admit there is an opportunity cost of dealing of dealing with the retail crowd yeah there is for sure um i i'll echo what sam said like my first uh on chain transaction was just testing out a makerbot um and it was uh i didn't like need to borrow money for anything it was just purely testing it out but it was really cool and probably a big part of the reason why i ended up

kind of landing that maker and that's still where i participate most [Music] i also think in a weird way we're seeing a lot of d5 credit protocols they're they're sort of converging back onto maker's general framework of how lending works like if you look at compound v3 um each each of the compound v3 markets um has only one borrowable asset typically a stablecoin and all the other assets are just strictly used as collateral to help like isolate risk and prevent sort of like a cascading collapse of the market and when you think about it that's that's

very similar to how maker works you know we have our vaults the collateral is not borrowable so as a user you can be 100 sure that your collateral is safe even if you know other other borrowers don't manage their risk correctly um so yeah i think it's uh we actually kind of have a winning product in a way yeah um and i think sticking with it makes a lot of sense yeah how did you guys fare during i mean sam you mentioned like some of the folks that you were lending to or um or giving dye to or like celsius and nexo how did you guys fare through through the i mean the biggest uh the the folks who got hurt the most and this is in bear market where have been the lenders uh the block fish and

celsius's nexus and genesis of the world how did you guys fare through this yeah i mean this is the beauty of uh over collateralized lending on chain you can see everything and uh it went flawlessly um i think celsius ended up repaying their loan it was mostly in bitcoin i believe um yeah and yeah that was the end of our business with them right like no need to discuss anything and that just went on their way so it's kind of the beauty of uh d5 right do you think you should do you think that's the right model though should you never be losing money on liquidations like shouldn't you as a lender occasionally doesn't that mean you haven't optimized your risk for the highest return and reward like shouldn't you occasionally lose money on liquidations

i i would tend to say yes and we're probably you know from the last year year and a half of history we're probably like a little more conservative than we need to be um the flip side though is you never know kind of it's really tough to know what the limit is and and when you're pushing it too far and when it rains you know it pours in crypto like um we haven't seen a true test of the market like black thursday uh in the past two years so um i think we want to be sure that we're we're not gonna you know blow up the protocol or cause die holders to lose money

and um yeah you know i think we we probably are more conservative than we need to be but the flip side is like you never know when you're reaching for yield too much and then it bites you yeah sam what do you think about that agree uh yeah i tend to agree um i think we could probably push a little bit up the risk curve i mean this is part of why i was arguing for a larger surplus buffer because i think we do need to have a like you know losses every now and then i think is is more optimal um but yeah you know it's there's maybe an argument for why die is so popular because we're so conservative people are holding die

to a massive degree compared to what we can get loans out for so that may be because we're just we have this brand of being so safe and conservative and stuff people can really trust hold and die uh let's talk ave for for i want to talk about this trend of everyone releasing their own stables uh you're seeing a a bunch of i feel like in cfi over the last couple of years like everyone starts differently with a different uh kind of niche product like what whether you have a wallet or whether you're like a lend and borrow platform like a block fire celsius or nexo or like you're an exchange you ultimately converge on becoming a bank and you're starting to see this for i mean a crypto bank uh you're starting to see this kind of vertical integration across the d5 stack

now you see like ave releasing their own stable coin frax is working on the specialized amm and like an eat staking derivative and lending product uni bought an nft aggregator osmosis is adding a lending protocol to their chain um i'm curious what you guys just think about this this trend of um maybe we could focus on protocol specific stable coins yeah i can uh hop in on this i think um i think for ave in particular um you know they already focus on lending um so it's actually not that big of a leap for them to also add their own stable coin to a lending market um you know the competencies involved in in managing like a stablecoin protocol and then one

of those like pooled lending protocols very similar so yeah from a certain perspective why not you know they literally they just you know deploy a token and add it to ave v3 and you know they're already kind of off to the races um and then they also have like a captive um sort of like audience or so so they can they can push these integrations out across various chains where they have ava markets deployed so um they have like a little bit of a um a little bit of like a leg up in just like pushing integrations and trying to bootstrap uh usage of their stablecoin um

i think it's somewhat similar for curve who's also uh expected to release a stablecoin um you know they've they've been working on stable swaps from the jump so they have a lot of experience and stable coins and how they work [Music] i think that most protocols though i mean they might find that it's really tough to bootstrap demand you know maker has organically grown sort of use cases for die demand for die uh trust and die over a period of years and years um and we also had the benefit of basically being first among the decentralized stable coins so you know back in 2019 like if you wanted to hold a decentralized

stablecoin we were it um so yeah i think that that'll be probably the biggest challenge for these these projects is how do you figure out who actually wants to hold the stablecoin um is there a way to do that without just kind of having like massive token incentives and dilution that's gonna harm your own core protocol sam what do you think valuable to d5 for every protocol to launch a stable coin or everyone just fighting over a fixed pie of senior profits uh i think it's just sort of a natural evolution um like you can see like i think a lot of these protocols were just all gonna converge into like doing the same thing essentially you can see this with like fracs as well as which is now also doing real world assets and stuff like that yeah um we're

looking at some degree of sort of uh under collateralized lending uh not a huge amount but like you know maybe on the on the edges um so i i think we're going to kind of converge into more of a similar model with a lot of these uh protocols uh and just just sort of like a natural forcing function um because like you're if you look at it as like a business you're like okay what are my next steps and so like the next thing uh for avi to do was to launch a stable coin that makes perfect sense right that's what i would do if i was them um and i think it's uh you know it's sort of an inevitable uh development and i think they'll we'll see a bit more vertical integration um in the ecosystem

yeah all right so let's extend that out then for maker right sam of frax has this you mentioned forex they have this term uh here's this term that he called the trinity right where he basically says that uh every every protocol ends up converging on building a the core d5 offering which is an amm uh a lending platform and a stable coin right if you look at maker you've got the lending platform you've got the stablecoin you don't have the amm so when when amm for maker uh i don't know you're putting me on the spot here i i i don't have any plans personally but you know maybe somebody in the town is picking something up come on sam monet what do you think should make her have its own amm i actually don't think amms are a money making

protocol like i i don't think there's really a business there um you know yeah maybe maybe not just amm maybe it's i but it's like some sort of dex liquidity like you've got the nate the stable coin then like a lender or like lev like leverage provider then you've got dex liquidity provider i guess you could say the psm wasn't it uh synthetic assets wasn't that the uh last piece of the trinity was that the last piece okay i think i thought it was i thought it was a way to basically swap tokens like some sort of decks and decks then there's some sort of like lender provider of leverage then there's some sort of stable coin but i could i could be wrong here yeah i um

i don't think we've seen a deck that's able to capture any value like on that like haven't seen one that's that's profitable when you consider uh token incentives that they're paying um so yeah in my view the only the only reason to like launch a decentralized exchange is just to make sure that there's not going to be like an attempt at you know value capture extraction that just forces you to like shift your integration somewhere else i think this is kind of one of the the beauties of dexes so far is that they can totally uh be um non uh like open permissionless like non-controlled that kind of stuff

uh like uniswap uh maybe apart from the fee um is entirely there immutable permissionless and it doesn't need governance uh so like i i think that's kind of the beauty of the deck space could you guys ever do something like what fracks incur like almost like an alignment like a la frax curve where you almost just align yourself with someone like a uniswap or or even a balancer i think to some extent we we kind of already do with unit swap we have yeah um i think like almost like a billion and a half um in capital that's deployed into unit swap liquidity pools um

and there's you know kind of rough plans to do the same with curve and maybe with other dex protocols over time um that's kind of like one of the ways that we're able to um deploy our huge stablecoin reserves into something that's you know somewhat productive it can earn non-zero yield for the protocol and then provides more like utility for die users um so yeah i think that there's uh definitely potential there and like trying to partner and like deploy assets into some of these deck protocols yeah i want to wrap it with a couple questions on on governance actually um can one of you guys take the take the task of of of deciphering runes

what's he call it the the master plan or whatever his god plan whatever his uh his big thing is versa the rune plan basically versus the hassu plan uh i would love for one of you guys to to to break down both of those plans who wants to take it i can uh i can take a shot and then uh yeah you can correct me sam but so i think the husky plan is um sort of familiar because it's basically it's um creating like sort of a loose board of directors not really it's not like they don't have executive control over anything but kind of like a group of people who are empowered to

help set strategy and help provide like more clear oversight and direction to the protocol and for the workforce um so yeah that i think hostage plan is is fairly simple because it's already kind of familiar to um structures that people use in organizations in the real world i think roone's plan is um it's got a lot of pieces and um yeah it's more complicated but i think his focus is that he wants to create a system that's like incentive compatible so it it is um like less

reliant you know as much as possible on um individual people having you know goodwill and like that remaining you know kind of upstanding and just trying to like break everything down into various incentive structures for government um so there's there's a lot of elements to it i think um you know he wants to engage voters more and help voters kind of self-organize so that they can serve as some of that direction and that oversight force that that hassu is kind of um sort of putting more under like a committee or like a board um there's you know aspects of uh like how do you contain like costs and manage

budgeting um there's a lot of you know a lot of plans about like kind of spreading out into these other verticals like oh maybe makers should have like a staking derivative and other sort of business lines um so yeah i think i think it's um i don't know i i probably don't do it justice and i think people there there's a summary of the endgame plan on the maker forum which is very helpful yeah um i mean so if i had to maybe try and take a stab at it too it's like hussu is basically uh haas is basically trying to introduce like this council a lot of things that look like traditional uh uh companies and corporates right like introduce basically board of directors

you get people who are elected for some term when they have good pay they have kind of job security for a bit they set the strategic direction they coordinate between other units aka other teams they have budgets they get judged on performance this sounds a lot like a company and i think kasu would probably say look it's been amazing what we've been able to do up to this point what maker's been able to do up to this point but to really 10x and to get to the next level we're going to have to uh maybe uh not not sacrifice decentralization i wouldn't say that actually i would say maybe just restructure a bit and get a little more focused uh whereas roon takes a very like stay as decent like decentralization maxi approach as possible um i don't know if that's a

good overview but but sam where do you fall out uh which which camp do you fall in to yeah i've heard this sort of uh dichotomy between their two proposals um and i think where it's like uh hasu's is like centralized corporate and uh runes is more like decentralization and i don't think it's quite right um and it mostly comes from that uh house who's proposal with the council of makers which is the board of directors or whatever you want to call it you know everything has 20 names and crypto uh um there's no sort of executive power and i think like furthermore uh there's been ever since sort of the initial uh i don't know what you want to call it confrontation

uh drama um these two have been like working together a bit and there's like you know there's a little bit more uh uh i think you know combining ideas where they're right for example uh hassu proposed the constitution and uh roon is seems on board with this idea too the idea of building a constitution that was sort of the other part of the proposal um and i think despite uh what it appears in public uh these two are more aligned than it may seem but there are definitely uh key differences between them and i think it's uh when i got that pretty right which is just this point about having a single council versus roon more wants a um

multiple councils kind of thing um and i'll admit i don't fully understand all the details of the end game i'm still kind of reading it over and learning it for myself uh but yeah the the gist of it i think roone wants to kind of solve everything by empowering the maker holders as much as possible and uh sort of fixing everything else with uh game theoretic incentives to minimize sort of the the human side of things and corruption all that kind of stuff as much as possible that's that's my view of it where do you think the community falls if you took a poll of the i don't know 50 people who work inside of maker where do you think the community falls uh like i i just i don't think this is the right question like are you on the end game or are you on asu's plan i see what you're

saying you're saying the dichotomy that we're trying to create is not actually it's not actually plan a and plan b you're saying that and the the end game's the wrong way to put it the what will eventually happen will be some sort of middle ground between between the two players yes i'm hopeful because i mean i think most people are in agreement the governance is a little bit dysfunctional right now um especially as we enter the bear market uh it's harder to it's easy to hire teams and stuff like that and where everything's growing everybody's happy but you know when the bear hits you got to make tough calls like firing people all that kind of stuff so that's where it's sort of really been under strain our initial design but you know like we're like one of the first dows coming into existence like of course

we're not going to get it right on the first time so my hope is some compromise is reached and basically you know nobody's completely satisfied but there's a way forward and people are satisfied enough and it sort of solves their problems that's my hope how is the dow performed relative to being a company if maker was a company do you think things would be better or worse depends on what you mean by better i think things would be executed a lot faster dows are incredibly inefficient at sort of uh execution but that's not what they're optimized for that's not the goal for resilient resiliency so in that regard uh it seems to be working okay but i mean we haven't had strong sort of uh threats yet um so kind of building that out in

anticipation is i think useful what is the threat that you'd be optimizing to to be resistant against i guess uh like hostile nations um yeah i mean i guess we said at the beginning like sort of we can't be a completely hostile us is probably like game over to a lot of defy um and maybe even ethereum as a whole at this stage um but i think long term when we become like bigger uh we want to be resistant to this as much as we can so yeah it would be like nation states maybe not the u.s nation states would be useful um

yeah stuff like that on one side you're trading off like efficiencies in governance uh slower growth um and and there are a bunch of like downsides i could list to being a dow on the what you're getting in return is potential resistance against some nation states in the future as you reflect on it today like august 17th 2022 does that does that trade-off still feel worth it too yeah i mean it's kind of like all this is why else are we kind of building this if we're not building it for resiliency against sort of uh like more uh like various threats and stuff like that it could be nation states i kind of threw that out there but there's all

kinds of other things uh like governance capture uh you know rent extraction uh that kind of stuff so i think it's important because these are more unknown unknowns about what's going to be in the future and what possible threats there could be to the protocol we're building this for the uh experience of the end user and so uh protecting them against all these threats to the best of our ability seems like it's like why we're here right or else why are we building decentralized finance i think yeah i i love i i love seeing maker in my opinion maker's doing really really well right now and has had a very i know things seem probably crazy internally but

externally looking in it seems like maker's doing really well and has had an amazing last couple of months um and just a lot of things are really ramping up again this is an outside i'm sure it's very messy internally over there but uh it i love to see it because when when things are going super well like in the bull market obviously maker probably you maybe have fomo working inside of maker and you're like oh my god all these other protocols are like growing so rapidly and the price of everything else is 100xing oh my god uh but but when really hits the fan you can see who's you know who's who's standing on the other side and right now i feel like that's makers coming out first so it's cool to see monet um how said this tweet earlier today um

said maker suffered a 400 million bank run after rumors that it could depend from usd and yet its usdc collateral into eth emotion-based governance and dow transparency are an explosive combo 160 million withdrawn from the psm do you think there's any is this just what happens do you think there's any way to is there any solution to this or this is just a byproduct of of having full transparency yeah i mean i don't i don't really think there was ever even a plan or even like the the seat of a plan to like meet all of our psm like stable coins in the east uh i think roon just like mentioned it as like a possible like it's like before even an idea uh in the discord but yeah we're fully transparent

roon is you know he's a huge voter he is the like founder of the project he has a lot of um a lot of influence in makers so i think it kind of got blown out of all proportion um and you know that's in my opinion like this is proving like why die is super reliable and why you'd actually want to hold it is like you know people can move 400 million out of it in a day or in an hour or in a minute and nothing's gonna budge like you know everything is is basically working exactly as designed um in a certain sense for people who are afraid about regulatory risk or

you know collateral assets being frozen this actually helps like you know all those those outflows are just drawing down stable coins and increasing the share of of assets that are in core crypto collaterals so um yeah i think it's you know it's just kind of proving resilience and you know this this problem is kind of solving itself um i do think what it what it does show on the other hand is that uh people don't really understand how maker governance works so there may have been people who actually believed that we were about to like put on

three and a half billion dollars of east price risk um so that's that's maybe an area for improvement like we need to to help people understand like how does governance work at maker um you know when do you actually need to start being concerned if you see some crazy ideas that somebody writes in a discord or in the forum yeah well it makes it makes for a fun uh for an energy i feel like everyone was i was in the office when that was happening last week i feel like everyone was glued into the discord like holy look at this yep so i mean that's one of the cool things about the dow right this stuff i think happens in private companies all the time but it's it's all behind the scenes like mostly everything is public so every

like it doesn't mean we're gonna act on any of these ideas but it's just sort of like hey maybe we should do this and all of a sudden it like goes viral and you're like okay i want to wrap it with just a question around vision uh there i've seen a couple things on a couple folks discussing like is is is the end goal to become a decentralized bank or is it to become or like wholesale lender or is it to become a decentralized currency i saw uh who was a derrick maker's head of i think protocol engineering derek flossman said on twitter that the protocol had to decide whether its purpose was to run a decentralized and de-risked credit facility or if the goal is to to to build an investment vehicle that maximizes profit i want to get both your

guys's takes as the last question here um sam what what is the goal of maker i can't give you the goal of maker because it's a dow i can give you my own what is your yeah what is your um my personal view is i i would prefer uh dye to be uh like a well-regarded uh credibly neutral currency in the world as an alternative to all these uh state uh fiat uh currencies um that's my personal view of it um but on the other side you know we need to have uh revenues and stuff if not for anything else to sort of boost uh dye's status by turning on things like the die savings rate to help it grow and provide uh you know uh giving back to the holders of

dai to uh boost it in the world so i think we should be cognizant of of the revenues and stuff like that but me personally yeah it is it is about the currency still for me yeah monet what do you think i would tend to agree i think um yeah we we want to offer the world you know a de-risked decentralized transparent non-discriminatory money like really be you know just base layer financial infrastructure for people who are being iced out of the financial system now historically though i think you know money has typically started from

basically commercial banking and um you know stuff that looks a lot more like just like a private lending facility and then as it scales and as it becomes more resilient and and kind of ossifies um you know it ends up becoming a central bank or becoming some sort of like core clearing facility so um you know i think that we're we're kind of developing in the short run as you know basically a decentralized commercial bank if you will or something similar like that but i do think you know the end goal is we want to develop into actual money um and not you know

i can't like say how that will how that will look you know we may keep the us dollar peg for the long run or maybe even forever we may you know end up shifting off of it um but yeah i think the vision is definitely much bigger than just um for me at least it's much bigger than just you know being like um you know blackstone on the blockchain or something like that yeah i'm glad to hear that this has been awesome guys um really appreciate both you guys coming on any last words you guys want to share before we wrap it up um i would say uh if you're listening to this and uh you know this excites you i would say uh get involved in maker um you know we need all the help we can get uh get involved in the forums um there's

more and more people signing up for recognized delegates uh including the host here um so yeah i would say just just get involved it's a lot of fun monet cosign yeah no i i pretty much like fell backwards into uh maker and it's yeah it's been uh one of the best things to happen to me so yeah if you're if you're interested there is there's probably uh probably room for you to contribute amazing all right thanks guys link uh we'll put a link to both of their twitters uh right down in the show notes we'll also add some some more info on maker um thanks again guys talk to you soon thank you thank you [Music]

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