Why a MakerDAO contributor sold his Maker holdings

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that's as rewarding as finding money in your old winter coat pocket I'm your host Jay Hamilton and today we are joined by Christopher Cameron governance lead at gfx Labs Chris is also a longtime significant contributor to maker maker Dow and he recently sold all of his maker Holdings in this episode we delve into the reasons behind his decision now this episode is part of a larger 3 part series exploring different perspectives on maker as you will all know we've been quite bullish on maker for a while and we wanted to make sure to give you guys an update with various perspectives so next week we have Sam mcferson CEO of

Phoenix labs and contributor to spark protocol a leading subow within maker or Star as they're now called uh and then the following week after that so three weeks from now our pro team is going to come on the show and share their insights on maker and tell you why they remain confident in the project now before we jump in we are just a few subscribers away from 10,000 so make sure you subscribe today it's probably your last chance to get in and subscribe before 10,000 and if you do you could win our crypto investing masterclass valued at $500 and many other prizes before we jump in let's take a moment to hear from our friends over at uphold meet uphold a trading platform that's changing the way you think about money

imagine this earning up to 4.9% AP y on your US Dollars no catches no lockup periods and no fees and yes it's FDIC insured up to $2.5 million they offer access to over 300 digital assets which you can trade store and exchange with confidence knowing uphold operates with a 100% reserve and a transparent model create your account fund it with a few Taps and you're ready to go click the link in the description and join up pulled today Chris welcome to the milroad show thanks for having me yeah it's a pleasure okay I want to start with h

sort of before we get into the details of uh your decision to sell your maker tokens and where you're at right now and what you you want to share with us in show I just want to give everybody a quick primer on maker because we haven't really talked about it in the show for a while what makes maker so special compared to other stable coin issuers uh that's a great question so maker is uh the distant third place stable coin issuer in the market behind of course tether and circle it's also the only real successful decentralized stable coin that's really seen much scale or usage Beyond as a farming token and we'll talk we can talk more about this

later about how I differentiate stable coins from savings products they're not the same thing but uh D which is issued by maker uh and and now usds you know these are the Maker's attempt to compete in the stable coin Market maker is unique or almost unique amongst D5 protocols in that it is cash flow positive uh it it is there's a lot of value uh inside of maker and I would even go so far as to say before we get very far that the bull case and the bare case for maker are exactly the same and that there is a ton of value inside maker it's just how do you unlock it mhm yeah it's a I love that you brought that up because that is the exact reason why

we've been so bullish on maker for so long is the fundamentals are so strong within the project especially when you're in a space which often many of the tokens and projects you're investing in have minimal fundamentals if not no fundamentals and they're just purely speculative and purely hype and that's okay and there's Investments to be made there as well but as you said maker is a quite a a strong project in the the success it's had so far in the the cash flows that it's created can you just tell us a little bit about how you got involved in maker and what your contribution is to the maker the maker Dow sure so before we go much further I think you introduced me under my real

name which is fine but most people who are familiar oh yeah true probably know me as paper Imperium because that's what I sign Forum posts and Twitter posts and and the like with uh but there are plenty of people who know my real name so it's not a problem so I first found maker very early in 20121 uh I'm a value investor personally I buy grocery stores and tobacco companies and the like so makers cash flow and at the time growth trajectory and market cap I found it appealing I thought there's it's this thing can miss on a lot of targets and still return some money to uh token hold ERS um and to some extent it has uh and

at its core uh people people asked me last week in the week before what changed at maker I would say maker didn't change just my patience ran out like I say the bull case and the be case are exactly the same maker I've been involved in maker governance since the beginning uh was one of the I was out of the gate the first and largest delegate and then went inhouse very quickly with gfx Labs which has a broader governance portfolio uh the time it was compound in Unis swap now uh I spend most of my time at um optimism arbitrum we also continue to hold a lot of Unis swap delegation and are active in a number of other protocols that are less relevant to this discussion but that I work full-time in

governance now so with maker you kind of have to be working full-time in governance to keep up with it because it's a complex beast and it has become less and less transparent over time and I want to get into some of the challenges but just quickly can you explain what does it mean to be the largest delegate within maker does that mean that you hold the tokens yourself or that others are delegating to you their votes can you just explain that quickly yeah so I should be clear that I'm not a delegate now and and if I was I would not be allowed to tell you because there's a bounty on doxing delegates and delegates are fired as soon as they're identified

it's a little little or wellan but that's maker so maker is not unique in that it has a delegation system so many protocols utilize this and what it means is that you hold the voting power but not the actual tokens in most cases maker is older technology than a lot of uh more modern governance tokens so uh the token does have to be locked in the governance protocol but the delegate does not have your tokens they can't move the tokens they can't uh spend the to tokens or borrow against the tokens it's a a way to separate the voting power from the actual asset and this is very common across large D5 protocols okay so let's chat a little bit about

the challenges that maker is facing uh and maybe I don't want to go too far back I think that we you know this could be a full episode just on past challenges but maybe if you could give us a little bit of a history lesson on like the challenges and then we can get more into to the Rebrand to Sky and the more recent challenges sure so I won't maker is an old project by crypto standards so I won't go all the way back into the primordial ooze now I'll just start with the passage of uh runes ingame plan in March of 2023 so before we go any further I want to lay my priors on the table gfx where I work we led the opposition to end game so just

bear that in mind that we are generally have been critics of it I'm sure you'll have a a pro a pro in-game person on uh with Sam I I think you'll get a balanced view of your readers or your listeners uh tune in for the next uh podcast as well so ingame was a a a sprawling large package of reforms updates and new uh things very governance focused like anything that big I think there were some good things in it uh and some bad things but it's changed a lot so almost from month to month it's had significant changes uh an example of this is how there used to be uh 14 paid delegate roles so before endgame any delegate

that had a certain level of Delegation was eligible for pay this kept people coming in the door paid for their time to read proposals diligence counterparties you know discuss the merits and try to become subject matter experts on maker that went down to 14 slots with endgame and has uh consistently been woed down uh so here we are I think 19 months later and there's only six all of which are directly controlled by Rune oh wow yeah so there was a a major outflow of uh of Voters of Stak maker as soon as endgame passed basically the previous generation of VC's I don't want to say dumped because it's a pejorative but they exited they voted with their feet a

second another generation of EC's uh came in a few of them uh I've seen at least two sets of them come in attempt to to do governance uh realize it was that there's no governance it's very hard to be an activist at maker because run has so much maker so he has so many votes and also ingame has structurally changed governance so that it's very difficult to become competitive uh because you can't build an ecosystem of of a pluralistic ecosystem U of Voters and a good example of that is the delegates right so to be a delegate maker you're required to be anonymous and uh if they find out your identity you are removed

no longer paid as I said it's a full-time job just uh to keep up with maker so casual delegates are probably not a value ad at maker but you know imagine you are an institution somewhere with $30 million worth of maker or more are you going to delegate to a random Anon um yeah I mean it it just it's probably not that's that's definitely not what that type of uh investor is looking for right um and it's difficult enough to convince investors to delegate as it is maker also has some technical issues that makes it incompatible with some custodians so it's already an uphill it's always been an uphill battle to get voters to to delegate at at maker

but basically the governance participation went to 90% plus just runes delegated maker so all of it so it means that all delegates are people who their paycheck is tied directly to pleasing him which is fine that's his prerogative but it means that you I mean if you go back and look at voting since March 2023 you see it's pretty homogeneous and I think that's not an accident again I I don't want to like trash run on this because he's at least showing up but it it's important to know that governance is not healthy and I think you get a lot of an echo chamber so that's kind of how we got to where we are now right so let's let's we'll skip all the minutia the governance back room

you know drama and we get to today and we have I think you see the fruits of this system in the launch right so what did we get we got a logo that was reused from Secret Network it's literally the same logo for usds as as for secret Network and just different color we got a fairly generic ticker that they had to go buy off of another one of the many other usds they bought it from stably you can find the trademark uh Pur just uh if you you can go pull the files if you're interested I don't know how much they paid though uh you saw a name Sky which I mean I don't have a big problem with

the name but it's it's not exactly discoverable from a a search perspective right I mean there's a lot of it's kind of a it's a very common word there's also some big companies named Sky already so that's probably I feel like perhaps you could have come up with something a little better the announcement video what you know look like it shot on an iPhone and look some people have compared it to a hostage video you know usds right out the door was not available even at spark there were no Integrations ready to go on day one I mean I think all of these things we can keep going but I think all of this just comes to after a year and a half after all the Blood Sweat and treasure expended it

raises the Spectre that this is not a credible plan and that execution risks are high and it's hard to believe granted we all have the benefit of hindsight uh and have seen all these things fire off very quickly in quick succession so maybe in isolation there would have been less of a red flag but I think I think most of your listeners would have if they'd seen these materials if they'd been in the room the decision making process they would have said we can do a little better than this for what we're spending and the amount of time it took and that's kind of where we're at today and so now it goes up for a vote I think today whether to retire the sky token so your listeners may or may not be aware that there maker in

addition to launching a new stable coin usds uh they also launched a new gov token Sky now both of these are supposed to be fungible with the previous tokens so usds is I'll just say it's it's it's a wrapper for die that can be seized that's the only difference it's a different ticker it's all the same stuff in the back end the same backing so if you were comfortable with the financial backing of D you will be fine with the financial backing of usds the only difference is the name and the fact that you know it the contract token contract is upgradeable sky is uh the same thing but for maker it was it's a redenomination so one maker gets you 24,000 in Sky it doesn't really do

anything yet like it can't vote um but there's about to be there's been so little migration from maker to Sky that it looks I think almost certain that it will be voted to be retired this week but we we'll have to see what the vote says I think it's a little ironic that Run's like well this isn't working let's put it to a vote but it's going to be his six delegates that make the decision and I don't know what he's communicated to them or if they have their own independent opinions or not yeah so much to unpack here but like the few things that stand out to me were from the outside looking in and sitting in the position that most of our listeners will be in a a Rebrand of die made a lot of sense to me to a USD something right because that is a

familiar all of our stable coins are usdt usdc etc etc and that's really what stable coins represent as they represent a stable towards some Fiat dollar uh and so that that I understood uh the Rebrand to Sky don't know if that was necessary I agree with you from the outside it was a little bit a little bit of maybe an eyebrow raise as to why the the name was chosen chosen because it is such a common name that means so many other things let's just chat about your recent decision to to exit what led to that is it the things that you've mentioned so far is there other challenges it sounds like really what you're saying is that we have a leader in Rune who has a lot

of control and control in one person's hand is a scary thing and it also is kind of against what the Dow system decentralized system is aiming to achieve am I explaining that right so so let's just remind everyone we're going to talk right now this next few words is going to be about my personal financial decision yes it's not reflective of gfx labs anyone we have a business relationship with or any other large holder of maker that I know of so my decision was simply that after several years I am have grown skeptical that there will be high returns for me as an investor so for a while now the buyback has been paused because there's not been

enough funding the way it works at makers the buyback happens when there's enough Surplus funding but the expenses associated with the new launches have you know depleted the Surplus so uh it it's just the buyback is not own right now so there's it's clear who what the buying pressure is going to be also I've now um so centralized control I'm not an ideologue I'm not decentralization Maxi I believe that decentralization works well for some things and not for others I mean I think everyone would agree that c highly centralized projects have it's like a monarchy it's simultaneously the best and worst governance system you could imagine because it comes down entirely to the competence and

benevolence of the one that's in charge and I've just now live through enough cycles of Rune pivoting from one shiny thing to another I mean let's just go since endgame so when endgame was launched there was a big section about how clean money and environmental advocacy was going to be a key brand differentiator for maker it was only a couple months later I think it was April or May that that was that core concept was immediately jettison for AI and maker was going to be involved with developing Ai and other protoc calls would pay money or lock tokens to use access makers you know fancy governance Ai and I recall being in you know meetings where it was

literally just run typing into the CH GPT interface you know and then AI uh is not talked about much anymore at maker after that it was I I may forget the order of things I think it was then l2s where like the big L2 boom was beginning to launch and maker was going to launch a maker chain oh and it was going to be a Salona Fork and what was it going to do I was never quite clear on that because all the D and all the collateral are on ethereum so what would it do uh and then after that the Athena got big right so then it was was going to get into the basis trade which it never did directly it did end up getting ex substantial exposure to Athena assets which is its own whole separate

conversation uh I think it definitely got out over it skis with that but it's kind of a a separate thing and now here we are we've come back to The Branding the brand is launched and you know just it's this constant change from one thing to another and I think this all goes back to the echo chamber there's not anyone in the room who can say maybe this isn't a great idea or maybe we should do something else you know you have to understand that when in-game passed in March 23 like half the developers quit the governance facilitators all quit all the old delegates were purged because they were identified so they were not Inon so like very quickly like there were not a whole

lot of other we got to be kind of a lonely voice out here and um so you know just my personal decision was to I I just needed to finally sell and put the money to work somewhere else like I said the bull case and the bare case has always been the same that 90% of Maker's problems are of its own creation which means they should be solvable right and you know plenty of poorly managed compan have made a lot of money over time and maker isn't really any different in that regard so there's value there I just personally did not want to continue I I might buy back if if it goes down low enough or if there's a uh change in how governance operates

but so it sounds like endgame was really The Tipping Point that changed a lot of the internal structure am I correct in in saying that you I think that's an accurate summary so run always had large influence just by virtue of the fact he has like 13% of the fully diluted Supply 12% I forget it's some it's large yeah large it's larger than anyone else um and that was fine um I think that that that equilibrium it was not what I would the equilibrium I would choose to live at but it was like it was fair I guess like it was an even playing field like whereas now there are structurally a lot of things in place so that it really

inhibits the ability of anyone to challenge him so it's not just the Anon a delegate Anon delegates it's like like spending right so it used to be if you worked for maker you you would have to come with a budget you'd say here's what we the money we need for the next six months or however I think it was usually six months here's how we spent the last one etc etc you go back and forth the delegates um and then it gets approved and then you can watch in real time like the vesting stream so you can maybe you don't know what line items they're spending on but you know that all the the oracles people spent this much or the the uh the core devs spent that much or the frontend people spent you know this over here now all of that's largely been Consolidated under a bucket called

the launch project which is explicitly exempt from oversight and transparency requirements so at first the justification for this was because The Branding needed to be done in secret and so you couldn't see who they're paying for which I think we can all say that that didn't work out too well but over time all of like the regular operational expenses also got put under launch project so that's why launch project gets a huge amount of money but um they've begun in the last six months to about every quarter make voluntary disclosures with some like kind of flow diagrams but it's just like how would you have an opinion on maker as a activist if you don't have access to the

fin financials like like what is being spent other than at the very high level you can see how much is going out and coming in but it's very difficult to to like understand where you know if you spend $50 million how much of it is going to a versus B and also this you know it's as I said it's very difficult to have any control over the Strategic Vision because it's increasingly done like behind closed doors I mean a great example is the Athena on boarding right so I personally think Athena is a very clever interesting Financial mechanism the way it was implemented at maker I took a few issues with but you know you saw on Twitter you know you saw the head of spark you know teasing pools being

spun up on Moro before any hint of it was ever put on the governance Forum right so like new asset on a new external protocol governance is informed I'll rubber stamp this please after everything is set up so yeah just a lot of the decision making is out of the you so it makes you very reactive if you're not in the room and that's it's hard to work from that yeah yeah certainly yeah it sounds like a lot of this comes down to the structure of governance and the structure of decision- making not necessarily as you said all internal issues all internal challenges I want to go back to something you said at the beginning of the episode you said that you see a difference between a stable coin and a

savings account can that's right can you explain that difference and I think that'll lead into the final part of this conversation today yeah so I I've talked enough about the problems let's look at the opportunities right so this discussion I think really centers around how I view the opportunities and challenges in the future going forward because everything else is behind us sunk cost so uh D is a stable coin right it's the like I say a distant third place but it has a clear product Market fit like it has a probably unfortunately a fairly mature Market addressable Market um it has a differentiation between usdc and usdt and yet it also is big enough that it Taps into you know

the network effects of liquidity and you can use it like anywhere that has coinbase uh Commerce you can use it to buy a coffee I don't know how many people do uh but you know it has a certain level of what I call moneyness right so like it is used as money on some level and you can see this in that people require less yield to hold you to hold die then they do some Alternatives right now uh you know and of course tether and usdc have to offer even less yield in the case of tether nothing nothing yeah because they have this moneyness so like d is like on the cusp of it like it's the also ran but it's still highly profitable like even you

know as this modest you know third distant third place stable coin so now let's look at usds it has no integration you can't use it anywhere it it basically and if you you ask Mak or ask run why would anyone use usds it's just die that's freezable what's what's the value proposition and the answer is yield right like they you know they say we give attractive yield but you know that's that's not quite the same thing it's a different business right so you know you don't care the brand of your money market fund in your personal portfolio but you do care that you're like you're the things that you use for transactions like you

know it says Visa or Mastercard or or you know maybe American Express um you know the payment Network you care a lot about that uh even at the same bank uh or credit union if you Bank in a credit union like I do uh you have a checking account and you have a savings account and the yield you demand on the checking account is probably close to zero there are high yield checking accounts out there but they're in general the savings account has to offer higher yield you see this is like obvious when you think about it right so even though they're very liquid right I can in the Modern Age pull out my phone and move you know $10,000 over from my savings to my checking and boom it's instantly

available for me to spend usds and D are like in the same boat right uh the difference is there's not really maker doesn't really get much out of having usds I think at this point though I'm not a fan of like like I think I think it shows weakness at this point if we retire usds I think sharks are going to smell blood I think it's best to plow on ahead so what's the best use for usds uh I think number one uh stop competing on ethereum you know you're just cannibalizing die Supply like this is a profitable mature business leave die alone people like it it turns it spends off a bunch of money that cash can be used to grow the business elsewhere so usds where can it go it's not money per se so where can it

compete I actually think salana is a really ripe market for this uh because if you go to like the Wormhole uh portal token Bridge like there's already like $10 million worth of chai which for those who are don't remember a long time ago the original first generation of maker devs also had a tokenized like savings rate for like you know you put die instead of s die you got chai so it's an old simple erc20 token which made it easy to Bridge and this has been hauled across to salana to sit and DOW treasuries and people's personal accounts over there completely with no support or marketing effort at all on the part of maker so there's clear that there's at least some nonzero demand for

a savings product they there's no like t- Bill of of of defi over on salana like there is in ethereum with SII because that's kind of the role that it plays so you know the staked usds I think can be quite successful and then while that is getting adoption then it's G to be a long slow slog to get to like that moneyness right because it's that's a big Moe the trouble is as a savings product as soon as your yield is lower than the competitor you it's hot money it's in and out right I mean we saw like Athena take 150 million out like just last week and that was after two weeks before they put 400 million in and you know they're not the only ones everyone's going to do that as they

maximize yield so you know we got to get to that sticky business of like being money right because then it there are high switching costs uh and fewer Alternatives and this is particularly true in salana I think the stable coin Market on salana is is ripe for disruption so I see a big opportunity for maker here if they can just execute like stay focused so you know the whole endgame has been focused on governance games and internal Naval gazing you know about the meaning of the atlas like I sh you not like can I say that yeah yeah I mean I mean a lot of these meetings were like they were like Bible study sessions like multiple times a week what is what

does the word of Rune mean in this Atlas like paragraph here none of that's important focus on the user right like what's the value proposition to the user and I think there's a while you know we have savings products Galore here on ethereum high quality predictable savings very safe savings products are rare I think on salana and we'll have to see which of the l2s is right for disruption you know I think there's potential on base and arbitrum and optimism but I think I have less well-developed views about what the particular competitive Advantage would be there but I I so I I think there's

big opportunity ahead and could be the first time in years that maker actually sees growth and it's it's a new market right every usds own ethereum risks just being a die that got burned like so you're paying people money to move from one thing to another so so that's that's where I sit is I again the bull case and the be case is still the same it's you know execution and then upon successful execution don't waste the money Fritter it away on pivoting to AI or something yeah yeah yeah I mean it's there's a reason it's uh it's not easy to build a large successful business uh in any industry let alone one that moves

as fast as crypto does I want to finish with a question that you sort of already asked in this episode which is what would it take for you to buy back in and do you still have hope that maker can figure out these issues and these challenges that that they're having yeah I mean so you know maker is unlikely to ever go to zero right like it it's cash flow positive how many crypto projects can you say that about um I think I've just I've just had a couple years now and particularly the last year and a half where I've just seen the money wasted I mean Spark's a great example right like the I don't want to say it's a waste but you know it's a cost center right like

right sure it literally is cash flow positive but you have to but it has fairly significant multi-million dollar costs to operate and in a world where Spark didn't exist would you just put all in a and compound and Morpho and Oiler yeah you would you wouldn't bear any of that cost Maker's just full of stuff like that where you got to really peel it back and like it's not clear what the cost structure is in a lot of places so I think for me to get personally involved again I would need to see a change in how governance is run even if it's simple as just more transparency so that you can be informed rather than in run We Trust because I don't trust him at all um I think I don't think he's milici at all I think

he wants the best for maker but I think he quite frankly is isolated and is often taken advantage of by the because he surrounds himself with only people who tell him yes um and I think that has led him to be like I say kind of taken advantage of a few times in the past so I would need to see either run ra you know really significantly return to transparency in in the structure of of how governance operates or I guess if the price went down enough to be the risk again I maybe maybe be a sucker paper Imperium Chris this has been a fantastic conversation thank you so much for uh for sharing so openly uh

it's it's not it's not easy to take the uh the contrarian side and the bare case we get mostly bull episodes here but uh we're really focused on trying to give both perspectives and uh as we said everybody tuning in make sure you listen in next week we have Sam ferson from spark which we brought up a few times uh in this conversation and then the following week we're having a member of our pro team our research team come on and share their thoughts so it's a it's a complex situation over at maker and one that uh yeah Chris we greatly appreciate your honest and vulnerable opinions sharing with us today sure thanks for having me it's a pleasure everybody thank you so much for listening in have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you

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