The real picture of DeFi protocols may not be as glamorous as the surface data.
The real picture of DeFi protocols may not be as glamorous as the surface data. Our impressions of MakerDAO may include: TVL has been in the first place for a long time, DAI is an important DeFi infrastructure, and MakerDAO can rely on stable fee income to buy back and burn MKR. But who would have thought that the most representative DeFi protocol, MakerDAO, has also fallen into a quagmire.
According to MakerDAO’s revenue data, MakerDAO’s annual stability fee income is about $51.4 million. But beyond the ostensible revenue, maintaining this massive and complex governance machine requires 115 employees, burns through $43.6 million in cash annually, and compensates about $17.3 million in MKR in DAI. The cost of these payments has exceeded MakerDAO’s stability fee income and caused MakerDAO to lose about $9.4 million annually.
MakerDAO co-founder Rune Christensen was aware of this problem in May this year and formally proposed The Endgame Plan in June, hoping to simplify the complexity of governance. Rune’s signature has also been changed to “now working on some new projects and contributing as a community member and Maker”.
After Tornado Cash was sanctioned, USDC’s issuer Circle actively cooperated with the U.S. Treasury Department’s sanctions, and there are more than $3 billion in USDC in the peg stable module (PSM) in the Maker protocol, and USDC is in all Maker collateral. More than half of the total, which requires the final plan to be able to deal with security issues from regulation at the same time.
Governance Reform: MetaDAO
On the one hand, the existing governance process is too complicated, which restricts the speed of MakerDAO to develop new functions; on the other hand, it needs to rely on the participation of huge human resources, which has become the main reason for MakerDAO to lose money in the bear market. As an important part of the final plan, MetaDAO is committed to speeding up the governance process, reducing the labor cost of MakerDAO, isolating risks, and parallelizing the highly complex governance process.
Similar to the current mainstream “modularity” idea of the blockchain, the complex MakerDAO governance is divided into small blocks, that is, MetaDAOs, each MetaDAO can focus on its own tasks without being constrained by other responsibilities. distracted. For example, MetaDAO, which focuses on creation, will recruit developers to build front-end products and on-chain functions; MetaDAO, which focuses on RWA (Real World Assets), will be responsible for managing RWA Vaults. This can also overcome the single-threaded problem of the current Maker governance process, realize multi-center governance, allow MetaDAO to execute in parallel, and speed up the governance process.
Maker can create new MetaDAOs by deploying new ERC20 tokens. Ideally, in the end, Maker Core only needs to support collaborative MetaDAO, and the specific work will be done by MetaDAO one by one, reducing the burden of MakerDAO. Some Meta Core members will also be reorganized into Meta DAO, halving MakerDAO’s labor costs.
Comparing MakerDAO and MetaDAO is like the relationship between Layer 1 and Layer 2, Maker governance can be regarded as a slow, expensive but more secure “Governance Layer 1”, while MetaDAO is like a fast and flexible “Governance Layer 2”, But the ultimate security elevation comes to Maker governance.
MetaDAO is independent of each other, has its own governance token and governance process, and needs to earn its own income. According to Rune’s statement in “Endgame v3 Complete Overview”, MetaDAO tokens (MDAO) will be issued in the form of mining, of which 20% will be allocated to DAI farms, 40% to ETHD farms, and 40% to MKR farms. to drive decentralized collateral entry.
The path to decentralization
MakerDAO increases the degree of decentralization mainly through the following paths, focusing on increasing the use of decentralized collateral and using protocol revenue to accumulate decentralized assets owned by the protocol.
1. Increase the use of ETH collateral
After Tornado Cash was sanctioned by the U.S. Treasury, Maker has taken a series of measures to reduce its reliance on USDC.
For example, raising the debt ceiling of the WSTETH-B Vault and reducing the stability fee to zero, reducing the stability fee of ETH-A, ETH-B, WSTETH-A, WBTC-A, WBTC-B, RENBTC-A and other Vaults.
Lowering funding rates for other Vaults may reduce the need to mint DAI with USDC via PSM.
2. Introducing EtherDai
EtherDai was introduced to own staked ETH under the control of Maker governance, a product that includes ETHD and EtherDai Vaults. ETHD is a wrapper around Lido’s Staked ETH (stETH) (similar to wstETH). Users can encapsulate stETH as ETHD, or redeem ETHD as stETH. The emergence of ETHD and wstETH may be because Lido issues pledge rewards through rebase. If users hold stETH, the balance will continue to increase, but it may be inconvenient to use in some scenarios.
Maker governance will have backdoor access to ETHD collateral, possibly incentivizing liquidity by setting up ETHD/DAI short-term liquidity mining on Uniswap. On the other hand, EtherDai Vault’s stability fee may be set to zero to guide demand for EtherDai Vault.
3. Adjust the use of real world assets (RWA)
The final plan proposes 3 different collateral strategies, namely dove, eagle, and phoenix, which are progressively developed as the timeline progresses, and which are gradually advanced according to the threat of regulation.
The first is the pigeon strategy. The main task during this period is to increase RWA as much as possible and maintain rapid growth. Because RWA collateral can bring a relatively higher stability fee to Maker, Maker wants to earn as much as possible during this period and exchange it for ETH.
After 3 years, if DAI begins to be attacked by authority and RWA collateral is at risk of being confiscated, then switch to eagle strategy and limit risk exposure to RWA to 25% to seek a balance between performance growth and resilience .
If there is evidence of an imminent authoritative attack or all of the RWA’s collateral has been confiscated, it would be excessive to the Phoenix strategy of eliminating all RWA exposure, and only RWA that cannot be controlled by the authority can be used as collateral.
Starting with the Eagle strategy, where RWA is at risk of being confiscated, it is necessary to de-pegg DAI from the US dollar and become a free-floating asset.
The rationale for this line of development is that regulation may be tighter and the degree to which RWA collateral is threatened by authorities increases over time. MakerDAO can also use the current time window to expand the market as much as possible and accumulate assets.
4. Vault owned by the protocol
A Vault is created when users pledge assets in Maker to borrow DAI. The anchoring stability module does not distinguish users, has no stability fee, and will not be liquidated. It can also be regarded as a special Vault.
Protocol-owned Vaults will help MakerDAO accumulate more ETH. First, it is planned to obtain Staked ETH with 2x leverage through the surplus 40 million DAI. This means that $80 million worth of Staked ETH can be earned, and the surplus will also be put into a Vault owned by the protocol. As Ethereum completes the merger to PoS, MakerDAO can get an additional staking income.
DAI will remain pegged to USD in the short term
According to the existing plan, DAI will remain pegged to the US dollar for quite some time. Rune also explained on his Twitter that “exchanging all stablecoin collateral for ETH is a bad idea.”
MakerDAO is also still using the assets in PSM to increase its influence. For example, 1inch and Paraswap, two aggregated DEXs, have already integrated PSM, and transactions between large USDC and DAI will go directly through Maker’s PSM, with no transaction slippage and no need for any Transaction Fees.
Rune’s final plan schedule, published in the MakerDAO Governance Forum on August 30, also shows that DAI will remain anchored to the dollar for at least 3 years, and this time will be extended if there is no direct threat. If the decentralization of the collateral can be increased to 75%, it will remain pegged to the dollar indefinitely.
In the short term, DAI will still be anchored to the US dollar, and Maker’s current main task is to continue to expand its business and accumulate assets. MetaDAO’s reform of governance may be mainly to reduce the huge labor cost of MakerDAO in the bear market, and also to speed up the efficiency of follow-up work.
Regulatory pressure may not come soon, this is a time window to seize the opportunity to develop. When regulatory pressure does come, MakerDAO’s plan is to be censorship-resistant and pegged to the U.S. dollar in the medium to long term.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/makerdaos-dilemma-and-opportunity-how-governance-reform-made-it-possible/
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