Rune Christensen — MakerDAO —The Central Bank of Web 3.0
Sunny Aggarwal: Welcome back to Epicenter and today we have on with us a guest Rune Christensen who is the CEO of the Maker Foundation and the founder of the Maker DAO protocol and so many people are you know, probably pretty familiar with Maker DAO especially, you know, it’s probably one of the most popular products on the Ethereum ecosystem with the DAI stable coin and so Rune has been on the episode once before all the way back in 2016 before DAI had even launched and you know, since then DAI has, you know grown to become this massive project that has become, you know, very successful and so, you know, we thought it was time to bring Rune back on the show to talk a little bit about how their project has changed and what’s what’s new and how this massive surge adoption has gone. So welcome back onto the show Rune. Can you give the 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 was all the way back in 2016.
Rune Christensen: 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 at startups when I was younger and worked a lot of time in Asia when I then discovered blockchain technology and first got into Bitcoin but really into Bitcoin, you know became like a real Bitcoin type back in 2011/2012, but then over time I got somewhat disillusioned by Bitcoin’s volatility really and so 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 because it’s not it’s more useless 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 BitShares community eventually pretty much switched over to Ethereum and it kind of took the stable coin component from BitShares and tried to implement it on Ethereum.
Sunny: So were you actively involved with the development of BitShares?
Rune: No, you could say I was a very active community member and many of these like fundamental ideas around Maker DAO all come straight from from the idea of BitShares. In particular like you have regular community members ultimately being like despite not being sort of an official developer of the project, I still was very deeply involved in sort of the core of the governance of it, which is exactly what is so powerful about blockchain technologies and entities.
Sunny: So the BitShares 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 BitShares, you know, maybe didn’t work and how that kind of contributed to your design of the Maker system with the CDP’s.
Rune: Yeah, so there’s really a couple of reasons I would say this is really three major reasons why like, I mean, it’s three major things that to some extent got ambitious, so first of all was that BitShares was this it was not like Ethereum smart contract platform rather it was kind of like a Swiss army knife. So 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 stable coins, which is mainly like was kind of its main product and really 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 we were 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 kind of related to what ended up happening with Rchain many years later, but I mean, there’s just there was a lot of try to do a lot of things and as a result, it didn’t really miss so well on any one specific product at least within the very early like big window of opportunity that it had back even before Ethereum launched. And then secondly, there were some fundamental problems with its stable coin design still chiefly that the stable coins were based on a single collateral type. So they were only collateralized by the BitShares acid itself. So actually similar to the current design of single titled DAI 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 coin 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 level type and you actually design a system that has many different collateral types, which can then diversify and really mitigate the risk that’s inherited having just a single level 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 BitShares community and of the BitShares philosophy was quite extreme in that it was really like hardcore call 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 would otherwise have been interested in but were turned off by like 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 Maker did start off very much derived from that anarchist philosophy for sure, but it was with the mindset that the end goal is to make change in the real world and and that perspective then let us 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 back in 2016.
Friederike Ernst: Yeah, absolutely and we’ll 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 had happened since we last had you on the show?
Rune: Yeah, I mean, I think it is really mind-blowing if you could go back to 2016 and then tell people what the landscape looks like today with like Maker out in the world and things like Compound another DeFi projects all working together, but just the very basic milestones right is obviously the launch of single collateral DAI, which was really to some extent the first launch of like a like the first successful launch of a major dapp and then followed immediately by the trial by fire as it had to survive a 95% crashing its collateral right just starting immediately from its launch and actually single collateral DAI was able to you know, totally like brush it off, so there was that complete crash in 2018 and at no point in time did it in any way come close to threaten the stability of DAI or threatened the integrity of the pick. So that really created this critical proof point that the technology did in fact work in the way it was supposed to work which then led to just this greater sense of trust in system and ultimately adoption following that. So in summer 2018 the system hit 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 DAI 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 Ethereum locked as collateral in the system right now. And then what came next was the proliferation of the DeFi ecosystem, 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 DAI as their source of decentralized stability they can actually provide very useful products and very useful services without giving up a 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 instance a lot of very interesting stuff you do that or just other other systems 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 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 dapps because they all fit together seamlessly, right which is I mean, it is really mind-blowing I think and it’s not many people think about that also because maybe many people didn’t really run around in 2015/2016 when Ethereum started but it is pretty crazy that the ecosystem has actually been able to deliver on that promise of like this seamless interconnection between 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 governance of the single colateral DAI protocol and actually begin controlling the system directly through the MKR tokens 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 defines the Maker 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, that are all incredibly locked down and and with with this like inherent lack of transparency and and very often contradicting incentives built into the system. I mean, there’s 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 even going to be possible to do 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 but it has actually played out right and and nowadays we’ve reached a point where on a weekly basis the MKR holders actually manage the system actually.
Friederike: Can you explain to us how the system makes sure, that one DAI is always 1 US dollar. So I mean just for just just for the larger picture. There are other stable tokens such as you USCC and the Gemini that our supposedly backed by a dollar in the bank for each one of these coins that are issued. So DAI actually works differently and that it’s backed by crypto collateral. So how does that work? And how do you peg the value to the dollar?
Rune: Yeah, very important question. There’s kind of two mechanisms to it, there’s two sides to it. So there’s the there’s the long-term question of fundamental solvency and I guess you can see resilience of the system, which is like can it like is it really is a real value there behind the token or is it all just like hot air ? And that’s where the answer is. It comes from the unchained collateralization, right? So the reason why you know that there’s real value in your DAI it’s because you can go to the blockchain, you know right now go to mkr.tools for instance and you can actually you know on your own do a complete audit of every single aspect of the system in real time even and you can ensure that 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 Eth and the inherent volatility of Eth, it’s 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 a crash is set correctly so that you could have a you know, you can have a significant fall in the price of Eth but that’s fine because there’s about five times as much value of Eth in the system as there is outstanding DAI in the market. So the system can handle a very big crash. So that’s kind of like the fundamental value in the system. That means that there’s a potential here for for sort of for stability. But then the other question is how do you create short-term stability one one hand? So like pegged price, right? So 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 DAI into Eth 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 keeps it 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 takes care of this because it is managed through the like adjusting the rates in the system. So basically the cost of generating DAI primarily is how it works right now. In the future, it will also be the savings rates like the gains you get from holding DAI, but it’s not going to be available until a future version. So right now it’s actually purely done on the the generating DAI side, which is really it’s similar to changing the cost of borrowing 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 supply right? Because when you borrow money in a fractional Reserve System, you’re essentially creating new money or other or will do the opposite right pay back their loans and actually just hold on to my money if the interest rates higher. 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 DAI or generate DAI by depositing collateral into the system and then utilizing the smart contract system to to essentially print you DAI. And then the stability fee 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 been actively modified every single week right now by the decentralized governance.
Friederike: This stability fee has gone up from I think initially something like 5 or 7% 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?
Rune: Yeah, it actually started at 0.5% when the system was launched and the very basic assumption that turned out to be wrong is that there’s going to be incredible demand for decentralized stable coin. And which is kind of like the simple use case, right and sort of the basic value proposition of the Maker protocol. And then this the secondary use case of generating DAI, which is a much more advanced type of way to interact with the system 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 collateral into the system and you generate DAI, right? And yeah, it was just the first of all the interface to do this was incredibly complicated and it took about seven Ethereum transactions to even have a CDP go through and it was just all so like it’s a very advanced and completely cutting edge and new type of service right like the very first DeFi app and that had never been done before the term DeFi even existed. So we naturally assumed that it was going to be more difficult to people to do that part whereas it’ll be easier to get them to use the most simple and approachable stable coin functionality. And this was also the case very in the very beginning but very quickly the idea of DeFi of being able to in a decentralized system actually access financing for your inventory and taking on decentralized margin positions was was a very powerful idea and it’s essentially spread like wildfire with people teaching each other I guess how to how to use this even in the very first stage when it was so different to use. So what ended up happening is that there were way more people interested in using the advanced DAI generation functionality to to borrow and borrow DAI open CDP’s than there are people using DAI naturally and then what the system does is, because what this affects is the supply and demand. So you have sort of the demand for DAI which sits at some particular level and then you have the supply of DAI which which sits somewhere else and they’re kind of independent of each other as in people holding DAI are people who want to go out and use a stable coin maybe spend it, people who open CDP’s have a completely different demand, right? They’re interested in leverage and financing. So 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. And so what governance does fundamentally to kind of like tie them into sync is to adjust the stability fee so it so what that means is adjusting on the supply side how interesting, just like the terms on which you can generate DAI. Because if the stability fees higher it costs way more to generate DAI, unless people are going to be interested in it. So that’s why and that’s then how we know that what happened is that there were tons of demand for generating DAI because the stability fee just shut up which meant that without it like if the stability fee had stayed the same the system probably wouldn’t be in sync today. It would probably be like, they’ll be way more DAI outstanding but also the price would be below $1.
Sunny: So why was the stability fee the only way to modify the supply, I mean in a way what should we expect that, you know back when the DAI 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 DAI close their CDP’s allow the system to go back up and then reopen the CDP’s when the DAI prices back to a dollar.
Rune: Yeah that and that’s the basic assumption of how it’s a very micro scale the system remains stable,? But the thing is that that assumption depends on another assumption right which is that governance will actually act to deal with the balance. And that’s that’s of course in the early stages of the system there’s less proof that got the governance actually works. So the fact that the shelling point even is $1 isn’t really as established compared to you know, after basically today where people are a lot more willing to trust the fact that the price will go back to $1.
Sunny: Do you think part of the issue might be that the set of people who are able to participate in Arbitrage is limited. Where are you know, I guess what I was first learning about DAI like it didn’t it gets it in 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 DAI 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 DAI holders to actually, you know, go against basically, you know, the only 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.
Rune: What’s actually being arbitraged and 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 there is no fundamental claim in any way to $1 unless in a 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 saying if I have one DAI sort of automatically unlocks $1 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 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 other going to make more money if they hold onto the CDP and they hold onto the leveraged position of Eth for instance in there. And despite and paying whatever cost to have to pay on the both on the you know on the stability fee side, but also on whatever potential, you know Arbitrage gain that would be and the thing is that in many cases, you know, even if the Arbitrage potentially huge it might not actually outweigh the the sort of imagined gain or like the projected gains of a CDP holder so 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 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 blockchain based and so on.
Sunny: So to make it as efficient as the current monetary system that would make the claim that the MKR holders are as proficient at monetary policy as you know, the people at the Federal Reserve who are you know, generally much, you know trained economists 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 was that distributed, what percentage of it is still in the hands of the foundation as well as the VC’s and then what percentage of it in the hands of the wider public and then two, how do we make sure that the people who are holding this MKR aren’t necessarily the most sound monetary policy decision Makers.
Rune: Yes, this is really the fundamental question of the system because like I said earlier the decentralized governance is the core feature and I mean the basic underlying assumption is that if you have a proper open and equal playing field, I guess you can say for the science and the knowledge related to monetary policy, you will 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 potentially right and they would all have the exact same point of access and the exact same framework to participate as well every other Central Bank or every other Commercial Bank or every other like random econ nerd sitting in the basement that kind of like thinking about Innovative new, you know ideas around it. And the thing is that in the end it’s very hard to sort of say who is like, I mean, 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 like macroeconomics and monetary policy is is actually to some extent a bit similar to Voodoo in that it’s not totally like it’s not you know, it’s quite white fluid and it’s quite to some extent an art form as well. So what that means is that it’s not really guaranteed that 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. And the core idea of the Maker DAO 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 where there is a free playing field and freeze of open framework for all ideas to participate in like an unbiased forum where you can have where every perspective gets a chance to participate. 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 sort of opened that Pandora’s Box, there’s so many questions there such as moderation and 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 is that you have to of course, you have to grant yourself in a conservative mindset, right? Because of course if you just go out and sort of 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 basic 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 governance itself. This then comes back to the question of decentralized governance, and MKR holders how you actually implement this in practice because many people think that sort of the basic idea of Maker governess is just MKR holders just vote and decide whatever they want, they basically do whatever they want and that’s the end, but it’s actually a much more sophisticated framework where it’s more than MKR holders have this role of trying to surface the key rational points made in this scientific framework and and only sort of by going for this rational approach and trying to reach something that’s subjective and it’s is vetted as possible are you able to actually reach a shelling point where you can even get consensus around the direct approach.
Friederike: Before we dive into the governance ,Sunny asked earlier, how are the Maker tokens actually distributed initially? So who are these people who actually hold Maker?
Rune: There was initially 1 million MKR tokens created by me really and a couple of other guys in the early days and we knew like we knew from the very beginning that because again, like the MKR token holders 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 an ICO and try to pump the token and get a bunch of speculators in 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 days of the core engaged group, right, which is very different from how an ICO operated because the early major project actually distinguishes Itself by sort of almost doing negative 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 community felt confident enough to kind of open up wider and make the project more widely known which actually coincided then when I did those very early podcasts including here on epicenter, this came at the same time as like the increased scrutiny of the blockchain space as well as new regulation and new kind of like concerns around, you know, especially token distribution. So, basically once we reached that point it became very clear to us and from the perspective of a legal strategy that the only reasonable way to distribute tokens like MKR would be to sell it to like essentially like, you know, like like established and just like the, you know, very very proficient institutional investors. So so in the US accredited establishments, and just in general the kind of like the kind of stakeholder where you could sell them a token and they could go totally poof and 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, and on the other hand if you actually try to again like if you try to sell to the masses and things blew up it’s a little bit different like there’s a level of trust there that’s kind of expected to be to be maintained when you do that, which is also where we saw the whole ICO craze go wrong. But the biggest event of when we started this new approach of selling MKR to large established stakeholders was of course when we sold actually a total of six percent to Andreessen Horowitz which was among the very first purchases of digital assets and to this day is kind of like one of the absolute core pieces of their crypto portfolio that also really put the project on the map right because it was a huge stamp of approval in the more established VC and the crypto world and even wider financial space or tech space to get Andreessen Horowitz buying into this project and also participating directly like in terms of promoting it and talking about the implications of the project and as well as supporting the foundation in all sorts of activities we were doing. So like I mean today it’s basically a mix of kind of like early community contributors, early community buyers, like people who’ve bought it on the secondary, especially in the early days. There’s particularly a lot of Chinese people who did that so there’s actually a very significant Chinese community in the Maker DAO ecosystem. And then there’s a lot of these institutional stakeholders including Andreessen 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.
Friederike: Before we dive into what exactly governance means in this instance and what MKR coders can actually do with their Maker tokens. The stability fee that is generated currently still goes to Maker holders, right? It doesn’t go to the DAI or does it goes exclusively to Maker holders. What was the rationale behind that design decision when you made it.
Rune: It’s really fundamental economic dynamic on a system that kind of makes it go round in a sense that it aligns incentives between the different participants in the system. So it really it’s very basically that MKR holders they sit sort of at the I guess you can say the core of the system and they they fundamentally perform the governance functions system so they decide really how like the business logic of the system and what it’s actually doing, so it includes like stabilizing the price of DAI and so on by leveraging a stability fee on CDP holders, but also in the future other more advanced functionality such as also setting the DAI savings rate and a whole range of other stuff on advanced governance, but most crucially the thing that they like they’re doing right is that they’re setting their 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 our eggs in one basket so that we’re 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 that could just 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 in excess of a particular position the system where you’ve put in some collateral to generate DAI and then the MKR holders 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 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 a very small gap, right so you can generate a lot of DAI from that cryptocurrency and then just like goes poof it’s gone. There’s no money left. Then what you what you end up with is it’s bad debt on uncollateralized unbacked debt and without any other measures you actually have insolvency in that case, right? You actually have a situation where there’s no longer guarantee that all DAI is backed by on chain collateral. But then that’s where the MKR token steps in and takes the loss essentially through an automatic like fully autonomous mechanism that what it does is it’s just that printing MKR to raise funds. So basically prints MKR like the system detects that there is a loss, detects there is a shortfall, then it prints MKR and then it automatically sells in the market to raise DAI from the market right to yeah, basically raise the same amount of DAI as there’s a shortfall in the system and then it uses the DAI that is raised to essentially cancel out the shortfall by by burning the DAI like by removing the DAI from circulation so that it can kind of like 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.
Sunny: So is this lender of last resort functionality actually implemented on the current live Maker contracts?
Rune: No, so in single collateral DAI there’s actually this additional mechanic called PETH, and all of this logic is implemented more on the kind of like the like the Eth CDP holder site with a I mean, it’s actually it’s a functionality that sounds very complicated when you explain it, which is like this aspect of the forced illusion of kinda like the underwrite of the system sits with the people also hold collateral in the system in the event of a serious crash.
Sunny: So I guess my question is that in the moment in the single collateral DAI instance, is there any risk that the MKR holders take on because currently the lender of last resort risk is passed on to the CDP holders. So what is the risk that the MKR holders are currently being rewarded for?
Rune: Yeah, I mean this is a very common concern. I guess you could say point made about the system. But if you really think about it, then right now as an MKR holder, you’re taking more risks than you ever will because at this stage in the system’s life cycle, there’s a way larger probability that will just completely and outright fail, and that’s the big additional dynamic of the MKR token today right that because you’re acquiring MKR that’s I guess you’d say freshly made right because the system is brand-new, there’s a way bigger risks that you’re not really, you know, you’re just buying into an experiment right and that of course it is by far the most established experiment on Ethereum, right? But I mean DeFi is still this thing that has yet to fully prove itself. So from that perspective, I mean MKR holders really 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 Ethereum as a whole is obviously better established thank MKR so the dynamics of the system itself still doesn’t directly impose a loss on MKR holders but of course if you had the system wipeout, it would sort of I guess as a second order effect also just wipe out the MKR token but I mean the thing is that none of that really it doesn’t really matter that much because we just talked about the very early stage and microcosm of the system and its really, you know, it’s like it’s yeah, it’s like it’s kind of like initial phase where it hasn’t yet scaled so these dynamics become a lot more important once we actually hit a larger scale where you have to, where there also is a real job for MKR holders to do in this in the sense of doing proper risk management by diversifying different assets.
Friederike: 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 or casting a spell happens?
Rune: Yeah, so I want to explain all the parameters that can be modified by governance because there’s actually a huge amount and the system is incredibly modular, but the sort of standard risk parameters so the standard things that MKR holders they deal with in the current system is, so there’s the stability fee which is the cost of generating DAI from a CDP. Then there’s the debt ceiling which is the total amount of DAI can be generated out of Eth, and then there’s a liquidation ratio, which is the buffer between debts and collateral you need to have in the CDP before the system liquidates your position and and so governance really, I mean, the job of governance is to modify all of these. Primarily obviously it’s the stability because that’s how you stabilize the DAI market price in the wild and then there’s a debt ceiling which is more like a routine thing you do as the system grows you kind of like evaluate the overall risk to allow it to grow to a larger size 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 DAI because of the significant direct effects it would have on CDP holders who are actively holding a CDP, who could effectively have the rug pulled out from under them. 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 more administrative things that the MKR holders could do such as changing the set of oracles and picking the oracle providers. That hasn’t happened yet though so the oracles that exist in the system today are the same oracles 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 bug 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 DAI into underlying collateral.
Friederike: So, how does the voting system itself work. If I’m a make a token holder, how do I participate in the governance?
Rune: There’s two aspects to that. So there is the onchain infrastructure, which is very simple. So it’s basically a constantly it’s like a vote that’s constantly happening inside the smart contract called the chief where what the governance position do is they essentially you can say they stake their MKR inside the chief although it’s better to think of it as they just participate in voting and it’s just like a technical technical detail that they actually move the MKR into the chief. But once they’ve done that then the MKR is able to vote and then they’re actually able to essentially point the votes on any smart contract on the entire Ethereum blockchain and the system then is constantly keeping track of which smart contractor, which Ethereum address has the most votes. And whichever single address of smart contract that has the highest number of votes on the entire blockchain of all the votes and that’s happening in the system is then given direct admin access into the core single collateral DAI. So the way that you for instance modify the stability fee is that, the way it works is that you do have a smart contract that basically says send a message to the core of single collateral DAI that says raise the stability fee by 2% something or rather set the stability fee to 14% if that’s what you want to do. And then once that smart contract gets the highest number of votes in the system so it gets the admin access, then anyone can then 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 spell. So what happens is anyone is able to then just like trigger the 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. And that’s the smart contract infrastructure, so then just very briefly there’s a layer on top of the resistors user-friendliness layer, right? And right now the foundation is the only one who maintains this kind of fronted but really what it is is like a voting dashboard where you can see different options for voting and like you can see different like there’s even both a polling system. So sort of like a pre vote and then there’s the actual system 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.
Friederike: Cool, what percentage of Makers typically pointed at proposals that then become the front-runner and become implemented.
Rune: So right now it’s typically between 5 to 10% and you also have at like you have this important dynamic of around also 5 to 10% of people are always voting at kind of like the current active proposal which then sets the bars like you have to get at least 7% of the vote to be able to like trigger a new proposal in the system and kind of like it really acts as a quorum in that sense.
Friederike: You said earlier that Andreessen holds 6% Maker tokens, and there’s a couple of other Maker wearers as well right? So basically it would it would only take one or two of those to actually force a proposal through right?
Rune: Yeah. I mean, theoretically it’s possible for someone to in the current system try to like pass and administer a proposal. And then the response to that would be to then trigger an emergency shutdown, and actually try to shut down the system from the from the crypto economic perspective. But the challenge in the system right now is that whereas in the multi-level DAI when the final version of the governance system is implemented 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 tokens or even like all the tokens, well, okay, I mean just like significant amounts of the tokens, 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 state of the system rather a key defense comes from the fact that it’s known to the foundation. For instance the foundation has been very careful in who has sold to these like least large blocks to and it doesn’t involve like a see a nation state actor which could for some reason decide that they want to shut down the system and kind of like vandalize it, rather they just very rational economic actors that you know wouldn’t wouldn’t harm themselves by by burning the system down, but like I mean, that’s always a dynamic of all decentralized system, and all these centralized governance, is that by the very nature of having the governance be fully decentralized and having the final and the fundamental control of the system being available to decentralize community, you always have this element of allowing people to shoot themselves in the foot if they want to.
Friederike: 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 system that creates so much value and holds so much money 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?
Rune: Yes. So the way that we saw this problem, t’s really based on two fundamental approaches, two fundamental constructs. The first is what’s called the governance security module. So this smart contract where it kind of sits between the voting system and then the core system itself as kind of a security buffer, a firewall in a way, and it works quite simply, when you create a proposal at your execute a proposal in the voting side it then passes into the governance 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 governance security module and been 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 currently functions in the system and what the emergency shutdown module does is it allows a fixed and and quite small potentially percentage of MKR holders to trigger an emergency shutdown. Which right now at launch it’s going to be 5%. And so what that means is that any constellation in the community that’s able to muster 5% of the total MKR supply will be able to counter a malicious proposal that’s sitting in the governance security module. So if someone tries to let’s say yeah just like burn down the system or steal all the collateral or somehow like try to harm the system, then they will need to first of all let’s say buy 51% of all MKR or maybe if there’s only 15 percent voting then 15% of MKR but some significant amount of MKR . And then they use that to trigger the proposal but then it just goes into the governance 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, 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. So we provide this is 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 colateral DAI to multi collateral DAI. 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, it’s just an open you just deploy some open source code, 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 an attacker just blatantly try to attack the system, steal all the collateral or harm the system in some way and using a significant amount of MKR for that. In response to that attack you can actually just burn the MKR in the new deployment, you could choose to what you call honor the MKR of everyone else or you can choose to kind of like let everyone else’s MKR transition over but obviously there’s not really a good reason to allow a 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 a bad excess cut out of the system and you also get a like a significant MKR burn. So you get a significant reduction in total supply which then makes up for all the friction that having to go through this whole process cost you and the same dynamic also actually exists for someone who abuses in the first place its power to do an emergency shutdown. 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 it’s initially for instance 50k MKR and 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 yeah, 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 MKR holders.
Friederike: So who decides whether a shutdown was in fact a troll attack whether a proposal 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 Maker holders or not?
Rune: So it’s quite a complex question really rather a complex issue. But the basic answer is that the community decides because because anyone can deploy a Maker system at any point inside, 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 a thousand new deployments, and everyone saying this is my you know, also super awesome deployment where I haven’t you know, and then maybe I mean there might be people trying to like give themselves extra MKR or there might be people to try to like cut out MKR of people they don’t like or something. 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, and in most cases like in clear-cut cases such as someone blatantly attacking a system, it’s really obvious that you have this, I mean you essentially have the like a governance convention, you can even call the social convention that if you try to attack the system, you don’t deserve your MKR , and and there’s a good reason to migrate to a system that doesn’t include MKR holders that have proven that their malicious to the system. So it really comes down to like the dynamics of what do the users of the system think is best for them when they’re picking what system to migrate to and that’s also actually and not like that is actually like one of the maybe the most fundamental point of Maker governance. Because that is the point where you actually see that the power of MKR holders isn’t infinite. They don’t actually decide everything like they kind of run the system on a day-to-day basis until the moment that a very significant event happens until 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 MKR will just become totally powerless. And the only thing they can do is point to the past actions and say hey I was so good at governing the system so I should totally be a part of the new deployment.
Sunny: So what’s the worst thing that they could get away with so could they for example steal all the collateral by like setting the stability fee to a 100% and get away with that. Like what would be the potential reward that they could get away with with an attack?
Rune: Like if there was no response from the community? It 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 triggering an emergency shutdown within the time frame allotted by the governance security module like because it would be impossible regardless so there’s no attempt to kind of like restrict what kind of technical access governance already has. The question is is that outcome ultimately going to be better for like the average user and the average MKR holder in the system? And anything that isn’t following the regular governance process, so like actually trying to scientifically optimize the system and following the consensus of the community is always going to make people worse off because it breaks the fundamental social contract. And so this dynamic of like a blatant attack also works on sort of smaller levels. Because you know, it’s not just that it’s not just a dynamic where you know, you want to protect the system, from very powerful attacks, you also actually want to kind of like police and try to catch people from breaking the social contract and catch them in the act of doing something where the situation where the users most likely will most likely actually consider this behavior like like negligent or malicious to them and as a result have migrated to the system where the MKR actor is included because then you have this very strong dynamic right where people have to be very careful about carelessly track to push some proposal through that could actually get the shield system shutdown and maybe even get penalized for being responsible for it.
Friederike: So there are two very significant updates coming to the Maker system soon. The first one is the interest generating DAI. Can you talk about what that is? And what made you roll that out?
Rune: Yes, so the DAI savings rate which is what allows you to hold DAI and actually 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. So right now when the system is balanced you have like you can only change the stability fee and then you can modify the supply and then the down side of that is that that means that when the system really grows 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 and artificially restrain the growth of the system, which is what’s happening right now where the stability fee is just incredibly high and it’s actually really yeah, it is kind of crazy a lot of people commenting, you know, why are people even generating DAId when the fee is just that crazy high? And it’s amazing to see the people still are using it but the problem is that the system has no way to spur DAI demand, there’s no way to kind of like make it more attractive to hold DAI. And that’s what the DAI savings rates solves. So instead of just pulling down on the stability fee side when the system is growing you can pull up on the demand side as well. So if you had like the mismatch like this, you can pull it in to sync 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 of hitting some sweet spots and product market fit where the system suddenly becomes interesting to a lot more people. Because on the 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 DAI incredibly attractive because with a stability fee of 20% for instance on generating DAI, theoretically and I mean this is a this is a niche case like it wasn’t wouldn’t actually happen, but already there is a 20% like there’s sort of 20% available to give to DAI holders. So imagine if holding DAI gave you a 20% return and it was without any additional risk whatsoever it was just like holding a regular DAI like it is gave you this massive return right? You would immediately see tons of people moving their savings into this because they would want to take advantage of that very high savings rate.
Sunny: Quick question about this though about how this works doesn’t isn’t the stability fee paid in MKR and then the DAI savings rate would be accumulated in DAI. How does that work, the transition from the stability fee from MKR , does it have to go through some exchange or something to be paid out?
Rune: The feature of the fee being paid directly in MKR in single collateral DAI it’s kind of one of the features that we’re in the end not done for any like business reason or any sort of user-facing reason but rather because it was easier to implement. So it was easier to get single level done and get the get the, you know system live and rolling and sort of see it play out in the real world.
Sunny: But wasnt that deflationary aspect of MKR because the fee is burned also important to the economic design.
Rune: Oh, yeah, absolutely. But the way it’s going to be implemented in multi-level DAI is just a more like a better approach, which is that the system takes in fees and DAI and then what it does is it accumulates kind of a pool of DAI called a buffer and when the buffer hits a certain size it triggers what’s called a surplus auction and the surplus auction is then where MKR is burnt and then what the means is that buffer is also available as kind of like an account where DAI can also be taken out of and put into the DAI savings rate for instance. And actually today you can also pay your stability fee with DAI because it is actually super frustrating and it was one of the biggest concerns all the users had that they had to let go and you know, they have to use Eth to open the CDP and then they get DAI the second token and then they also have to go and get a third token like some dust to then pay the fee to receive the collateral out of it, and it’s just like incredibly, you know user unfriendly really and as a result the feature to pay the stability fee with DAI was added to the front end and kind of like means that it takes care of automatics to go and buy MKR and on exchange and then pay the stability fee for you, but that that convenience functionality is moved into the core of Maker in multi collateral DAI. So that also supports the DAI savings rate and is then fundamental to facilitating the DAI savings rate and the flows of money that that really go from from CDP holders paying the stability fee for you and then the part of that going to DAI holders and another part of it going to MKR holders.
Sunny: What happens if people don’t actually use this stability fee and so, you know, you promised the the locked DAI interest rate, but then it turns out there’s not enough people actually, you know closing their CDP. And so you don’t actually have the money, like is there other critiques concern here like, you know, what happened if you don’t have the money to actually pay out the interest rates that were promised.
Rune: Yeah, that would be if it used the current model where you pay all the fee at when you close the CP but in the next version of the system, they’re counting as continuous. So you actually see the DAI, like rather than a CDP accruing you could say like a fee over time, this will sit there and has to be paid. What a CDP does in multi collateral DAI is it actually continuously generates more and more DAI. So it doesn’t kind of like accumulate a fee you have to pay it just generates DAI on your behalf that is then sent to the buffer. So what that means is that it’s just like the direct like when it is paid out, that DAI has been directly generated out of the CDP at that moment in time. So there’s always like real-time solvency in the system because of course that’s necessary or you could run into these weird edge cases.
Friederike: That sounds like a very major upgrade. One thing I’m curious about, so in my understanding to actually have your DAI generate interest you have to put it in a particular smart contract and only then does it generate interest. Why was that design decision made? Why don’t you just have all DAI in existence generate interest or at least have a tokenized claim against that DAI in that smart contracts similar to what Compound is doing will C DAI because that would let people’s not just have DAI sitting there but also let them be able to use it in dapps.
Rune: Yes so the short answer is that it’s for the sake of like use of friendliness because while it sounds great to always have it 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 there could be a lot of situations where you just need to send an exact amount of money and you don’t really care about getting some small savings for like, let’s see a couple of days or a couple of hours or something.
Sunny: Also I feel that there might be an issue here, 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 DAI 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 DAI holders have shares in a pool, but then the problem is then DAI is not stable anymore and that defeated the whole point of what we were trying to do with creating the stable coins. So I am not sure how it would actually be possible to have it go to all DAI holders in a computationally efficient way.
Friederike: And there are a lot of use cases where currently you’re locking up DAI. So for instance say you’ll use it in a prediction market as collateral for instance and you really wanted to be generating interest and don’t you kind of push people into Compound and into using Compound DAI for this instead of interest and rating DAI.
Rune: Yeah, I mean that could totally be a concern. But the thing is that it is actually implemented in a way where there is completely possible. So you would see you know, you would see let’s say the prediction market implement on their end the like an integration where the moment you deposit DAI to the platform it’s automatically sent into earning the DAI savings rate. And on top of that it is even technically possible to create this concept of the of the you know, the C DAI with the DSR where you actually can use the DAI directly in the DSR as tokens and the long-term vision is in fact that like one day far out in the future 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 DAI in real time always generate the savings rate, 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 today if you try to force it on people it would like it would create more losses through friction and confusion that it would create the gains of like let’s say, you know, like when you’re sending DAI your friend instead of like pulling it out of the DAI savings rate, sending it to him and then a day later he puts it into the DAI savings rate, like sure 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 wallet to properly 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 DAI savings rate where you deposit your DAI and pull it out when you then want to send it around rather than you always have to account for the savings rate accumulating, because it is actually implemented in exactly the way you describe 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. But 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 but in reality, it’s really just kind of like numbers that’s modified in you know, various ways, which is exactly actually how this stability fee works right now. So the stability fee doesn’t actually update individually on every CDP. It just looks that way and in reality it’s a single number called accumulator that’s updating and then it’s displayed across all CDP’s when it gets updated.
Sunny: Do you think that over time that you know currently what Maker DAO essentially is is this like decentralized 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 whatever their governance processes that they use might be better than what the Maker DAO 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 decentral bank stable coin designs whether that, you know a copy of the Maker system with you know, different governance system or even a different system altogether, kind of more like The Reserve System, which uses, you know slightly different mechanics.
Rune: Yeah, I always expected that we would see the copycats and competitors and similar types of systems much earlier, and it would really be this like big space and they 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 coin with decentralized governance and then the whole ecosystem of centralized stable coins is was what ended up completely exploding but you’re totally right that the thing that that makes Maker DAO 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 Maker would be by having a different type of decentralized governance that could somehow add add more to the table and be more efficient or better at managing risk or something like that. And I mean, I don’t think that so far there’s there’s really nothing like it yet. I mean, there’s no attempt at actually creating this type of self organizing and sustainable community that we are trying to bootstrap. And if you look at something like Libra for instance, I would say that like it is actually quite different So based on my not totally perfect understanding of Libra, it hasn’t a bit more of kind of like a fixed monetary policy where it’s collect predefined and based on the individual actions of of the participants in the in ecosystem. So it prioritizes liquidity as I see it, but it what it sacrifices is kind of like a coherent and unified monetary policy. So you end up having a collateral portfolio and you end up having an inflation rate and a peg that’s a little bit more random because you’re prioritizing this ability for anyone to always create them by pledging collateral into the system without any sort of framework to do that within. And I mean ultimately I think that’s what is by far the most powerful because that’s what thousands of years of traditional finances coalesce that and what you need to then do to make something that’s better than Maker is you need to get better at still operating within that framework and kind of like setting that frame work correctly so that you do get this like optimal liquidity, optimal peg point ,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. Maybe there’s something like paying for votes or 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 because of course, this is only the very beginning of decentralized governance.
Friederike: Let’s fast forward maybe 5 or 10 years. So you just added 6 tokens for multi collateral DAI. The choice of tokens are move to that exact 6 seconds makes me think this is the first of many additions to come. So basically if you look at the market cap of the 6 tokens that you are adding their only on the order of a few percent of what the Ethereum market cap is so the collateral that was already available, the last version of the system that was technically much simpler. What are you plans for expanding the scope of collateral. In 5 years, will I be able to use my house as collateral on Maker?
Rune: Yeah, the short answer is that yes, that would absolutely be the dream that where the project is going is kind of trying to break beyond the boundaries of blockchain and crypto and to some extent the bubble that crypto still lives within 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 DAI. So it’s not just hot crypto air but it’s I mean, which actually does have its own very unique benefits and very really unique risk characteristics. But ultimately you want as much diversification you want as many different perspectives and avenues of stability as you possibly can behind a stable coin. And there is actually some incredibly exciting and quite a fast-moving Innovation happening exactly within the space of like figuring out how do we make it so that 5 years is maybe a little bit optimistic, but potentially 5 years from now you can 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 sent to some sort of automatic or automated, you know, risk assessment function that’s connected to Maker that kind of like does an assessment of your house and the value of your house in the risk associated with that house and then ultimately creates a new CDP type unique to you and kind of like your house and your risk parameters and your sort of conditions as a debtor. And then ultimately you can deposit the token again with a single click on your app into Maker directly and generate DAI directly and go and maybe refinance your current loan or something like that with it. I mean that is certainly look very cyberpunk and very cool and a very concrete way that you could think like you could actually imagine that the mum and pups of the future would have blockchain directly in their face because that’s how they would do their you know, their mortgages. But of course the steps along that way are most likely going to be a lot more about kind of integrating on the backend of existing financial infrastructures, 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 retail credit seeker. But it’s a lot easier if you start trying to implement it to something like large-scale trade finance or even just like large-scale securities or bonds repo markets because there’s so much institutional capture and luck in those platforms right now in those spaces and there’s so much paperwork and bureaucracy and just like old thinking around it that it’s it’s you know, it’s incredibly ripe for disruption by just a lot of technology.
Friederike: 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.
Rune: Yeah. Sorry that happens quite often for me. That’s the nature of Maker being so complicated.
Friederike: Thank you.
Rune: But thanks a lot for the great questions and great conversation.