Rune Christensen: Maker DAO – The Central Bank of Web 3.0

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I'm Sonia Agarwal and I am free. Canst. And today we are talking with room Christensen of maker, Dow, and talking about many of the exciting development and things that have been going on with Diane and the etherium ecosystem. And, you know, about stable coins and the governance of the maker Dow itself. So it's a really exciting episode before that though, we have a couple of announcements, many of them to do with the Berlin blockchain week. The first one has to do with

adapt console. Of particular given that gnosis is one of the, you know, co-organizers of it. Would you like to talk a little bit about that? Defcon is one of the conference's at Berlin blockchain week. It's starts August 21st, and is until August, August 23rd. And we have a 20% discount code for epicenter listeners. So, the discount code is epicenter. Def con 20, 19, no spaces.

We will also record a second edition of epicenter life with myself sunny and Sebastian at the def con conference. The last one that we had at The Interchange conversations was Really nice. Yeah. And then a lot of us will be attending at many different events throughout the week at Berlin boxing week. I'll be there at the better cartel demo day as well as the web three Summit and East Berlin. So you know we I think it should be a really exciting week.

So I heard many people to show up and we'll actually be having our own epicenter event during that week as well. Where we'll be having our small Meetup similar to the one that we've had a couple of times that, you know, Dave. Khan for, and at UCC, for be a drink speed up with the host and other listeners, it will be on Thursday, August 22nd. The location is still to be determined, but it will be pretty close to the location where Defcon is.

So, you know, it'll just be a quick walk over from the from the venue over to the Meetup location that day. Finally, the last announcement I have is not for Berlin blockchain week, but for SF blockchain week, which is quite a bit further. Out near the end of October, but the Cesc conference crypto economics and security conference. That's basically it's the UC Berkeley academic content box and Conference that. And when we launched a curry throws annually, we're currently

accepting papers for submission. And so if you just go to Cesc dot IO from that site, you'll be able to find the link for how to submit papers. And so, you know, we're open to papers on, you know, any topic within the field of the period. Economics or systems designed Game Theory and so we encourage as many people to participate as possible. I'm going to be I'm on the program committee.

So I look forward to reading all of y'all's papers So without further Ado, we'll go to the interview with Ronan. Welcome back to epicenter. And today we have on with us a guest room. Christensen who is the CEO of the maker foundation and the founder of the maker Dow protocol and so many people are, you know, probably pretty familiar with maker do especially, you know, it's probably one of the most popular products on the etherium ecosystem with the dice table coin.

And so ruin has been on the episode once before, Our bat all the way back in 2016 before died had even launched. And, you know, since then dye has, you know, grown to become this massive project that as come, you know, very successful. And so, you know, we thought it was time to bring ruin back on the shore to talk a little bit about how their project has changed and what's new and how this massive surgeon adoption has gone. So, welcome back onto the showroom. Can you give yourself?

Can give listeners a little bit of an intro about yourself in case, you know, some of them may have not seen the last episode given that it is all the way back in 2016. Yeah, absolutely. And yes, thanks for having me back here. It's pretty wild to sort of look back three years in time and the crypto space. So this is a very interesting opportunity. I think and just quickly about myself. So basically, I did a lot of attempts of startups when I was younger and And worked a lot of quick.

Lord worked a long time in Asia. When I then discovered blockchain technology and first going to bitcoin good really into Bitcoin. You know became like a real Bitcoin type back in 2011 2012 but then over time I discovered like I got somewhat dissolution. Buy Bitcoins volatility really and sort of the fact that it wasn't seeing less kind of the mainstream adoption that people predicted initially.

And I think to a large extent that was because of the volatility right in because it's not it's more useful as gold rather than regular currency. So I got into stable coins. And I discovered bitshares which was the first decentralized

stable Grant project. But unfortunately, due to many reasons, bitshares, never really gained the kind of traction that we hoped for and instead me and a couple of other people from the bitches Community, eventually pretty much switched over to etherium and kind of Took the Stephen component from pictures and try to implement it on a theorem. So will you actively involved with like the development of the church? No, you could say I was a very active Community member and in Russ.

I mean, many of these like fundamental ideas around, make it all come straight from from the pitched like from the idea of pitchers in particular, right? How like you have regular community members ultimately being like, despite not being sort of an official developer of the project, right? I still was very deeply involved in sort of the core of the governance of it. Which is exactly what was the part of what is so powerful about blockchain Technologies, right blockchain?

It's tease. So the picture system, you know, they used their contract for difference system, you know, can you tell us a little bit about some of the things that why it shares you know maybe didn't work and how that kind of contributed to your design of the maker system with the cdp's. Yeah so there's really Couple of reason I'm saying this is really three major reasons why like I mean, the three major things that to some extent got ambitious way, right?

So first of all, was that pitchers, was this, it was not like aetherium smart contract platform rather. It was kind of like a Swiss army knife sir. So it's like a single platform or like a single project that tried to do many different things, right? So it's both it did, save all coins which is mainly, like, was kind of this main product, right?

And really, they're the biggest Innovation of the project but it also did things like privacy and like a very Advanced privacy system and things like account names, which is a time. Like, instead of having the long strings, like, having actual account names was like, very revolutionary and just like a whole range of other things like decentralized exchange, there was even like some music related stuff which is I think is funny. It's like it's kind of related to what ended up happening with

our chain many years later. But I mean there's just there was a lot of try to do a lot. Things and as a result it didn't really like mr. Will on any one specific product at least within the very early like big window of opportunity that it had back even before we throw him launched and then secondly, the were some fundamental problems with its table coin design. Still chiefly that the stable coins were based on a single collateral type, right?

So they were only collateralized by the pitch years as it is. Itself. So, actually similar to the current design of single metal die. And the downside with that approach is that it really limits the level that the system can scale. Because once you get to a certain size, you cannot create the systemic risk, where the stable current failing could take down the entire platform. And that's of course, like that's the really big innovation that we brought to the table in

that, we actually figured out. How do you take this basic approach with a single little time? And you actually did design a system that has many different collateral types, which can then diversify, and really mitigate the risk That's the so like that's inherited having just a single little type and even Branch out the use. Case Way Beyond what was originally envisioned in terms of like even accessing real-world assets and all sorts of even more sort of futuristic stuff.

And then I think the final point that I think is also like has been really critical for our development and really a big part of how maker has evolved is that the pitchers community and some of the pictures Philosophy was quite extreme in that it was really like hardcore anarchism in many ways, and really by to some extent totally detached from reality which then ended up just like, you know, turning off a lot of people who otherwise

have been interested in, but who simply, we're like, turned off by like the the idea that if you want to use this super awesome technology, you also have to like, subscribe to all this ideology right which is not always. In fact, it's a pretty bad strategy for trying to get business adoption. So So maker did start off like very much derived from that and I kissed Philosophy for sure, but it was with the mindset that the end.

The goal is to make change in the real world and and that perspective then letters on this like ability to essentially grow up alongside the rest of the ecosystem, right? Because really today the blockchain space is just very different from what it was even less a back in 2016.

Yeah, absolutely. And we are deep dive into how exactly the stability mechanism Works in a second, but just as a catch-up, can you can you give us the 90 second version of what happened since we last had you on the show? Yeah. I mean, it's, I think it is really mind-blowing. If you could go back to 2016 and then tell people what the landscape looks like today would like make her out in the world and things like that. Impound another DIY projects all working together, but just the

very basic Milestones, right? Is obviously the launch of single collateral died which was really, to some extent. The the first launch of like a, like the first successful launch of a major dep and Then followed immediately by the trial by fire. As it had to survive, a 95%

crashing, its collateral, right? Just study immediately from its launch and actually single felt I was able to, you know, totally like brush, Alright, so that was that complete creche in 2018 and at no point in time, they did in any ways of come close to threaten the stability of die or threaten the Integrity of the

pig. So that really created this critical proof point that the technology didn't affect worked work in the way it was supposed to work, which then led to just this greater sense of trust and system and ultimately adoption of follower that, right? So in summer, 2018, Seen the system, had its initial debt ceiling of 50 million and the governance had to actually raise it beyond that.

And then it went all the way to about 80 million dollar in circulation, which is where it's sits today as well as something. Like, I think it's more than 300 million dollars worth of ethereal blocked as collateral in the system right now. And then what came next was the proliferation of the defy ecosystem, right? So, this sprawling ecosystem of startups, that could really be made by, Anyone right?

Like and I can fit together seamlessly and because they have died as their source of decentralized ability, they can actually provide very useful products and very useful services without giving up or sort of compromising on the decentralization which is otherwise often what you see is the the trade-off with for instance something let me just with Bitcoin for it. So I tried a lot of very interesting stuff you do that or just other Other systems that

are that don't up that aren't based around smart contracts. You very often have to give up decentralisation to get more advanced functionality and I think this might be the first time where we've seen this. Like, we've seen the opposite where we've actually seen that decentralization. In fact, adds to the functionality and adds to the convenience of using these apps because they all fit together

seamlessly, right? Which is I mean it is really my blur I think and it's not many people think about that also because maybe many people didn't really weren't around and So 2015 2016 when the theorem started but it is pretty crazy that the ecosystem has actually been able to deliver on that promise of like this seamless interconnection between you know, trustless and permissionless financial services. And then finally, I think this has been a little bit more than 90 seconds now.

But the final and perhaps the well in my opinion, the most critical Milestone is that the community was able to bootstrap the decentralized. Tons of the single flat or die protocol and actually begin controlling the system. Directly through them cartographers in a very active and very well somewhat efficient manner although with a few pitfalls here and there. But but that's has really been.

I mean, that is the most incredible thing of all because of all the things, it is really the decentralized governance that collect defines the mega project the most and it is the critical value proposition and the Critical feature of the system that really makes it interesting because it promises to deliver something that's completely different from

existing Financial systems. Write that are all like incredibly lockdown and and with with this like inherent lack of transparency and and very often contradicting incentives built into the system. I mean, this also just one of the things that many people didn't believe it was even possible, right? Like, I mean, in fact, we didn't even really. I mean, we weren't really sure if it was you Owing to be possible to do, right?

If you could actually launch a, like a, like a sustainable Financial system, and then just let it be controlled by random strangers over the internet, as long as they have, the right incentives by holding the right token, but it has actually

played out, right? And and nowadays we've reached a point where on a weekly basis, the a whole is actually manage the system actually, This episode of epicenter is brought to you by Cosmos. The internet of blockchains Cosmos is live and we couldn't be more excited to see so many projects already building on it. Blockchain Technologies are evolving fast and development shouldn't be one-size-fits-all

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Can you explain to us how the system makes sure that one day is always 1 US dollar. So I mean just for just just for the larger picture there are other stable tokens such as you SEC and the Gemini dada and tether that are supposedly backed by a dollar in the bank. For each one of these coins that are issued. So die actually works differently and that it's backed by crypto collateral. So how does that work? And how Do you keep, how do you

Peg the value to the dollar? Yeah, very important question. There's kind of two mechanisms to right? There's two sides to it. So, there's the, there's the long-term question of fundamental solvency and I guess, you can say resilience of the system, right? Which is like, can it like, is it really is a real value there? Behind the tongue or is it all just like hot air, right? And that's where the answer is. It comes from the Unchained

collateralization, right? So the reason why you know, that there's Is real value in your thigh is because you can go to the blockchain. You know, right now go to a tools for instance and you can actually, you know, on your own do if complete audit of every single aspect of the system in

real time, even, right? And you can ensure that there's always this like, there's always this fundamental and inherent solvency in the system as well as a safe level of over collateralization, so that despite the system right now being backed by only eith, And the inherent volatility of East, the still able to remain stable, even in situations, such as the 2018 crash, because the risk parameters.

So the kind of like the, the safety logic of the system that keeps it safe from things like Crash from, a crash rate is set correctly, so that you could have a, you know, you can have a significant fall in the price of eath, but that's fine because there's about five times as much value of Ethan the system as there. Is outstanding died in the market, right? So you could really live system can handle a very big Crush. So, that's the best kind of like

the lot. You know, that's the fundamental like value in the system. That means that there's a potential here for pursuit of for stability, right? But then the other question is, how do you create short-term stability in one hand? So like packed price? Right? Let's like that stays at the same price point, but even more importantly, how do you create liquidity, right? So how do you make it possible

to move large amounts of do? Into East or into another stable coin or even cash it out for Fiat. And the answer is that it's it is like you said, it's kind of the system, keep this stable but perhaps a better way to think of it is that it's the government's that keeps the keeps it stable and then actually make it takes care of this because it is managed through the like adjusting the rates in the

system. So basically the the cost of generating that I primarily is how How it works right now in the future, it will also be the savings rates. Like the games you get from holding die but it's not going to be available until a future version. So right now it's actually purely done on the the generating die side which is really it's similar to changing

the cost of borrowing. Let's say US Dollars which is exactly how the let's say, the Federal Reserve Central banks, in general, they maintain the value of their currencies. So, what they do is they modify the interest rates, and as a result, they basically change How likely it is. Someone in the market is going to borrow money, which expands

the food supply, right? Because when you borrow money in a fractional Reserve System, you you're essentially creating new money or other, or will do the opposite, right? Pay back their loans and actually just hold onto money if the interest rates higher, right?

So it's the same thing that the maker system doesn't That governance controls is they modify, What's called the stability fee, which is the fee that someone pays to essentially borrow die or generate die by depositing collateral into the system and then utilizing the smart contract system to to essentially print you die. And then the stability is the

price. You have to pay for this for this service and it's cut and that's what I was referring to that this is what's be actively changed like actively modified every single Right now by the decentralized governance, this stability fee has gone up from I think initially something like 5 or 7 percent to currently over 20%, what do you make of that? So what what what do you think this means for the ecosystem? Not in terms of how expensive it is to borrow money, but in terms

of, what does this say about? The ecosystem? What has changed? What's the underlying metric that has changed? Yeah, that's it. Started at 0.5% when the system was launched and the Very like the very basic assumption that turned out to be wrong, is that? It did assumption was that there's going to be incredible demand for decentralized stable fine. And which is kind of like the simple use case rather than sort of the basic value proposition of the maker protocol.

And then this the secondary use case of generating day which is a much more advanced type of way to interact with the system. Right which is its and it's similar to its similar to borrowing money in the bank, or taking out a mortgage or even margin trading in some situations where you deposit.

Laterally into the system and you generate diorite and yeah, it was just the first of all the interface to do, this was incredibly complicated and it took about seven etherium two sections to even have a CD P go through, right? And it was just all. So like is a very Advanced and completely Cutting Edge and new type of service, right? Like the very first defy app and that had never been done before

the term defy even existed. So we naturally assume that it was going to be more difficult to people to do that. It whereas it will be easier to get them to use the most symbol and approachable stable coin functionality. And this was also the case very in the very beginning, but very quickly. The I like the idea of defy of being able to in a decentralized system actually access financing for your inventory and taking on decentralized Magic positions

was act. Like it was a very powerful idea and it's essentially spread like wildfire with people teaching each other. I guess, how to do. How do you use this, right? Even in the very first stage. We were so different views. So, what ended up happening is that there were way more people interested in using the advanced degeneration functionality, right to to borrow and borrow Diane open cdp's. Then there are people using die

naturally. And then what the system does is it because what this affects right? It's like the, it's the supply and demand, right? So, you have sort of the de Madrid I, which sits some particular level, and then you have the supply of die. Which, which sits somewhere else, and they're kind of independent of each other. As in people holding by are people who want to go out and use a stable coin, maybe spend it people who open cdp's, have a different, a completely

different Demand right. They're interested in leverage their just financing. So the way you and what do you have to what has to happen is they have to meet exactly in the middle. So they have to be exactly the same because if they're not the price won't be $1. So if let's say supplies higher and demand is lower, the price will be below a dollar. And if it's the other way around, the price will be above it, all right?

And so what governance does fundamentally to kind of like tie them into sink is to adjust the stability fee. So it so what that means is adjusting on the supply side, how look like, how interesting, how, how, how, yeah, just like the terms on which you can generate that, right?

Because if the stability of these higher it costs way more to generate die unless people are going to be interested in it. So that's why and that's then how you how we know Oh that what happened is that they were tons of demand for generating diet, right? Because the stability features shut up which meant that without like if the disability has stayed the same the system

probably wouldn't be in sync. Today will probably be like they'll be way more die outstanding but also the price would be below $1. So why was the stability Theory, the only way to modify the supply? I mean, in a way, what should we expect that, you know, back when the dye price dip to like, you know, 80 cents or something?

Shouldn't we expect that the difference from the shelling point of $1, should provide the CDP creators enough incentive to Arbitrage that and you know, maybe buy a bunch of die close their cdp's. Allow the system to go back up and then reopen the cdp's when the dye prices back to a dollar. Yeah that and that's the basic Assumption of how it's a very micro scale, the system remain stable, right? But the thing is that that assumption depends on The like

another subject right? Which is that governance will actually act to deal with the balance, right? And that's, that's of course, in the early stages of system, that's there's less proof that got the governor's actually works, right? So the fact that the shelling Point even is one dollar isn't really as established compared to, you know, after basically today, right?

Where people are a lot more more willing to trust the fact that the price will go back to $1. You think part of the issue might be that the set of Who are able to participate in? Arbitrage is limited where are, you know, I guess what I was first learning about die. Like it didn't guess. It didn't hit me. And then when I was looking at it again, like, you know, like a couple years ago, it took me a while to realize that oh, wait, the die holders.

Actually don't have any claims to underlying collateral assuming, you know, except in the case of triggering a global settlement but because it's not possible for the die holders to actually, you know, go against the basically, you know, the only people People who are able to Arbitrage, it are the CDP holders, and they have to over collateralize, so heavily, and so that heavily limits, the set of potential arbitrageurs, thus making it a much more inefficient Market.

What's actually being a rest and this is what's what's, I mean, this is the part that can be very difficult to to sort of wrap your head around, right? But it really is the cost of capital. So it's not a quick because they're like there is no fundamental claim in any way to $1 it. Unless, in the situation that you described the global settlement, right? Which is a very like Niche, each case that isn't actually meant to even happen. My point, is that even a CDP

holder? Doesn't have some like, direct way of If I have one day, it's automatically. Unlocks one dollar value elsewhere. I mean you could, it does of course, apply on the actual liquidation ratio. Sure. But it doesn't like, I mean in the end it's a different concern compared to kind of like the risk management at the better larger scale right. And in reality what they're what they're really looking at is the cost of capital. So what they're they're interested in is How likely are

they going? Like, I think going to make more money if they hold onto the CDP and they hold onto the leveraged position of ether instance in there. And despite and paying whatever cause they have to pay on the both on the you know on disability fee side but also on whatever potential you know Arbitrage gain that would be.

And the thing is that in many cases you know the even if the Arbitrage potentially huge it might not actually outweigh the the sort of imagined again, I like the projected gains, I'm sleepy holder so that there's just so many Dynamics playing into this where There's only one solution and that is very proficient management of the stability fee and the monetary

policy of the system. But with that in place they're actually like it should theoretically be exactly as efficient as the current monetary system is in this regard but of course with the extra benefit of also being even more seamless and blushing based and so on. So to make it as efficient as the current monetary system that would make the claim that the mkr holders are as proficient at

monitor. Policy as the, you know, the people at the Federal Reserve who are, you know, generally much, you know, trained Economist and stuff, two questions here one, which is a question I've had for a long time and I unfortunately couldn't find any good resources, answering it on the Internet is how was mkr distributed because, you know, there was never any sort of Ico or anything done for mkr. Yeah. Kind of how does that distributed?

What percentage of it is still in the hands of the Nation as well as VCS or and then what percentage up is in the hands of The Wider public. And then to how do we make sure that the people who are holding this, mkr are necessarily the most sound monetary policy decision makers. Yes, this is really the fundamental question of the, the

system, right? Because like I said earlier, the decentralized governance is the cool feature and the I mean, the basic underlying assumption is that If you have a proper like open and like equal playing field, I guess you can say for the science and the knowledge related to monetary policy. You always be able to beat any amount of experts, right? Because you will have the entire Global body of knowledge participating directly in governance.

Which means that you could even have, let's say, central banks participating potential, right? And they would all have the exact same point of access in the SEC, same framework to participate, as Well, every other Central Bank or every other Commercial Bank or we all the like random econ dirt sitting in the basement, I kind of like thinking about Innovative new, you know, ideas around it, right?

And the thing is that in the end it's very hard to sort of say, who is like it's very hard to pick kind of like this genius person, who knows how to like Run the World economy, right? Because it's kind of it's, you know, Global like macroeconomics and monetary policy is it Silly to some extent a bit similar to Voodoo in that it's not totally like it's not, you know it's like white fluid and it's quite to some extent, an art form as

well, right? So what that means is that it's not really guarantee that kind like highly-decorated Ultra expert, is the guy that will prevent the financial crisis from happening. It could just as easily be someone who's just seen something that no one else saw because they all were locked in their old way of thinking, or something like that, right? And the core. Year of the maker doubt, decentralized governance, is that what we want to do is we want to create?

I mean, what we really think of as something like something similar to a scientific Community right? Where there is a free, Again like a free playing field and free sort of open framework for all ideas to participate in a like a like an unbiased Forum, right? Where you can have like where every perspective gets a chance

to participate, right? So whether it's established Central Bank or the sort of the the the more radical and more modern or whatever new Innovative approaches, of course, there has to be like, I mean, once you've done of open that Pandora's There's so many questions, there's a gif

moderation and like priority. And so on, right that needs to be considered and in the end and that's maybe also like a, like, a critical other piece of it is that you have to, of course, you have to ground yourself in a conservative mindset, right? Because of course, if you just go out and so do radical monetary policy, you will quickly end up looking like Venezuela or turkey or something, right? Where people try to defy gravity, which, of course you

can't do, right? Yeah. Like the base, the answer really is that You could say that like even if the FED had the world's top economists and monetary policy gurus, they will still just be a subset of the people who will be able to participate and have direct line. Like both have direct access and line of sight to make a governance. But also have that direct ability to actually influence the government itself.

This then comes back to the question of decentralized governance and a holders and how you actually implement this in practice rate because many people People think that. The basic idea of make a comment is just a card holders, just vote and decide whatever they want, right? They basically do whatever they want and that's the end but it's actually a much more sophisticated framework where

it's more. It's more than a holders have this role of trying to surface that you know, like the key rational points made in this scientific framework and and only sort of by going for this rational approach and try to reach something that's as objective and as is vetted as possible. Are you able to actually reach a selling point where you can even get consensus around the direct approach before we dive into the governance? Sonny asked earlier? So how are the maker tokens

actually distributed initially. So who are these people who actually Howard maker? There was initially 1 million a took right created by me really under and a couple of other guys in the early days and we knew like we knew from the very beginning that because again like they've called it gets our goals are not meant to kind of like run the system through a popularity contest, but they are, of course, very important in that with the wrong set of stakeholders.

You could have like you could easily see how the system could fail, right. So we knew very early on that. It would be too risky to just do for instance, nice. Go and try to pump the token and get a bunch of speculators in, right? But rather it's all about choosing the right set of stakeholders. So the very first approach was to to distribute it.

Directly to people who volunteered to work on the project contributing with like, with like science or engineering, or to select various forms of contributions, to the project. And then also selling directly to to some like Engaged community members. That were kind of like essentially like a part of the early. It's of the core engaged group,

right. Which is very different from how I see you operated because the early major project actually distinguishes Itself by sort of almost doing - marketing like

five club-style. Like it was actually meant to kind of be a bit of a secret Club where the right people needed to get some space to get their head around it before the masses came in, I guess you'd say right and of course after a while the system grew to a point where the Really felt confident enough to kind of open up wider and make the project more widely known, which actually coincided with, then when I did those very early podcasts, including here on epicenter, right?

This came at the same time as like the increased scrutiny of the blushing space as well as new regulation and new kind of like concerns around. You know especially totem distribution. Right.

So so basically once like once we reach that point it became I'm very clear to us and from the perspective of a legal strategy that the only reasonable way to distribute tokens like a total, like a, I would be to sell it to like essentially like, you know, like, like established and just like that, you know, very, very proficient. It's tution Investor's, right? So, so in the u.s. accredited,

investor Spencer, that's right. And just in general, the kind of like the kind of stakeholder where you can you could You could sell them a token and they could go totally poof be worth nothing and everyone would be like. That was your own fault, right? Because you knew what you were getting into and you did your own research write and on the other hand, if you actually try it again like if you try to sell to the masses and thanks blew up.

It's a little bit different like there's a level of trust there. That's kind of expect it to be to be maintained when you do it which is also where we saw the whole Ico craze go wrong, right?

But the biggest of the like the biggest event of when we started this new approach of selling and care to latch, establish stakeholders was, of course, when we sold, actually a total of six percent to address Horowitz which was among their very first purchasers of digital assets and to this day is kind of like one of the absolute core pieces of their of the crypto portfolio. That also really put the project

on the map. Because it was a huge stamp of approval in the more established VC and like crypto world and even wider Financial space or text-based to get addressed Horowitz, buying into this project and also participating directly right? Like in terms of promoting it and sort of talking about the implications of the project kit. And as well as supporting the foundation, in all sorts of

activities, we were doing. So, like it mean, today, it's basically a mix of kind of like, Early Community contributors early Community, like buyers, like people who've bought on the secondary Market especially in the early days, there's particularly a lot of Chinese people who did poop ball in like that. So there's a actually, a very significant Chinese community in the make it our ecosystem.

And then there's a lot of these institutional stakeholders, including addressing Horowitz, which is one of the biggest but then also actually, a lot of other sort of smaller, like, I guess you can say, medium-sized institutional stakeholders, This episode of epicenter is brought to you by Microsoft and the

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support of epicenter. Before we dive into what exactly governance means in this instance and what mkr coders can actually do with their make a tokens, the stability fee. That is generated currently still goes to make a holders, right? It doesn't go to the die or as it goes exclusively to make a holders. What was the rationale behind that? Designed it behind that design decision when you made it?

It's really, the fundamental economic Dynamic, on a system that kind of makes the makes it go round in a sense that it aligns, it said it was between the different participants in the system, right? So it really it's very basically that a holders. They sit sort of at the guess you can say this at the core of the system and the they fundamentally perform, the governance function system, right? So they decide really how like the business logic of the system and what it's actually doing.

So it's includes like Stabilizing the price of diet. So one by levying a stability fiancée DP holders but also in the future other more advanced functionality such as those setting, the die savings rate which and a whole range of other stuff or Advanced governance. But most crucially, the thing that they like they're doing right? Is that they're setting, the collective risk parameters and sort of the logic around. How do we keep the system safe

from a crash, right? So how do we make sure that we don't put all the In one basket so that we only relying on, you know, a single cryptocurrency as collateral even when we are at a scale of several billions. Because that's when you really get that systemic risk, right there, could you see the whole

thing wiped out? And also the ratios are set correctly so that you know, like I mean do you have the right amount of buffer, you know it exists of a particular position the system where you've put in some collateral to generate die and you can hold us? Then make sure that when you do that, The excess collateral that you put in is enough to cover the volatility of that asset, right? And if and then the, and then, the key aspect is that if they

set this incorrectly, right? So if they failed to correctly predict the system from excess risk, they have to absorb that excess risk. So let's say that they allow a cryptocurrency. That's not particularly good into the system as collateral and they allow it in with like a very small Gap, right? So you can generate a lot of die from that cryptocurrency. And then just like, goes poof, right? It's gone, there's no money

left. Then what you what you end up with is it's bad that right on uncollateralized unpacked that and in and without any other measure you actually have insolvency in that case, right? You actually have a situation where there's no longer guarantee that all dies backed by on chain collateral, right? But then that's where the a took steps in and takes the loss, essentially through an automatic. Fully autonomous mechanism that what it does is it's just that sprinting a to raise funds.

So basically it prints have care like automatic. Like the system detects that there is a loss, write the text this is a shortfall then it prints MPR and then it automatically sells in the market to race to race died from

the market, right to? Yeah, basically raised the same amount of dye as there's a shortfall in the system and then it uses the dye that is raised to essentially cancel out the shortfall Bye-bye burning the day, like by removing the dye, from circulation, so that it can kind of like they have the two things equal out, and make sure that. Now, the amount of collateral is in the system is congruent with the amount of dollars in circulation.

So, is this lender of Last Resort functionality actually implemented on the current live maker contracts.

Now so instead of a little die, there's actually this additional mechanic called pith and all of this logic is implemented more on the kind of like the like the he's CDP holder side with a I mean it's actually it's a it's a, it's like it's a functionality that that sounds very complicated when you explain it, which is like that, that this aspect of the force dilution of kind of like the underwriter of the system sits

with the people. Also hold collateral in the system in the event of a serious crash. So I guess my question is that in the moment in the single collateral die instance, is there any risk that the mkr holders? Take on because currently the lender of Last Resort our risk is passed on to the the CDP holders. So what is the risk that the mkr holders are currently being rewarded for? Yeah, this is a very I mean this is a very common concern I guess. You can a point made about the

system, right? But if you really think about it, then right now as a napkin holder, you're taking more risks that you ever will write. Because at this stage in the system's life cycle, there's a way larger probability that will just completely and outright fail, right? And that's the big, like that's the big additional Dynamic of same cartoon today, right? That because you're acquiring a, that's, I guess, you'd say freshly made, right, because the

system is brand-new. There's a way bigger risk that you're not really, you know? You're just buying into an experiment, right? And not of course it is by far the most established experiment on ethereum, right? But if they're him still is just I mean, D5 really. Is this still like it's thing that has yet to fully prove itself. So from that perspective, I mean a whole is really ever. I mean, they still take by far the largest risk of anyone in the system, right?

Because I would say that there's a bigger risk of mkr. I mean, it's Like etherium as a whole is obviously better established than a, right? So the demand dynamics of the system itself still doesn't directly impose a loss on a whole is right, but of course if you had the system Wipeout, it would sort of a guess as a second order effect. Also just wipe out the a to. But I mean the thing is that none of that really it doesn't really matter that much, right?

Because we're just talking about the very early stage, it's sort of microcosm of the system and its Really, you know? It's like it's yeah, it's like it's kind of like initial face where it hasn't yet scaled, right? So these Dynamics become a lot more important. Once we exit hate a larger scale where you have to, you know, whether also is a real job for a hose to do in this in the sense of doing proper risk management by diversifying different

assets. So let's talk about what the mkr holders, what the scope of their governance currently is. So there's a couple of parameters that Can be set and reset in the system. Can you describe what they are and how this voting casting a spell happens. Yeah. So I want to explain all the parameters that can be modified by Governors because there's actually a huge amount in a system is incredibly modular. But the the sort of standard risk parameters, right?

To the standard things that a whole is, they they deal with in the current system is. So there's this stability fee, right? Which is the the cost of generating died from a CD P. Then there's the debt ceiling which is the total amount of data can be generated out of Eve. And then there's a liquidation ratio, which is Is the the so the buffer between deaths and collateral, you need to have an STD pee before the system,

liquidate your position. And and so governance, really, I mean it the job of government is to modify all of these primarily. Obviously, it's the stability for you, because that's how you stabilize that I market price in the wild. And then there's a debt ceiling which is more like of a. It's like, a routine thing you do as a system grows, you kind of like evaluate the overall risk to allow it to grow to a larger Sighs.

And you would still I mean you would very rarely see something like the liquidation ratio be adjusted in the in the wild in single level died because of the significant Direct effects. It will have on CP holders who are actively building a sleepy. Who could have the effect effectively have the rug pulled out from under them, right? So so it would be it would be

quite unlikely. They were actually see the liquidation ratio changed and then there's also some other like some other Mo administrative. Things that them careless could do such as changing the set of oracle's right in choosing picking. The Oracle providers, that hasn't happened yet though. So the oracles that exists in the system today are the same oracle's that it was launched with. And then there's also another very critical functionality,

which is emergency shutdown. So the ability to shut the system down in the face of some sort of. Like, I mean the main reason is you want to use that in the Face of a crypto economic attack or perhaps a book found in the system or some other significant problem, or maybe even a run on the bank, which is where you then, establish this direct ability to turn the dye into underlying collateral. So, how does the voting system itself work?

If I'm a make a token Hodor, how do I participate in the governance? There's two aspects to that, right? So there is the unchanging Infrastructure, which is very simple. So, it's basically a constantly, it's like a vote that's constantly happening inside this my country called the chief where what the governance participants do is they essentially, you can say they steak the steak there and Care answer to Chief. Although that's not real.

Like it's better to think of it as they just participate in voting and it's just like a technical defect.

Like I said, it's a technical detail that they actually move their mkr into the chief, but But once they've done that, then them care is able to vote and then they're actually able to essentially Point their votes on any smart contract, on the entire theorem blockchain and the system then is costly, keeping track of like which smart contractor which is the area mattress has the most votes.

And whichever has like this the single address as my contract that has the highest number of votes on the entire Block, in above all the votes in that's happening in the system, is then given direct admin access into the causing.

Well, do so the way that you, for instance, modifies the Builder fee is that you the way it works is that you do have a smart contract that basically says, Target the like it says, send a message To the core of single day that says racist ability fee by 2% something, right? Or else that disability fee to 14 percent if that's what you want to do, right? And then once that's my contract, gets the highest number of votes in the system.

So it gets the admin axis. Then anyone can go and poke it essentially, which is called casting a spell because it's like a technical term for this, kind of smart contract is Spill, right? So what happens is anyone is able To then just like trigger The Proposal from like trigger the execution of the proposal and the transaction is then inserted into the system to modify the internal state of the system. So, that's the, and that's the smart contract infrastructure, right?

So then just very briefly, there's a layer on top of the Reese's, this user-friendliness layer, right? And right now, it's the foundation is only one who maintains this kind of front end.

But really what it is is like a voting dashboard where you can like see different options for voting and like you can see different like there's even like a bow that this both the polling system, so sort of like a pre vote and then there's the actual like like Voting as well where you actually execute on decisions made in the community and it's then presented through it, like an easy and secure interface, that allows a larger amount of the community to participate who what percentage

of makers typically pointed. At proposals, that then become

the front door front, runner and become implemented. so right now is typically between 5 to 10% and you also have at like you have this important Dynamic of around and also five to ten percent of people are always voting at, as kind of like the current active proposal, which then sets the bars, like you have to get at least as a seven percent of the work to be able to to like trigger a new proposal in the system and kind of like it really acts as a quorum in that sense.

You said earlier that Andreessen, hold six percent of the maker tokens and there's a couple of other maker waves as well as well, right? So basically, it would it would only take one or two of those to actually force a proposal through, right? Yeah, I mean, theoretically, it's possible for someone to in the current system, try to like pass a minister proposal, right? And then the reaction, I like the response to that would be to then trigger an emergency

shutdown, right? Actually, Try to shut down to system from the, from the crypto economic perspective, right? But the challenge in the system right now, is that whereas in the multi-level died, when the final version of the governance system is implemented, right? There's actually some incredibly strong game theoretic checks and balances in place. That makes this kind of behavior. Even if you had, let's say, like, Anonymous actors holding, let's say 50% of the tools, right?

Or even like all this opens. Well. Okay. I mean just like significant amounts of the toes, right? You still have just like like incredibly rigorous game-theoretic systems in place that prevent anyone from actually acting maliciously, in the system, in the current, in the current state of the system, rather the like a key defense comes from the fact that it's

known to the foundation. For instance, like the forever, rather the foundation has been very careful in who has sold to these like least large blocks to write and it's and it doesn't involve play. See a nation state action which could for some reason decide that they want to shut down the system, right? And kind of like vandalize it rather, it is just very rational economic actors, that, you know, wouldn't wouldn't have their themselves by burning the system

down. But the, like, I mean, it's, that's always a dynamic of all decentralized system, right? And all these centralized governance is that, by the very nature of having the governance, be fully decentralized and having the, the, the sort of the the Final and the fundamental controller system being available to decentralize

community. You always have this element of like allowing people to shoot themselves in the foot if they want to the question always is what percentage of people actually have to glue to shoot everyone in the foot. And one would wish that in a in a system that creates so much value and hold so much money, it would have to be more than 5 to 10%. So can you tell us what's going to change for the new governance model that that you talked about? Yes. It's really likes is a wave with that.

We saw this problem, right? It's really based on two fundamental approaches, right? Like fruit to fundamental constructs. The first is What's called the governance security module. So this idea that, all right, this is like a smart contract where it's kind of sits between the voting system and then, the core system itself as kind of a

security buffer, right? A firewall in a way and it works quite simply, it's that when you create A proposal that you execute a proposal in the voting site, then passes into the governor's security module and then sits there, for some predetermined amount of time which initially would likely be between 24 hours and up to a week. And then once it has sort of run its course in the government security module and and B subject to the security delay, it then executes and enters the core system.

And so you have this this approach combined with What's called the emergency shutdown module. So which is really just an upgrade of how emergency shutdown curly functions in the system. And what the emergency shutdown module does is it allows a much smaller like it, it allows a fixed and and quite small potentially percentage of a holders to trigger an emergency shutdown, which right now it's at launch, it's going to be five

percent. And so what that means is that any like any consolation in the community that's able to 45 percent of the total and cast Supply will be able to counter a malicious proposal that's sitting in a government security module. Right?

So so someone tries to let's say yeah it is like burn down the system or steal all the collateral or somehow like try to Harness System. Then they will need to you know they will need to first of all, let's say by 51 percent of all them care or maybe there's only 15 percent voting than 50 percent of them go. Right? But some significant amount of in care and then they use that to trigger the proposed. It'll but then it just goes into

the governor's security module. And the meantime, the honest actors in the system can then essentially rarely and respond by triggering an emergency shutdown of the system. And what then happens is the system shuts down, right? It totally unwinds. Everyone is able to exit the position at the technical blockchain level, but in practice the way it plays out is that you immediately deploy a new system and then you provide what we call a smooth

transition, right? So we provide this What's really more like an upgrade process where you can transition from the old system that is now shut down and then to the new deployment as seamlessly as possible. And this is also how we for instance, do the upgrade from single-level die to multilateral diorite.

The point is obviously to make it as painless and as seamless as possible for the end user, but the really critical game theoretical piece to this, is that in the new deployment because anyone is able to do a new deployment, right? It's just an open, you just deploy some open source code.

Right. But the community will ultimately will in most situations reach consensus and kind of like equilibrate towards a single successful deployment that then just becomes the new maker system and this deployment could in response to for instance let's hacker just blend it. Blatantly trying to attack the system, right a steel, the collateral or harm system in

some way. And using a significant amount of a for that in response to that as heck, you can actually just burn their and Care on the new deployment like choose to what you call. Honor the care of everyone else. Would you can choose to kind of like lit everyone else is a transition over but obviously there's not really a good reason to allow at clearly malicious attacker who has voted to harm the system from Gaining governance power, right?

So what do you think get is? You get stronger governance with the bed exercise, cut out of the system and you also get a like a significant, a burn, right? So you get a significant reduction in total Supply which then makes up for all the friction that having to go. Go through this whole process cost you, right? And the same Dynamic also actually exists for someone who abuses in the first place, its power to do an emergency shutdown, right?

So someone goes on, kind of like let's have some fun and shut the whole thing down because it's quite easy to the barrier for doing that is still in initially, for instance, 50k, a right? So, it is still, which will then not be honored in the new deployment, if it was purely a

troll attack. And then you, again, you have this Dynamic where ya like, The attacker did manage to shut the system down, but there was a smooth transition to a new system and it cost them a ton of money and that money actually went to a Elders. So who do you say? It's whether a shutdown was, in fact, a troll attack whether a proposal it was malicious because there could have been just a bug in it or the people honestly thought that the system

was under attack. So who actually determines whether to penalize, make a holders or not. So it's quite a complex question really, rather probably complex issue, right? But the basic answer is that the community decides, right? Because, because anyone can deploy and maker system at any point inside, right? Because the code is open source, you could actually very easily. Imagine that immediately after the merger shut down, there might be for 10 or like a thousand two deployments, right?

And everyone saying, this is my fault, super awesome deployment right where I haven't, you know, and then maybe I mean there might be People trying to like give themselves extra and Care are, there might be people to try to like, cut out and care of people didn't like or something, right? And the question is, which new mkr distribution is able to basically, you know, get the faith of the overall community and the economic majority of the, of the ecosystem, right?

And in most cases, like in clear-cut cases such as someone Blatantly attacking system. It's really obvious that you have is, I mean, you essentially have the, like a governance convention on me. You can even call the Social convention that if you try to attack the system, you don't deserve your own care, right? And, and there's a good reason to migrate to A system that doesn't include a holders that have proven that their militias to the system, right?

So, it really comes down to, like, the Dynamics of. What do the users of the system? Think is best for them when they, when they're picking what system to migrate to. And that's also actually end up like that is actually like what the maybe the most fundamental point of maker governance. Right. Because that is the point where you actually see that the power of a holders is an infinite. They don't actually decide everything like the kind of run the system on a day-to-day basis.

Until the moment that a very significant event happens, right? Until it. Like to the point where the governance has to kind of like fracture and reassemble itself and then what happens is, the power actually falls back to the economic participants themselves and a girl does become totally powerless. And the only thing they can do is cut like, point to the Past actions and say, hey, I was so good at governing system, right? So I should totally be a part of the new deployment.

So what's the worst thing that they could get away with? So could they, for example, steel all the collateral by? Like setting the stability to 100%, stability fee, to 100% in that, get away with that. Like what would be the potential reward that they could get away with with an attack? Like if there was no response from the community, yeah, you could actually be anything like it could be printing.

Like, I mean this system is like because the system completely relies on this Dynamic of, you know, triggering an emergency shutdown within the time frame allotted by the governor's security module like because it would be impossible regardless like so there's no attempt to kind of like restrict what kind of take your Lexus Governor's already has right? The question is Is that outcome ultimately going to be better for like the average user and the average a holder in the

system, right? And anything that isn't following the regular governance process, right? So like actually tried to scientifically optimize the system and following the consensus of the community is always going to make people worse off, right? Because it breaks the fundamental social contract. And so, this Dynamic of like a blatant attack also works on

sort of smaller levels, right? Because the, you know, it's not just that It's not just a dynamic where, you know, you want to protect the system, right. Like you want it from from very powerful attacks. You also actually want to kind of like police and and try to catch people from breaking the social contract and sort of catch them in the act of doing something.

Where the situation where the users most likely wouldn't like, will most likely actually consider this Behavior like, like negligent or malicious to them. And as a result, my crew to a system where this actor The a of the sector is included because that's then you have this very

strong Dynamic, right? Where people have to be very careful about like carelessly track to push some proposal through that could actually get the whole system shut down and maybe even get the penalized for being responsible for it. Quit. So that two very significant updates coming to the makers of some soon. The first one is the interest generating die. Can you talk about what that is and what made you roll that out?

Yes, so the dye savings rate, which is what allows you to hold die and actually get a, like, get a savings return on it as you, hold it in. Your wallet, for instance, is a really fundamental feature because it's kind of the counterpart to the stability for you, right?

So right now when the system is balanced, you have like you can only change this Billy fee and then you can modify the supply and then the dark side of that is that that means that when the system really gross, but the supply grows more than the demand, your only option. Is to pull down on Supply.

So you kind of have to let the system, become a victim of its own success writing and artificially restrain, the growth of the system which is what's happening right now where the interest, like the stability fee is just incredibly high, right? And it's actually really, yeah, it is kind of create a lot of people coming, you know, why are people even generating died? When the fee is just that crazy

high, right? And it's amazing to see the people still are using it, but the problem is that That the system has no way to Spur diadem and right is no way to kind of like make it more attractive to hold die. And that's what the die savings rates solves. So instead of just pulling down on the stability for the side when the system is growing, you can pull up on the demand side as well, right? So if you had like the mismatch like this, you can pull it into sink like here and actually see

overall growth of the system. The actual effect of that in practice could very well be quite, you know, quite a Quantum Leap in terms. Terms of hitting some sweet spots and product Market fit where the system suddenly becomes interesting to a lot more people, right?

Because on one hand you get, you get the the CDP functionality which is right now, incredibly popular, even with these ridiculously high fees, you can get that down like you can well rather you get because you can you can get that down to a much lower rate because you can now suddenly make die incredibly attractive, right? Because when the stability fee of twenty, 20% for instance, on on generate day, theoretically enemy. This is a than educate.

Like it wasn't wouldn't actually happen, right? But if you're ready, there is a 20%, like they're sort of 20% available to give to dial is, right? So imagine if holding the, I gave you a 20 percent return and this was without any additional risk whatsoever, right? It was just like holding a regular die. Like it is gave you this massive return, right? You would immediately see tons of people moving their the savings into this because they would want to take advantage of

Very high savings rate. Quick question about this though, like about how this works, doesn't isn't the stability Faith, be paid in mkr and then the diag savings rate would be accumulated in die. How does that work? The transition from the stability from mkr? Does it have to go through some exchange or something to be paid

out? The feature of the fee being paid directly name Kia and single that will die is, it's kind of one of the features that were in the end not done for any, like business reason, or any, any sort of user facing reason. But rather, because it was easier to implement. So it was easier to get single little it done and get the get the, you know, system live and rolling, and sort of see it play out in the real world, right? Wasn't any place in every aspect of mkr because the fee is bird

also. Important to the economic design. Oh yeah, absolutely. But the way it's going to be implemented in multi-level to is just a more like a most that like a better approach are all right? Which is that the system takes in fees and die and then what it does is it accumulates kind of a pool of dye called buffer and when the buffer hits a certain size it triggers what's called a surplus surplus auction.

And the surplus auction is then where they a burnt and then what the means is that buffer is also available as kind of like an account where I can also be taken out of, and put into the dye savings rate for instance. And actually today, you can also pay your stability for your CDP with die because it is actually super frustrating. It was one of the biggest concerns all the users head that they had to let go. And, you know, they have to use eith to open the CDP and then

they get die. The second token and then they also have to go and get a third token, like some dust mkf dust right to then pay the fee to retrieve their collateral out of it, right? And it's just like incredibly You know, user unfriendly really and as a result the feature to pay the stability will die was added to the front end and kind of like me is that it takes care of automatics go and buy a on an exchange and then pay the stability for you.

But that that convenience functionality is moved into the core of maker in multilateral die. So the release that that also supports the die savings rate and is then fundamental to facilitating the die savings rate and the flows of Any that that really go from from CP holders, paying the stability for you, right? And then the part of that going to die holders and another part

of it going to a holders. What happens if people don't actually use this ability fee and so you know you promised the the lock die, there's interest rate but then it turns out there's not enough people actually you know, closing their CDP and so this you don't actually have the money.

Like is there other critiques concern here like you know, what happens if you don't have the money to actually pay out the interest rates that were promised Yeah, that would be if you used the current model where you pay all the fee at when you close this EP, but in the next version of the system they're counting is continuous. So, you actually see the die. Like, rather than scdp accruing, you could say like a fee

overtime, right? This will sit there and has to be paid what a silly P does in multilateral dice actually continuously generate more and more data, so it doesn't kind of like a cumulative fee. You have to pay it just Generous die on your behalf that is then sent to the buffer. So what that means is that it's just like the direct link when the DSR pays out, that died has been directly generated out of the city piece at that moment in time.

So there's always like real-time solvency in the system, right? Because of course that's necessary or you could run into these weird edge cases. That sounds like a very major upgrade one thing I'm curious about. So in my understanding to actually generate have your die, generate interest, you have to put it in a particular smart contract. And only then, does it does? It generate interest? Why was that design decision

made? Why don't you just have all died in existence, generate interest, or at least have a tokenized claim against that died in that smart contracts, similar to what compound is doing with seed? I did because that would let people's not just have died sitting there but also let them be able to use it in depth. Yes it's really the short answer is that it's for the sake of like use of friendliness because while it sounds great to always have like it's dies

accumulating. There might be many situations where for instance if you're trying to write a small app or you're trying to like create a smart contract or you're sending some amount or like there could be a lot of situations where you don't, you know, you just need to send an exact amount of money and you don't really care about getting some small savings for for like, let's see, a couple of days or a couple of hours or

something. Also the, I feel that there might be an issue here, you know? Just, you know, we've had issues like this in design of Cosmos as well where it's like, you don't want to iterate over all die holders every single time you want to pay out interest and the problem is, you know, okay maybe you can pick it so you add it to a pool. And what actually happened is die holds have shares in a pool but then the problem is then die

is not stable anymore. That that defeated the whole point of what we were trying to do with creating this. Table coin. So I am not sure how it would actually be possible to have it. Go to all die holders in a computationally efficient way. And then a lot of use cases where currently you're locking up.

Dies over instance, a you'll use it in a prediction Market, as collateral, for instance, and you really wanted to be in, to be to be generating interest in. Don't you kind of push people into compound and into using compound die for this instead of interest and rating die. Yeah. I mean, that would be a, that could totally be concerned. But the thing is that it is actually implemented in a way where that is completely possible.

So you would see, you know, you would see, let's say, the prediction Market implement on there and the like an integration where the moment you deposit down to the platform. It's automatically sent into earning the die savings rate. And on top of that, it is even technically possible to create this concept of the, of the, you know, the CD with the data where you actually. Actually can use the die directly in. The DSR is tokens.

And the long-term vision is in fact that like, one day far out in the future, right? When the ecosystem is way more mature and the, you know, the standards are able to handle this and collect the accounting systems, and even the accountants can sort of wrap their heads around it. You would have all died in real time. Always generate the savings rate, right? Because rationally, there's no reason to do it.

If it's if there's no friction in doing it, but the fact is just that If you try to force it on people, it would like it would create more losses through friction and confusion that it would create like that it was over you know create the gains of like let's say you know like when you're sending dodgy a friend instead of like pulling it out of the die savings rate, sending it to him and then a day later he puts it into the die semi-sweet, right? Like sure.

You can you can save. You can save like, oh you can still gain one day extra of interest earned by just sending it directly. But the problem is that, what you then create is like a much bigger burden on the wallets to properly, incorrect integrate and implement this. So that's really, that's the big trade-off in the beginning,

right? That is actually simpler technically to deal with kind of this fixed idea of the die savings rate where you deposit your day into and you pull it out when you're, they want to send it around rather than you always have to account for the, the savings rate of cooling. Because it is actually, it is, it is implemented it Exactly the way, you know, you describe, right? That it is this. It is a share in, like a pool. I mean, that's a very rough and like, very simplified

explanation of it, right? But it's like, it's it on the back end. It doesn't actually change over time, but the front end kind of updates the value. So it looks like it's kind of like a transaction that's happening, right? But in reality, it's really just kind of like numbers. That's If I did and you know, various ways but which is exactly actually how this ability feet works right now. So stability.

Feet doesn't actually update individually on every CTP it just looks that way and in reality it's a single number called accumulator. That's that's updating and then it's displayed across all cdp's when it gets updated. Do you think that over time that you know, currently what what maker Dow essentially is, is this like decentralized s central bank right at the Central Bank?

Do you think that over time, maybe, there might be competitor to central banks that kind of compete with the maker system and, you know, maybe they claim that their government. Whatever their governance processes that they use might be more better than what the maker Dow system does. I think this is actually kind of what the Libra project from Facebook is. Kind of going down that route a

little bit. And so how do you think the maker ecosystem will react to Alternative the central bank's able coin designs whether that you know a copy of the maker system with you know different governance system or you know even a different system altogether, kind of more like The Reserve System which uses you know slightly different mechanics Yeah, I always expected that we would see the copycats and competitors and similar types of systems much

earlier, right? And it would really be this like big space and there would be just like a lot of different versions all competing. And it's quite interesting that the reality ended up being that maker pretty much became the only decentralized stable cloud with decentralized governance and then the whole ecosystem of centralized stable coins was what ended up completely exploding.

But you're totally right that like that, the way that like the thing that that makes maker though, unique is a decentralized governance and the way that you would sort of have something that would actually be a competitor, they would actually operate in the same space as make it would be by having a different type of decentralized. Governance that could somehow add add more to the table, right? And be more efficient, or better manage risk or something like that and I mean I don't think

that's so far. There's There's really nothing like it yet. I mean, there's no attempt at actually, creating this type of self self organizing and sustainable community that we're trying to bootstrap, right? And if you look at something like Libra, for instance, I would say that like it is actually quite different.

So based on my, why not? Totally, perfect understanding Libra. It has a bit more of, kind of like a fixed, like, monetary policy where it's collect, predefined, and based on the individual actions of of the, the Events in the in ecosystem so they're not really, they don't have the same like it. Prioritizes the quickly as I see it but it what it what it sacrifices is, kind of like a coherent and unified monetary policy so you end up having a

the end of having a collateral portfolio and you end up having an inflation rate and a pic that's a little bit more random because you're prioritizing this ability for anyone to always create them by with, you know, by pledging collateral into the system without any Any sort of framework to do that within and that's what I think. I mean ultimately I think that's what is by far the most powerful, right?

Because that's what also what you know, thousands of years of traditional Finance, coalesce that, right? And what you need to then do to make something that's better than maker is you need to get better at still playing with, you know, like creating like the operating within that framework and kind of like setting that framework correctly. So that you do get this like Optimal the quiddity optimal pick, An optimal inflation and best risk management.

The question is, whether you can kind of, like, innovate on top of this idea of having token holders, ultimately, curating the decisions, right? Maybe there's something like paying for votes or like, paying for like, are rewarding activity or paying experts or something. And all of these ideas is actually also something that maker governance is very heavily focused on trying to innovate, right? Because, of course, this is only the very beginning of

decentralized governance. Let's fast forward, maybe five or ten years so you just added six tokens for Mighty collateral die. The choice of tokens or the move to add exactly. 60 seconds makes me think this is the first of

many additions to come. So basically, if you look at the market cap of the six tokens that you are, adding their only on the order of a few percent of what the theory of market cap is, so the collateral that was already available that version of the system that was Technically much simpler. What are you plans for expanding the scope of collateral in five years? Will I be able to use my house as collateral on on maker? Yeah. The short answer is that yes that would absolutely be the

trim. Right? That where the project is going is that it's kind of trying to break beyond the boundaries of blockchain and crypto and just got like I mean to some extent the bubble that crypto still lives within right? But instead try to reach out to the real world and integrate with real Financial system, the real global trading system and most importantly have real assets and real value in the real world actually back die.

Right? So it's not just hot crypto are, but it's, I mean, which actually does have its own in very unique benefits and very really unique risk characteristics, right? But ultimately, you want as much diversification you want as much kind of like like as many different perspectives and avenues of stability as you possibly can behind a stable

coin, right? So and there is actually some ID Credibly exciting and quite a fast-moving Innovation happening exactly within the space of like figuring out. How do you, how do we make it so that You know, five years this may be a little bit optimistic, right?

But potentially five years from now you can cut like open an app on your phone and then you click a button and that app uses some sort of third party service to legally, connect the ownership and the deed of your house to token, which is then directly set to some sort of automatic or automated.

You know, risk assessment function that connected to maker that kind of like, does an assessment of your house and the value of your house and the risk associated with that house, And then ultimately create a new c d-- p type unique to you and kind of like your house and your risk parameters and you're sort of conditions as a Septa, right? And then ultimately, you can

deposit the toting. Again, with a single, click on your app into make a directly and generate die directly and go. And you know, like really well maybe refinance your current loan or something like that with it, right? I mean that is certainly like very cyberpunk and Like a really cool. I like very concrete way that you could think.

Like you could actually imagine that you know, the bomb and pup-pups of the future would like have blockchain directly in the face because that's how they would do their, you know, their mortgages. Right. But of course, the steps along that way are most likely going to be a lot more about kind of integrating on the back end of existing Financial infrastructure is right.

So it's a tough stretch to take it to the end user and really make it like Usable and accessible and Powerful for the sort of the regular in a retail credit secret right but it's a lot easier if you start trying to implement it to something like life scale, trade Finance or even just like large-scale Securities, abundance, repo markets. Because there's so much like institutional capture and like luck end of the platforms right now in those spaces.

And there's so much mean really like paperwork and bureaucracy and Like old thinking around it that it's it's you know it's incredibly ripe for disruption by by just water technology. Maybe let's end on this very cyberpunk notion. I think those are fantastic closing words thank you so much for being on the show. This was super interesting and I apologize to our listeners for going over a little bit. I hope you're all still here. Yeah. Sorry that that happens quite often from me.

That's the nature of maker being so complicated. Thank you. But thanks a lot for the quick questions and great conversation. Thank you guys for listening and see you next week. Thank you for joining us on this week's episode. We release new episodes every week. You can find And subscribe to the show on iTunes Spotify, YouTube SoundCloud or wherever you listen to podcast.

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