Why erode the Maker narrative unnecessarily?
Recently posted this: https://twitter.com/RyanSAdams/status/1115659555189424130
I've been a supporter of the Maker project for sometime. I remain a supporter. I also track crypto and defi narratives fairly closely. A few thoughts from this perspective for your consideration:
At some point soon, it may make sense to lay off the SF hikes and rely on the $100m supply cap to restore the peg in order to complete the SCD phase with a stronger narrative.
Attempting to restore stability with stability fee and without dai savings rate may be a bit like trying to cut paper with only one scissor blade. Plenty of time to test more fully when both SF and DSR are in place.
Now of course, the community could continue to brute force stability through continued increases to the SF alone. And it will work, eventually. Maybe at 11.5%. Maybe 20%. Maybe 40%. But in the meanwhile, what damage will be done to the incredible Maker narrative this project has worked so hard to build?
From half a percent to 20, 30, 40% interest rates?
Sometime soon the community may want the world to consider CDPs as a serious mainstream loan product instead of a speculator tool. A history of high double digit interest rates won't be helpful when this day comes.
So why erode the narrative unnecessarily before DSR is in place? Especially when you can use the hard cap as a fallback?
Thanks for considering! Appreciate this community.
Posted Apr 10, 2019, 7:17 PM UTC
What evidence is there that people being turned off to opening CDP's is damaging to MakerDAO's reputation?
MakerDAO's reputation is built upon its ability to create a dollar-pegged stablecoin backed by digital assets, not on it's provision of self-leveraging capabilities.
I'm a cdp whale and I'm about to stop to using this product if this trend continues.
I no longer suggest others use Maker and have told them to stay away until it settles down.
Ditto. These hikes are very damaging, especially since a year or two ago, the maker website had a cdp case study of a guy who created a cdp to pay off his HOUSE! from 0.5% to 7.5%. This is ridiculous.
I'm sorry to say but frankly it seems that to restore the peg whales like you guys has to at least take a break from using Maker (forced by a high SF or voluntarily). The system is simply not mature enough yet. I know it sucks but thats my take on this (I might be wrong though).
I’m assuming you have a CDP open too.
The hikes are damaging to you, not to MakerDAO. Don’t get it twisted.
[deleted]
It looks like the interest hike is working then :-)
Sure is! I can't hardly wait to not give Maker a second chance!
Great. The system is working. Too many CDPs and too many DAI. You are discouraged from creating more DAI because of high interest rates so possibly less DAI in the future or at least not much more DAI if the interest rate is high enough. Now we just need to pay an interest to DAI hodlers.
And what will you use instead? Even compound’s borrow right is higher.
You’re not exactly ruining Maker’s reputation by not using the platform, regardless of your capital.
CDP owners thinking they’re the primary target market of MakerDAO are delusional.
I'll use traditional sites like bitmex to add leverage. Like almost every other large user out there I use Maker for adding leverage.
The argument itself is about entirely the wrong thing.
The whales use the product to go long Eth. Guess what? We just discovered that causes DAI to move inversely to Eth. Whales make DAI then sell it for Eth, 11.5% *(felt at some unknown future point) isn't going to dissuade speculators from capturing gains that dwarf that 11.5%. They are going to make DAI, dump it at any price and buy other things when there are rallies.
Limit the supply of DAI to allow a premium to form as a result of actual use cases.
We're building DAIHard.Exchange , the main aim of which is guarnteed access to DAI even in draconian jurisdictions, and I can tell you now, the reactive nature of these decisions, not the decisions themselves is what is making me have seconds thoughts and damaging the reputation of Maker!
If they want to close their CDP, they have to buy back DAI, which reverses the price effects of minting it. And the supply is already limited.
Which may honestly be the only saving grace here. But you say it as though it's a rebuttal of my points; I pay people in DAI (for real work), they want to sell it to buy into Ether. The organic demand for DAI has downward pressure on it as everyone who has DAI knows about crypto returns.
We need to ride out the storm or have a deep while meaningful debate about why the price drops during rallies and rises during drops in the Eth price.
A reaction that would help right now is to ratchet down supply, the alternative is to have the supply grow while the prices drops to who knows what. It could go much, much lower before the supply cap is hit, even though it's under 10 millon away. 10 million extra supply in a bull market in ether can take us to 0.
We are witnessing complex behaviour, we can't be responding by entering the fetal position and chanting "stability fee, stability fee".
That’s not organic demand for DAI, that’s organic demand for ETH. Demand for something doesn’t correspond to its price decreasing. And your scenario is atypical: maybe you should pay in ETH if your employee base wants ETH.
I think Maker governance’s intention is to implement their stability fee increases for as long as necessary, and ride out the backlash from CDP users.
I don’t think we need to have a debate about a simple economic relationship. It makes intuitive sense to anybody who thinks about it for more than a few minutes that when ETH price falls, the relative value of a stable asset increases, and when ETH price rises, the relative value of a stable asset decreases. Maker’s fiscal policy is designed to work around this.
I don’t disagree that manipulating the supply directly is a good mechanism, and that Maker should consider it.
It’s really not that complex. Economics have, for the most part, been solved in the past century. Frameworks exist that can and have been applied to Maker’s system. You may disagree on their current course of action, but if it succeeds to restore the peg, then your concern is pointless. We have yet to see the stability fee fail as a mechanism.
And that’s a pretty demeaning characterization of Maker governance implementing basic fiscal policy. They’re not doing something unreasonable or too basic. And considering Compound’s DAI borrow rate is something like 13% at the moment, they’re just following the “industry trend” (however small that industry is).
It’s fiscal policy that you seem not to agree with for some reason, but it seems completely rational. I haven’t heard anyone bring forth a good faith argument grounded in sound economics for why raising the stability fee further is a bad idea for $1 DAI.
This is what scares me. Complex / relatively irrational behavior and whether this is that, or possibly a situation that can be solved by traditional means.
We could be witnessing complex behavior that ultimately becomes the underlying framework of new financial theory.
A part of me, as someome who studied finance and economics, feels a bit crazy saying this. However, these are crazy times we’re living in. Crypto is notorious for exhibiting irrational behavior.
Admittedly, the likelihood of this is low. Basic economic theory regarding supply and demand should apply here. We may just not have a grasp on the time elasticity of stability fee changes yet. These changes have been somewhat close together afterall.
It is damaging.
How?
For start, I feel a bit less confident about their competence in determining priorities and tackling problems.
That’s a bit vague, don’t you think? Depending on perspective, they could be taking all the right steps.
I think it feels damagine right now while we're in it. I believe once the peg is restored, this will be looked back upon as a pivitol moment. The majority of future DAI users likely don't even know what Ethereum is. They won't be concerned about the growing pains of a system doing what it was designed to do (and successfully achieved).
If it survives.