Bankless - The Bull Case for MKR | Sam MacPherson, Niklas Kunkel & monetsupply.eth

Episode Date: April 2, 2022

MakerDAO is one of the most underappreciated DAOs in DeFi. At least, that's what David thinks. We're bringing on three DAO members to discuss the most bullish elements about MakerDAO. Hear how their recent deal with Tesla (yes, the real-world electric car manufacturer) happened, what it means for their future, how the $MKR tokenomics work, and so much more! ------ 📣 MAC NFT DROP https://bankless.cc/MAC  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALED ETHEREUM https://bankless.cc/Arbitrum  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🏦 ALTO IRA | TAX-FREE CRYPTO https://bankless.cc/AltoIRA  👻 AAVE V3 | LEND & BORROW CRYPTO https://bankless.cc/aave  ⚡️ MAKER DAO | THE DAI STABLECOIN https://bankless.cc/MakerDAO  🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  ------ Timestamps: 0:00 Intro 7:30 What is MakerDao 14:30 $MKR Price Action Curse? 19:10 Maker’s Meta Goals 21:36 Increasing the $DAI Supply 33:53 Increasing the $DAI Demand 45:23 The Future of Maker’s Collateral 51:45 Tesla Taps MakerDAO 1:01:34 Legal Structural Components 1:06:00 Bridging Real World Assets 1:12:05 L222 1:18:39 $MKR Tokenomics 1:31:11 Why Bullish MakerDAO ------ Resources: MakerDAO: https://twitter.com/MakerDAO  Sam MacPherson: https://mobile.twitter.com/hexonaut  Niklas Kunkel: https://twitter.com/nomos_paradox  monetsupply.eth https://twitter.com/MonetSupply  Maker Burner www.makerburn.com  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome Bankless Nation to this very special episode. Today, we are talking all about MakerDAO and the bull case behind MakerDAO. You guys all know Baker Dow. It's the organization. It's the Dow behind the Dai Stablecoin, the first ever trustless stable coin that crypto has ever seen. But I'll ask the listeners, do you really know MakerDAO? Have you really been paying attention to what's going on behind the scenes? Because in my mind, from my understanding, is it down like none other?

and MakerDAO has made fundamentally different choices. Less about different smart contract design choices, but more about how the DAO operates, how the DAO is organized, and what is going on behind the scenes. I've been a long supporter of MakerDAO. Before I started writing about Ethereum, I started writing about MakerDAO first. So I've been very close with the team and organization behind MakerDAO

Dow. They have been an organization since 2016 and has blossomed and grown since then. It really started very emergently. People that were just interested in figuring out how to produce a decentralized stable coin all came together. This was before defy was a thing. This was before the ICO boom. MKR, the MKR token was minted and distributed to early stakeholders.

And a treasury of MKR was maintained, kind of as you see in the current Dow landscape. But again, this was in 2015 and 2016. Then the maker organization realized that they really needed to have real. world footprint. They needed a centralized foundation. The Maker Dow turned into a foundation that operated as a typical company more normally would, and that foundation existed for years. And then that foundation was disbanded almost a year ago. And once again, the Dow, which started as a very emergent bottom-up organization, is now returned to a Dow structure. But it's not just a Dow structure. It's more a Dow of Dow structure. And Maker governance really is just capital allocation decisions,

rather than voting on what the brand or icon should be or who should be able to tie their shoes with a snapshot vote. So entire companies work for the meta-Dao, the bigger Dow, rather than just simply individuals in a discord. I think that there is a very strong bull case for Maker-Dow that the market does not appreciate, and the market has never really fairly appreciated Maker-Dow, at least in my opinion. And so we have brought on three Maker-Dow community members

to give the bulk case for Maker Dow and to illuminate what is going on behind the scenes with Maker Dow, because in my mind, it is a fantastic story that's very rich and is extremely compelling and interesting. And so we are going to give out the bull case for Maker Dow here on this live stream. I got a few more things to say before we bring on the panelists. But before I do, we got to let you know that they're in honor of National Youth, HIV and AIDS Awareness Day on April 10th, MAC Cosmetics, has created the first ever NFT collection featuring the work of the iconic artist and activist Keith Herring. They are minting NFTs. This is the NFT project where 100% of the purchase price of primary sales of the

Keith Herring NFT collection will be donated to the MAC Viva Glam Fund to support youth impacted by HIV and AIDS. There are three rarity levels in this NFT drop. 1,000 total red tokens, a variable for $255 each, 250 blue tokens. NFTs are available for 150 each and 25 yellow tokens available for $8,000 each. Minting has not yet happened. That is coming up on April 10th, so mark your calendars. If you have never been a part of an NFT drop, this might be the first one for you because of how everything is going for charity. It's like an NFT drop where you can feel good about everything that happens.

There is a link in these show notes to sign up and learn more, and you can access all of that information there in the show notes. And so with one last comment before we get started, this is a future, this is a coming up an experimental show model out of Bankless. Future bullish blank shows are definitely going to be a thing. This is the bullish maker show, which I think has a compelling story. But I'm sure there are many other communities, many other DALs, many other projects that have the bull case for that project, for that token that the rest of the market might not understand. So this is a new format that we're trying on Bankless. you think that the market is underappreciating a particular token, a particular Dow, particular community, here's what you need to do. Assemble a team, write down some notes, hit Bankless

up on Twitter, saying you've got the bull case for your particular token ready to go, and you've got the team assembled to get it done. This, I think, will be a very fun show moving forward to help spread the alpha about what is going on behind the scenes with your particular favorite Dow. And we are getting started here with one of my favorite DAO's, MakerDAO, of course. So we will be right back to get into the show and the bulk case for MakerDAO teaser. They actually just announced a deal, they're financing a deal with Tesla.

And this is something that the market just doesn't understand. It's a little ridiculous. And so we're going to get into all the details about MakerDAO and the Bull Case for MKR right after we talk about some of these fantastic sponsors that make this show possible. Arbitrum is an Ethereum layer two scaling solution that's going to completely change how we use DFI and NFTs.

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mint dye with the assurance that your collateral is safe. Soon, Maker will be present on all chains and L2s, so minting dye can take place on oasis.app, zirion, zapper, or any other defy protocol that you use. Follow Maker on Twitter at Maker Dow and learn from the oldest and most resilient Dow in existence. All right, Bankless Nation, here is our bull case for MKR, a bullcase for Maker Dow panel. On the top left, we got Sam, all the three of these, our Dow members, got top left at Sam. Bottom left, we got Monet Supply. You probably know him on Twitter. And then bottom right, we got Nick Kunkle, who I've actually had the pleasure of spending COVID time with. Nick and I went skiing a lot during COVID. And that has been a fun time. And so guys, are you guys ready to

get into the Bull case for Maker Dow? Yes. All right, let's do this. I gave a little bit of an intro about the Maker Foundation, the originating story about Maker Dow. But I want you guys to pick up the thread and take it from here. And Sam, I want to start with you. Just like, let's zoom forward to the present. Like, what is Maker Dow? And what about Maker Dow who is just so different than the typical Dow that people are familiar with? And also just who is a part of Maker Dow? Like, who composes it? And how is the culture of Maker Dow just different from other organizations that we find in Defi? Sam, I'll start with you. Yeah, sure. First, thanks for having us, David, and congrats on the bankless arena you got today. Very, very bullish news. Um,

so I would say, uh, one of the big differences, uh, between Maker Dow and other Dao's is we don't have an associated legal entity. Uh, we used to back in the day, the Maker Foundation, uh, people probably know that pretty well, but they are fully dissolved now. So like, uh, yeah, we're fully a Dow, um, no legal entity. That, that's an interesting piece. Another thing is that, uh, We're completely sustainable. The protocol revenues more than pay for all the expenses of running the workforce and, you know, paying out various things on the protocol. So that's something that's really interesting and unique, I think. In terms of who's involved, there's a number of different groups in the Dow.

We have what's called core units. This is like our main unit of like workforce. So me, I'm on the protocol engineering core unit. So we're responsible for maintaining and building the smart contracts for the core protocol as well as other things involved with that. You know, we have risk. We have monaise on that. NICs on the Oracle's team. So this is sort of the fundamental unit we have.

We also have what are called mandated actors. And so these are sort of elected people to sort of run the day-to-day operations of the protocol. This is sort of mixed in with core unit facilitators. Essentially, we have a once a week meeting that we kind of go over and synchronize and stuff like that. There's also delegates which do the voting and there's maker holders and just the wider community. You know, anybody can be involved. Nick, what would you add on to that? How would you illustrate the differences between Maker Dow and how Maker Dow came to be and how people think about Dow's these days?

well okay so right i mean we had the the dow right um and uh right after right after right before kind of the tao blew up right you had a every project was trying to be a dow because we we thought we had just discovered this new kind of social primitive a way of like you know of like collectivism right and so you had maker dow and you had digix dow and you had a couple of couple of these other ones, right? And then the Dow got hacked. And then Dow was kind of a dirty word for a long time, right? A maker, we considered dropping the word Tao from our name, you know, for like a long time. And now it's almost like enough time as elapsed that like Dow's are like this idea that came back that people are like, no wait, that was actually like a very

useful concept. What I think kind of makes maker, like, unique and special, really is not just the way that we structure ourselves as a doubt, but the way that we build is just very, comes from a perspective that's very adversarial, right? We really think of, like, truly every little thing that could go wrong and try to have as little kind of direct human control or authority as possible. You know, we as, you know, the developers, like, we don't have special knobs and switches of turning the system on or off or deactivating stuff or activating things, right?

It's really completely controlled by maker governance. It's completely controlled by the maker token holders. and that type of full decentralization, I think, is quite rare in Defy especially, right? Where I think many teams take the argument that, oh, well, we need to be a little bit centralized at the start, right, in order to innovate quickly, to scale quickly. But then later, they don't actually decentralize. And I think Maker is one of the few that really stuck to that promise and is following through. on that. Manet, I want to get your perspective in on this as well.

What are really the properties or characteristics about MakerDAO that stand out as unique and special that only really MakerDAO exhibits? I wouldn't say only MakerDAO exhibits this, but I feel like the maker community is really mission focused. You know, part of that might be from the token, you know, sort of stagnating, I think, in a certain way, but it's, people don't get into Maker because they're, you know, just hyped about number go up. You know, we have a clear goal of making a really reliable financial system that people can trust and that people can actually be safe to put their money in. And, you know,

it attracts just kind of like a special, committed group of people. And I think, you know, other protocols really are striving for that, but maybe are still in the, uh, uh, the, like hype phase. That is something that I think stands out to me the most is the ability for Maker to retain the same talent that it had years ago. I find the same people, the same Maker Dow community members at every single MakerDAO event year after year after year. And for some reason, something about the maker organization just retains developer attention and talent attention inside of it.

And so it's the same. cohort. It's always the same builders. And that's really, really rare in Defi when there's just so much churn all the time, people that seem to work for Maker tend to commit really, really hard to Maker. Monet, you kind of alluded to this. I want to ask this next question is, I've always thought this story behind the fundamentals of Maker Dow and then the MKR price on the secondary market to tell two completely different stories. Like, there is, I don't think there's any other Dow that has had so much thought and attention and like attention to detail and conservative labor built into the protocol, yet none of these properties seem to be

reflected in the MKR token. And so I want to get your guys' thoughts on like the historical price action of this thing as it relates to some of the fundamentals that have been built over the years. Like is there like a curse on the MKR token? I just want to ask that question. Does the MKR price kind of feel cursed to you? Sam, I'll start with you. Yeah. So like I mean, I've I kind of went through a phase, I guess, where I was, like, you know, concerned about the maker price and stuff like that. But at a certain point, you just kind of become numb to it. And all you can really do is just keep delivering on building fundamentals and stuff like that. And, you know, the price will catch up at some point.

You know, like the market can only remain irrational for so long kind of thing. So that's kind of the way I look at it. Nick, same question to you. Like, what's up with the MKR price? Maker Dow's been building so hard for so long. And do you see a discrepancy between what the story of the price is telling versus what's actually happening with the fundamentals? Yeah, but I think it's quite obvious how we kind of ended up here. There was never a focus on trying to showcase MKR, trying to advertise MKR, to get MKR listed on exchanges, to build liquidity.

to incentivize liquidity, right? It was never just a focus. The focus was always die, and I think the rationale was quite reasonable, right? Make die have utility, make die useful, scale die as much as you can. And if die is successful, by proxy, MKR becomes successful, right? all of the profits that are generated by the system, right, are diverted to MKR token holders. And so it's really one of those things that in the end, it'll work itself out. Yeah, I think that you make a really, really good point. Part of the legacy of the Maker Foundation, from what I've gathered from being an outside observer, is that the legal side of the Maker Foundation really hamstrung,

the marketability of the MKR token, right? Like we can talk about die, we can talk about the contracts, getting a vault, all that stuff. But in a industry which clamors for attention, the legal side of, and the compliance side of the foundation was like, you guys can't talk about MKR. Manet, would you agree that that was kind of one of the influencing cultures of the Maker Dow as a result of the foundation is that there was a removal of a culture of attention to put on the MKR token? Yeah, I think that, I imagine that a lot of that,

was like some legal influence, but I think it's also, you know, kind of goes back to just the discipline of the project, which, you know, if you just are disciplined and you keep doing the right things for long enough, like it does pay off. And I think there's, you know, lots of advanced new tokenomics that we've seen people deploy in the last couple years. A lot of that is like kind of very flywheel based where you can accelerate your growth. But then, you know, on the reverse, it also, you know, kind of accelerates your decline. And I think Maker has just been very sort of conservative about those sort of changes. Like we don't want to like over leverage ourselves and put die holders in a position where their their funds are at risk. So yeah, I think

it's like not surprising that you don't see the maker token rallying as much in a bull market. But hopefully it won't be crashing in a bear market as much. And I do remember the MKR token was one of the leading tokens in the 2018 to 2020 bear market. It was kind of where a lot of people put their attention, including myself. All right, guys. So there are so many subjects to get into. We're going to talk about the supply of dye, where supply comes from, the demand for die, how demand is induced into dye. We're going to talk about makers' penetration into real-world

assets. We're also going to talk about Maker's L222 strategy, and then also finish off with Maker tokenomics. Each one of these subjects has just some insane development in progress to talk about. But before we get into all of those things, I want to talk about just like the meta goals of the Maker Dow protocol. What are the goals of Maker? What does the protocol want? Does the protocol want, something just fell off on my desk, I'm sorry, does what does the protocol want? Dye number, dye supply to go up, loan fees to go up,

like what are the really bullish metrics for MakerDAO that you guys are trying to optimize for? And Monet, I'll throw it back to you on that one. I think total die supply and then also like usage and integrations across different platforms, you know, being able to

use it in real commerce as well as just you know, defy. And And I think kind of more directly to the bottom line, like, what's our actual, like, amount of dye that's being generated through vaults rather than through stable coins? Because that's where we're actually able to earn revenue. So, yeah, I think those are probably the two biggest fundamental drivers. Sam, Nick, anything to add on about the optimizing metrics for Maker Dow, which metrics are the most important?

Yeah, I would say, like in the short term, what Mene said, we need to get sort of the interest-bearing supply up to replace the stable coin supply. I would say medium-term goal is to, at least for me, is to reactivate the die savings rate, start getting die demand growing in a more organic way. And long-term, yeah, it's sort of like several orders of magnitude scaling of the dye. supply such that we're in sort of the fiat currency scale as like a credibly neutral alternative. Nick, anything to add? No, I think that the covers are pretty well. All right. So let's start with the supply side of things.

What is the actual strategy for increasing the dye supply? Sam, you just talked about interest bearing collateral. So I think we can also talk about USC and like the dominance inside of USC inside of MakerDA. Do you guys consider the dominance of USC and Maker a problem? And if so, what's the plan to fix that? And overall, what is the overarching strategy for increasing the total die supply on the secondary market? Sam, I'll start with you.

Okay. So I've put out, along with some of my colleagues, a recent strategy to address the problem of lack of sort of organic dye supply generation. I put this out as a tweet and a post called the aggressive growth strategy. So really this involves two parts. The first is we want to do a cap raise, sort of debt or equity offering or some mix between the two. The idea behind this is the surplus buffer, if you can see in the image. This is sort of our making sure we're solvent kind of number.

So currently it's at 65 million, and this is just growth from revenues in the protocol. But we kind of want to move that up another 5x or so to like 250 million or even above. And what this gives us is the ability to basically move up the risk curve and, you know, take defaults on individual loans without like breaking the protocol. And so as you can see here, we don't really do high risk loans all that much because we're kind of limited in how big they can go. but we increase the surplus buffer. We can increase the size of all these sort of more high-risk loans, address a larger market, and sort of grow the revenues in a good way.

But, you know, one of these- Let's camp on the surplus buffer. Can you just, let's define that a little bit more. What is the surplus buffer in Maker? How does it grow? Where does it come from? And why is having a large one good? Right.

Okay. So the surplus buffer is basically, well, okay, it's a buffer of direct. So let me start with, I guess, stability piece. So if you open up a vault on ETH or something like that and you take out a die loan, you're paying interest on that. So currently it's, I think, 2.25%. So where does that go?

That goes into what's called the surplus buffer. So this is basically an excess of dye that the protocol controls, and it can be used for a couple of things. So we use it to pay for things like core units and whatnot. But it's also there just in case we take a loss on one of the loans, say one of the loans defaults and we have bad debt. This will eat into the surplus buffer, but as long as the surplus buffer is larger than this bad debt, the protocol is still solvent. We're all good. We can continue operation.

So by growing the surplus buffer to a larger number, we can sort of increase our tolerance for individual defaults. The idea is that we spread this risk across many, many different protocols and sort of lenders and stuff like that, such that we have sort of independent risk on every single one of them, so that we can tolerate losses and sort of plan for them. This is more how traditional lenders work. They don't usually plan on no losses. They account for them. Okay.

So the growth of the surplus buffer comes from the revenue on the interest rates, on the collateral, inside the vaults. And you say that we want to, like 5X, the supply of the surplus buffer to give Maker a larger buffer so that it can start to lean into more risky loans than what it currently has because if it can service more risky loans,

it can also serve as higher interest rates on those loans. And so the idea is that a larger surplus buffer allows the protocol to get higher yield on a larger array of loans without having to really, increase the risk because of the increased supply of the surplus buffer. Is all that correct? Yes, exactly. Cool. So by doing a cap raise, we can basically say, hey, we've got, you know, 10 billion in die demand. People love die. We've got a very good value prop. It's, it's probably going to be

very likely to be able to raise capital in anticipation of the future. So, you know, how we do that is some sort of combination of debt and equity offering. So yeah, basically what this gives us is the ability to experiment more, integrate with more protocols, under collateralized lending, reputation-based lending, loans to trade-fi where we don't necessarily have all the legal recourse in place yet. These are the types of things we can do with a larger surplus buffer. And so we have low-risk loans up top, and those are really big bars. And I think that just indicates the total supply of collateral inside the Maker-Dao system. But those low-risk loans have low interest fees.

And then below that we have the high risk loans, which doesn't have a lot of collateral because of how they're high risk. But there's a lot of interest rate. There's a lot of money to be made on those high risk loans. And so in theory, if the surplus buffer increased like 5X, viewers who are watching the YouTube, you know, you could imagine that dash line moving very, very far to the right, allowing for more collateral to exist in the high risk loans, which would just yield a lot more die on a yearly base. Is that all right? Yeah, exactly. Manet, Nick, anything you want to add or any additional element to discuss here? No, but I did want to circle back.

Part of your original question was trying to address USC. And, you know, what were we going to do about this problem? And I just want to push back on that a little bit because I don't necessarily see the maker protocol having a lot of USC is a problem. I think of it as a capital battery. So when we say like, right, anyone can mince die one to one against USC, right? What we're essentially saying is that if die is trading above a dollar, right, meaning that there is a bunch of demand for die relative to the supply, right, there's more demand. then anyone can go and give USC to the maker protocol, get dye, and sell the die in the open market, and essentially arbitrage that that peg imbalance and bring it back down exactly towards a dollar.

So I think that's very useful property because one, even though die has a kind of market-based kind of algorithmic peg because it's not. hard redeemable for dollars, we essentially get an artificial hard peg to the dollar. And that's incredibly useful when you're dealing with kind of more traditional kind of trade five counterparties. So, okay, so we've accumulated a bunch of USC. People kind of refer to this blacklist like risk. And I don't really see the difference between having. having like 200 million of USC versus having five billion of USC.

The blacklist risk, right, doesn't really change, right? It stays the same. But what you're getting out of this is, one, you're getting extremely deep, deep liquidity for, for die against dollars. And so what this really is is a capital battery to supercharge real world asset lending. So I know probably later you want to get into this a little more, right? What are we doing with real world assets? But essentially, it's maker lending, you know, against assets that exists in the real world instead of off-chain. And essentially what they want to do is these lenders, they don't necessarily want die, right?

They can't do anything with die. What they want is they want dollars for their business to go execute on, some opportunity, right? And so having the ability to go to a trade file lender and be like, we have $5 billion of dollar liquidity allows us to do much, much larger deals than if those trade five partners had to try to find like OTC liquidity, right, for 200 mil or 300 mil. Sam, I see you nodding your head. Can you elaborate and just add to that if you have anything to say? no i think nick covered it pretty well okay so yeah this us dc supply in in maker i'm seeing correct me if i'm wrong but i'm seeing 227 million uh u s dye generated from usdc a comparable

amount of u sdc locked in locked in maker dow and then the stability fee on that on those that 227 million is about 1% so maker is is charging 1% on that 227 million dollars which you know that's a decent amount of revenue. But is that is is is USD revenue from USC collateral inside of maker just like less revenue than your typical collateral because of how just like low risk it is? And is the idea that you still want to displace the USDA collateral with other collateral that you can charge higher revenue for? So so David I think you're misunderstanding something. So from USC right, we are not making any money, right? Really? It is, it's just a swap facility, right? You can go and you swap, you give us a USC,

we give you a die. If you want to say, okay, well, okay, there's $5 billion USC, we're not really making any money from those. I would say that's a completely different problem, right? Okay, that's just saying, how do you monetize your balance sheet, right? And Monet can probably explain this a little better than I can. So I'm going to butcher it first, and he'll probably correct me and come up with a much more eloquent explanation. But the way that I would describe it is, Maker Dow is sitting on $5 billion

and can decide on how we want to allocate those $5 billion into some productive asset that produces yield, right? And so probably we want to look at something very low risk, something like AAA rated. So something like U.S. Treasuries, right, where the yield will be very, very low. But it's an extremely, extremely safe yield. And it's also extremely liquid. So being able to go from treasuries to dollars, right, you're not going to really have any

slippage, no matter what scale you're trading at, right? Even if you want to do like half a billion dollars of treasuries. So it's more of an opportunity of how do you want to allocate rather than a, oh, oh, this sucks, we don't make any money off USC. Bona, you want to add anything to that? Yeah, I think like all else equal, USDC is, I think it's a lot less risky than many people assume. But there is still, you know, some small amount of risk holding it. So, yeah, I think it's a positive if we can allocate that intelligently to real world assets,

maybe stuff like treasuries or other, you know, kind of safe, reliable investments. And then maybe also some a little bit higher risk investments once we get enough surplus to really support that. So, yeah, I'd agree that it's an opportunity. You know, it's just we're methodical. So we're not just going to eat, you know, a billion dollars of USC anywhere. We want to make sure that it's truly like a safer, better bet. Okay guys, I think that covers everything on the supply side. The very basics are you put collateral inside of MakerDA, you charge a fee on it,

number goes up. We also have this USDC is what Nick is calling like a battery. Unless there's anything else to cover on the supply side, I want to turn into the demand side, the other side of things, like demand for dye. And so like putting on our like 101, explain it like I'm five hats. How does dye demand? How is that good for the protocol? How is that good for MakerDAO?

And then where does Dye demand come from? And how does the Dow plan on increasing die demand? Anyone want to raise their hand and take this one? Yeah, Mene, go for it. Yeah, I think the way that I look at it is it's kind of similar to banking, but when people are willing to hold Dye, they're basically lending MakerDAO money that we're able to lend out to the other people who are

you know, using our vaults to borrow money. So that's kind of a key part of our system is when we have a lot of excess die demand, we can always be sure that there's, you know, we have the capital to lend out to people borrowing. Kind of like banks, you know, they use the money from people who are depositing with them to make the loans that they're that they're entering interest on. So yeah, it's a really key part of Maker Dow. it's probably our biggest asset is that we have so many deep integrations with people like Curve and Compound and Ave that a lot of people are really interested and willing to hold

die even though we're not actually currently really paying them anything to hold it through something like the die savings rate. You mentioned integrations with other DFI protocols and I think that actually opens up a subject that I think a lot of people kind of of forget about, there's something different about borrowing USDC or borrowing die from something like AVE or compound than there is borrowing die directly from MakerDAO. Maker Dow can mint dye, whereas compound and AVE cannot. And this is a huge advantage, which is the optionality to be able to mint die, to control

the supply of dye. And there are, you alluded to some integrations with Avey, and I want to turn this to Sam next is, Sam, can you kind of just illustrate how those. integrations with other DFI protocols work and how the ability for Maker to actually mint die is a useful thing for other DFI protocols? Yeah. So for AVE in particular, if you remember last year around April, May, their interest rates on all their stable coins were like skyrocketing.

They went up to like even as high as 20%. And if you're taking leverage on Avey and you just get hit with that intermittently, it's brutal. So one of the mechanisms to alleviate this for dye was that we recognized AVE was a very, you know, reputable rock solid protocol. So we basically just extend them minting rights such that they can sort of squash these excessive times of borrowing. So we built and introduced the, what's called the die direct deposit module, or we shorten it to D3M in conjunction with Avey. And, and we, And basically, this module enforces a max variable borrow. And it does this by basically, like, as soon as, if somebody borrows a bunch on AVE and the interest rate spikes, it will just shove die into that pool, put the interest rate back down.

So nobody gets, like, screwed over by this. And how does Maker Pocket money in that scenario? How is that, how does that generate revenue for Maker Dow? So it's essentially just as if Maker is any other lender. So we collect interest rate on the lending. And like so if, if Avey interest rate like jumps up to 20% and then they tap into makers credit facility, how much interest rate would make or make in that scenario?

So we would enforce a max rate. So we would basically, I think what is it now? It's probably like 2.5% or something we're enforcing around there. So that would be the max borrow. we would enforce and then we would there would be some spread and then we would earn some portion of that interest, you know, 1.5%. I don't know exactly what it is, but it's, yeah, it's about that. There's an old model that, old as in, we haven't talked about it a lot on bank list, but we talked about, we talked about the protocol sync thesis where like deep and incredibly neutral protocols

are found themselves at the bottom of the defy stack and other applications are built on top of it. And so I want to get into the other integrations as well, but using that as a frame of mind for the listeners, like AVE in this particular arena is built on top of MakerDAO, because MakerDAO can supply AVE with the credits and that it needs in times of like a supply squeeze, and ultimately that value flows back to MakerDAO because of MakerDAO's ability to mint dye.

It's the extreme privilege. Maker Dow has its own money printer, the own ability to print money, and other protocols need to, to access that ability in times of supply squeezes. Sam or Manet or whoever wants to take this one next. Can we just talk about all the other defy applications that are also integrated into MakerDAO

that are leveraging this property of Maker? Yeah, so this is sort of the general version is exactly what you said. So the recognition that Maker is not gonna be the best at everything. There's other protocols that specialize and are very, very good at what they do. So instead of Maker trying to do this all ourselves, Let's use defy Legos.

Let's connect all these various protocols and extend them credit lines such that we can kind of exponentially grow together. So what we're focused on right now, so we have the AVE one up, and it's been a great success so far. We are now integrating with compound to give them something similar, as well as sort of newer protocols. Maple Finance, who does reputation-based loans. There's TruFi does similar things. Yeah, so these are all sort of protocols. We'll look at Rari fuse pools. That's sort of a new thing that's pretty interesting that we're looking at.

So we're wanting to go wide with this and sort of just, you know, switch from, you know, lending out against, like, individual collateral assets and instead just sort of empowering others to get dye everywhere, basically. Yeah. And I really want to hammer that point home. It's really, Maker can provide die liquidity. as a service, right? And so what really this does is it just, you know, this goes with the kind of protocols like sync thesis that you were talking about, David, is it really puts Maker on a base layer below any of the other secondary lenders, right? For a primary lender, only we can generate die, like on demand. Secondary lenders need to source liquidity, right, from somewhere, from users or

from Maker. And so it's really quite synergistic, right, for Maker to be able to have these distribution channels for die, right? It's a specialization of saying, what is Maker good at? Well, Maker is good at having this really stable, decentralized stable coin called Dai. And we're really good at providing, you know, hundreds of millions of dollars of concentrated liquidity wherever it's needed. And it's acknowledging that there is secondary lenders who are better at us in other things, right? And they specialize, for example, in distribution, right? If you look at something like AVE, right, you know, how many chains has AVE already deployed on, right? It's practically everywhere, right? And so you can have this really synergistic relationship, right, where AVE can go and, you know,

deploy on all these chains and we can provide targeted die liquidity there and we basically get a free distribution mechanism for die. I think a great model for understanding this. It feels like a central bank with commercial banks where like compound and AVE are the commercial banks that tap into the central bank's liquidity. And the cool thing about Maker and again, the cool ability that being able to mint the money, being able to mint dye, it allows for Maker to really be like a bulk. order credit facility.

I think it's actually kind of skeuomorphic, maybe not skeuomorphic, but just like, you know, it's just a sign that it's early that individuals are going straight to MakerDA to open up vaults, when really it's far more appropriate for things like Avey or compound or just like other larger organizations to come to Maker to open up vaults and then give those, like you said, Nick, distribution,

Maker can use all these other applications as distribution to the individual. How do we like that frame of reference? Is calling MakerDAO a central bank of defy appropriate, or how would you guys change or amend that? I would call the Decentral Bank. The Decentral Bank. Yeah, Meney tap us in here. I would add that I think maybe our vision is bigger than just the central bank of DeFi.

We already have some of like the sort of Titans of CFi, like Nexo and Celsius, already do a lot of business with us among other DeFi protocols. as well, but, you know, that's already kind of like an interesting, like, CDFI scaling solution that they're running where they're lending money to their customers on their own closed platform, but then they're sourcing all of the liquidity, not all of it, but some of it from Maker. And this illustration of Maker as the Decentral Bank of the Crypto Universe gets even more exciting in my mind when we get to the topic of real world assets, which I think we definitely will get there here in a second.

Guys, is there anything else that we should talk about when it comes to die demand, where die demand comes from and like the long-term roadmap for inducing dye into the world? Yeah, one thing I'll add is the die savings rate. You know, it's kind of gone away for a bit, but I think this is a very, very critical tool that when we reactivate it, the value prop for dye is going to be huge compared to holding like US dollar derivatives of other kinds. Why will it be so huge?

It's a risk-free interest rate, right? It's just going to, like, why would I hold, say, USDC when I could be just earning a risk-free rate on die, right? And this, again, kind of goes and lends itself to, like, what is a new treasury? This is the new, like, native dollar-denominated interest rate where I've always thought that there's going to be two major interest rates in the world of crypto-economics. There's going to be the ETH-staking yield rate, which is going to be the risk-free rate of a non-store value asset, sovereign store value asset, but then there's also the die savings rate, which is the yield that you can get on dollars in defy. As anyone wants to riff on that for a second?

Cool. Okay. One, okay, yeah, one last question I have for you guys is like, let's zoom forward and like kind of, and this will tease us up for some real world asset conversations and layer two conversations. But like, let's zoom forward like 10, 15, 20 years. what do you think is like in a world where maker is maximally successful and it's achieved all of its gold, what do you think the collateral inside of MakerDAO looks like? What would the maker overall portfolio look like in an ideal world where everything about MakerDAO was achieved?

Is that something that is known or is that something that we kind of just need to iterate on? Nick, I'll start with you. It's staked eth, Bitcoin, and real world assets. Just those three things? just everything else will look infinitesimally small relatively in my opinion can you elaborate on that why why will those three things be the dominant things um well eth is the uh is it is kind of like to me just the the the future proof kind of network of networks right it's the internet was is a great network but it has some shortcomings

right uh it doesn't really have integrated identity and it doesn't really have integrated payments um if eth literally just becomes a network that has integrated identity and payments right it's already um it's already like such an order of magnitude improvement right and then you start adding in okay well eth is this global network that right anyone can uh can can connect to right uh you have for the first time, this concept of like a globalized liquidity pool rather than like this fragmented kind of regional, nationalized kind of liquidity. And to me, it's just, it's just clear. It's obvious there's no other alternative. For the real world asset side, it's really just acknowledging that Maker, right, has a superpower of right. And our superpower is that we can just

mint die, right, and that there is incredible amount, like deep, deep liquidity of die to dollars. And as long as we have that superpower, right, we have no cost of capital, right? So unlike a traditional lender, right, which would need to somehow kind of source capital, right, to give out loans or to finance something, right? Maker doesn't have that, right? We don't have that overhead. And so we're going to be able to undercharge on on these rates. And that, you know, on the macro scale is just going to allow us to be incredibly, incredibly successful when it comes to financing real world assets.

I really like that line. You're going to be able to undercut the rates because you can mint die. You can always outcompete other lenders because getting receiving capital for maker comes for free. It's just like one single transaction that mince a bunch of. die and Maker doesn't actually owe anything to anyone because it has the power to mint die. So like the Jeff Bezos's line, your margin is my opportunity, definitely comes to mine where if some commercial bank offers 4%, well, Maker can always offer three. Meney, Sam, any through the last comments before we go into the second half of the show?

Yeah, I'm good. Cool. All right, guys. Okay, so there's some really hot topics coming up next. Wormholeing between all the layer two's and the other layer ones. It's definitely something that we're going to talk about. And we've definitely touched on real world assets, but we're going to dive headfirst into the topic of real world assets because I think that is something that no other credit facility, no other defy app is really tapping into in the same way that that Maker is. And it's really the untapped field of opportunity that really only Maker seems to be capturing. And then of course, we're going to get into the MKR token, the current tokenomics for MKR

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All right, guys, we are back on our MakerDAO bowl panel. Again, three Dow community members, all talking about their perspectives of Maker Dow and really why the fundamentals are so bullish. And there's a really bullish announcement that happened not too long ago. I think it came out yesterday, and Nick, I want you to take the lead on this one.

Maker Dow is giving a line of credit to Tesla facilities. Nick, can you kind of unpack what's going on here? And what are the details of this? Yeah. So like you said, we just announced this deal yesterday. Really huge news. And it's basically facilitated by one of our real world asset partners, 6S Capital, led by, again.

guy called Matthew Rabinowitz. And he's been a Maker community member for a long time. And so this is like one of those like really cool kind of success stories where he saw the vision of Maker and DFI so early. And then one day kind of a light bulb went off and was like, wait, like I can actually use this. And so what success capital is kind of doing here is they're kind of actually. acting as this go-between liaison, so Maker can effectively interface, the Maker protocol can

interface with borrowers like Tesla. So in particular, what's happening here is that Tesla wants to build a network of collision repair centers. I believe right now in the U.S., but I think eventually it's supposed to be a global thing. But they don't have the capital, right, to build all of these things themselves. And if you think about, like, them doing a capital raise, right, them trying to take out debt, well, debt on your balance sheet isn't the best thing, right, from when you start, like, analyzing the health of the company, right? And they would really slow down their ability to execute on this, right?

It shows up as a capital expenditure. So what they're doing is they're using credit tenant leases in order to raise the cash to build these. So what a credit tenant lease is, it's essentially saying that if someone were to finance the construction of this, then Tesla will promise to pay a certain amount of rent, right? every year for X number of years, and maybe the amount increases by Y percent every year, right? It's kind of each one is a little bit unique in that respect. And now, right, this isn't debt on Tesla's balance sheet, right? It's not a capital expenditure, and now it's an operational expenditure, right? And so OPEX and CAPEX are treated very, very differently. So that's why a credit tenant lease is like a very attractive.

option for Tesla to scale and build out this network of collision repair centers, like extremely quickly. And so essentially, right, what we can do is we say, okay, well, we know that Tesla is going to be, right, paying a certain amount, right? And that's generating yield. So essentially, you can kind of almost like treat this as a bond, right? It's a fixed income type of product, right? And that has a speculative value to investors. And so Maker is willing to supply the, a die loan, right, against that kind of fixed income stream.

And so we're started, I think we just announced the first deal. And I think the amount is like $7.8 million. But this is just the first one. We have more. deals or, well, success capital has more deals in the pipeline with Tesla that they plan to close in the next quarter and the next two quarters by the end of the year. So really, this is an opportunity that we, once it gets going, it's a flywheel and we're just going to snowball this up, right? And, you know, the amount that maker can lend, right? We said it's near limitless, right? It can just mint as much dye as we want. And so really, it just comes down to the risk perspective of how much risk exposure does

make her want to have right to these Tesla collision repair facilities. And that's a really good problem to have, right? Where you're saying, right, oh, there's too much growth. And we, from a risk point of view, we have to throttle the growth. But the opportunity here is absolutely huge. and we're super stoked that this finally went live. I want to get your perspectives in on this. How should we be thinking about this in the frame of defy?

I think a lot of like, you know, cypherpunks would be puzzled about this. It's like, wait a second, how are we getting real world assets into the world of defy? How does it even work? Can you just like give us your thoughts on this? Like how does this illustrate the story of Maker Dow and what it's optimizing for? just like, how bullish is this? Yeah, I think, I think MakerDAO, you know, by and large, just taking the approach of, like, engagement and hopefully we can influence the entire

economy that we're, you know, that we're living in in a real world to operate better, rather than trying to, like, strictly bifurcate ourselves or, like, separate ourselves from real world assets or other stable coins or anything that, you know, the government might be able to touch through a couple layers of interference. So yeah, I think we're taking the path of engagement. I think Maker does have like a really unique opportunity though compared to if you look at like a lender like compound or Ave, they always need to maintain, you know, enough liquidity so that people can withdraw their money if they want to. when Maker is much less, much less constrained about that.

So, you know, some of these, these, you know, real-world asset deals like lending to finance, building something, they're going to need that money for a year or more. And we have, like, a really unique opportunity that we're able to fund stuff for a longer commitment. And other protocols, you know, they kind of have to adjust how they work to really do that effectively. I think a lot of people are probably wondering how, like, legally or technically, this actually happens. Like, how do we, how does Tesla pay money to maker Dow? Like, what are, there, there are legal structures in place. I'm, I'm pretty sure as well. And, like, just overall, how do real world assets become collateral inside of a defy app? How does, how technically does this even work? I'm not

sure who's, who's most equipped to answer that. So I'll let you guys kind of figure that out. So, David, it is enormously complicated, and we could probably spend a whole hour talking about, well, this thing talks to that thing, is subservient to this, and there's an outside auditor here. Stuff is to say that this is a structure that was purpose-built around real-world assets, And it was purpose built for the Dow to effectively have as much control over where the money goes, where the money can't go, and how it can be handled, right? This isn't just kind of, you know, pop up out of thin air. This is the culmination of, you know, over a year's worth of like blood, sweat and tears and an enormous investment of, of, you know, resources of capital, right, to create this structure. And I would say it's probably

the most advanced real world structure, like I said, that structure out there today. And of course, it's going to be iterated on, right? We're going to want to, you know, diversify to different jurisdictions as well, right? You don't want to just have concentrated, you know, risk just in a single jurisdiction, but this is a huge first step, right? Because it shows that defy is not just, right, a tool for speculators and, you know, traders or whatever, right, to get margin and to get leverage, right? It's really a tool that can be used in the real world, you know, to fund real tangible things. And so, you know, even though the amounts are still small, the symbolism of what it means and of what defy can can grow into become i think is extremely significant.

Nick you said it was extremely complicated and i just want to reiterate that it's complicated on the meat space side this isn't like a technical smart contract complication this is a network of legal structures uh that you've alluded to are complicated but if i could just press you on this what are just really the main components that really make this thing work like what what are the key unlocks that allow for real world assets to come into a smart contract in in defy like where are the where do the actual assurances lie that these real world companies are actually going to pay a defy protocol are there any just like key components of these legal structures that that stand out that we could talk about um so i i would i would say of

note is that uh there is a fiduciary right uh who is not who is you know kind of like think of them as like an independent kind of party. And they are, you know, legally required, right, to kind of do what is in the interest, right, of how you've structured this agreement, right? And so it doesn't matter what some meat space partner wants, right? It is, the fiduciary has to execute, like the the kind of legal will of like this constitutional document. And so every step of this has basically been designed to protect Maker. And so how the money can move and how money can be replaced, right? There is literally a mechanism for the Dow, right, to do a governance vote,

to send a message to someone who then, and that message is, required right to execute on an action right they're legally not allowed to do anything without you know this this signal by governance so it's literally been designed end to end just to have makers interest basically aligned at every step and protected yeah so there's smart contract innovation in defy but this really seems like legal so I mean legal contract innovation in in the real world and when we get into the subject of real world assets into defy we must ultimately talk about normal paper pen and paper contracts not just smart contracts manet i saw you you raised your hand do you want to add anything on to how this

kind of legal structure works um no but i was well i guess just a short thing is that i think it you know maybe for defy native people it helps to like think of this kind of like a bridge where like you need some sort of um like almost like an oracle uh to kind of take the messages from the blockchain, like how MakerDAO is voting, and then execute that in another domain in the real world. But there are companies that, you know, in a more like TradFi context have been doing this for years, like trust companies. Basically, they're just supposed to like take info from one contract or like another domain and then execute it. So I think that we're just figuring out how to use all of these pre-existing mechanisms to our best effect. Nick, you said that this is a really complicated.

How easy is this to scale out? Like if it's complicated, is it easily reproducible? You talked about, like, you know, perhaps we can iterate on this model and make it more efficient. How is this going to go? I think you said something like $7 million deal with the first Tesla facility, but then that can roll. from there is this model that this legal structure that's been created can this just kind of be like replicated over and over and over again for many many different types of real world assets how easy is it to reproduce this in order to scale the size of real world assets inside of maker doubt

um it's solely replic replicatable right uh the the difficult part is constructing it right and is ensuring right that that it works right that all the parties um right are are doing their the and are comfortable with the actions that they're supposed to take, right? But once you have this up and running, right, you can definitely just clone this to different parties. And so I want to go back and take a frame of reference as like the decentralized bank of the internet, but now put this into a context of there are bridges, as Meney said, there's bridges between real world assets and like this decentralal credit facility that's based on the internet. And if you've talked about like one of the long-term goals of collateral inside of

Maker is Bitcoin, Ether, and real world assets. Like, is the position for Maker Dow to be, to kind of like rugpole, the actual central bank, and allow people to, rather than having to go to their commercial banks or even the commercial banks having to go to the central bank, is like Maker Dow positioning itself to be the new credit facility of the digital age? I wouldn't describe it as a rugpole, right? It's just more competition. and consumers will win, right, because ultimately it will lead to lower rates for everyone, right?

So that's how capitalism works, right? And, you know, lower rates, right? We can fund more things. We can do more good in the world, right? And the world can advance and innovate quicker. Okay, you said innovate and compete with the central bank of the United States of America. And the thing about the central bank is that it has a complete monopoly because it is the only bank in America in the West that can print money except for MakerDoubt. The only other institution that I can think of that can print new money is MakerDow.

I mean, there's other decentralized stable coins like U.S.T and we can talk about that. But this is the new level of competition that the Central Bank of the United States has never ever had before because no one else has the legal right to print. money, but now in the world of DeFi, we have this ability to do that. And so this is kind of one of the bull cases for Maker Dow is they are the first credit facility to offer competition to a whole entire central bank that controls the world reserve currency. Any comments or thoughts on that? I think it's very collaborative too as well as competitive, though.

I look at Maker sort of. like a little bit like commercial banking where we can we can mint as much dye as we like but we do actually need somebody who is willing to own that dye to kind of balance the the supply that we're making versus you know the demand that there exists in the market so we're operating a lot like a commercial bank you know we create money but it's all still kind of underlayed by the actual you know US dollar that that's getting made by the Fed I think the collaborative part is that we're totally expanding the breadth of people that actually have the ability to own U.S. dollars. So people in Venezuela or other Latin American countries or just anywhere around the world where dollars and reliable financial services are not available, now they can own die, they can use dye.

and, you know, that ultimately does kind of anchor back to the U.S. dollar system, at least while we're pegged to the dollar. So I think it's, you know, I think it's kind of giving competition to like commercial and central banks, but also kind of a tailwind for the U.S. economy, I would say. So I think one last angle on this real world asset conversation before we get into layer 222. stuff. I think some people would say, like, oh, like, if you're going to integrate real world assets, you're just going to become regulated, right? The real world insatiations means that the regulators are just going to, it's going to be super easy for the regulators to come knocking. And so, you know, the bare case is that, well, Maker Dow will just become, you know, a regulated defy entity. And that's not really, that's not really, you know, defy. That's not really crypto.

The other, the bull case, the bull argument, I think, is that, well, if you integrate so much of real world assets into MakerDAO, you kind of become too big to eliminate from a regulatory standpoint, and you actually are playing very, very nicely with the real world, abiding by like real world legal structures and playing inside the real world game. So I'm wondering your guys' thoughts on this like this bear versus bull debate about what it means to actually integrate the real world into the maker system. Does it provide like a regulatory shield or is it regulatory weakness as in like it's actually a risk for Maker Dow from the regulatory standpoint. Who wants to take this one? Sam? Yeah. So in terms of regulation, I would say sort of in what

jurisdiction. That's it. That's important. So like if we were just in one jurisdiction, I mean, this could be a problem. But like I'm a big fan of we need to play nice with regulators. But if we go wide in terms of like geographic political diversity, they'll be incentivized. to play ball with us, right? And like, I'm not a big fan of sort of like, you know, crypto-anarchy and stuff like that and fighting against regulation. I think we should embrace it and we should work with regulators

to make sure the whole world can benefit from defy and not just keep it as sort of a niche product. Yeah, so do you think some, like the products that MakerDAO is building with for real world assets will make people like Elizabeth Warren warmer to defy? Is that perhaps an angle we can take? I don't know about Warren, but I think it can win hearts and minds generally, maybe for people who have less personal stake in sort of combating crypto.

But yeah, I think it's when we can show, hey, like, we financed X many hundred jobs in your district for like all the different people who are working in government, it's got to have an impact. All right, guys, I think it's time to get into the layer two to two, two side of things. And Sam, I'm going to throw this one to you. Generally speaking, what is Maker's layer two strategy? And is this time to talk about wormholing? Yeah, sure. So I'll pull up a diagram here. So yeah, Maker is incredibly focused right now on sort of the multi-chain future.

We see it as all but inevitable at this point. So like initially we are, we've deployed canonical die bridges on optimism, arbitram, and Starknet. But the plan is to basically go to wherever the users are. And this includes side chains. If people want to use it, you know, makers should be available there. It's up to the users. So like this kind of plays in with this, if you see in the diagram, sort of like this D3M module type strategy where we can basically just have the core of MCD extend credit out to these what we call domains, but you can think of them as chains,

to arbitrium, optimism, stark net, Polygon, avalanche, whatever it happens to be, and then empower these other protocols that people are using and they love to basically meant die. Of course, we have to take risk into account so we extend only certain levels of credit.

Now, with Wormhole, this is the other new product we've been working on for the past year, which were actually just rolling out the first phase of this, just in the coming weeks. So once Wormhole is fully deployed across all these chains, what it allows for is essentially a superhighway of liquidity between all these chains.

Because, again, it goes back to our superpower, we have the right to mint. We have zero cost of capital so that if somebody wants to jump from arbitram to optimism, all they have to do is signal to us the intent, and then our Oracle network will basically say sign, messages saying this is okay and we can mint the dye immediately on the other chain. We do not require liquidity providers and so we think this is our big advantage.

Essentially, other than some sort of technical details, we can offer this for free. People can go from chain to chain with and is once the security models are solidified for these L2s in particular, the debt ceilings can be raised to pretty much infinity as these chains basically inherit Ethereum's security at that point. So let me make sure I get this right. For every single EVM compatible chain or anything that can hook into Ethereum, there is the ability for Maker Dow

to replicate its credit facility on every single chain. So dye minting can happen natively on every single chain, and it's the same dye across the chain. And so you don't actually do... How do the actual canonical bridges of late? layer two's like between Ethereum layer one and optimism or Ethereum layer one and Arbitrum. How are these relevant or are we just like skipping right over the bridges? Yeah, this is an important point.

So in order to make dye fungible and give minting rights on it on these other chains, we need to deploy what's called canonical dye. This is slightly different than you're sort of out of the box, what we call wrapped tokens, which are basically just generic ERC20 bridge where people can deposit, lock their funds in the L1 and then mint new tokens that look and feel like the original one. We do a similar thing, but we also get this. We also can pre-mint some extra dye on the L1 escrow and then give minting rights to

multi-collateral dye, which is deployed on the L2. So it's a little bit different in that regard. Okay. Okay. And so what would happen if the canonical bridges broke, for example, would, is that a risk for, you know, that's a risk for most people because that's how they get to and from the layer one to layer two. Does that change the risk parameters for make or doubt? Yes. So people just bridge normally. It's, you know, it's permissionless. It's up to them.

If the chain they're going to is compromised, user funds will be lost. And, you know, we have no control over that. Nobody does. It's like just the permissionless nature of the ecosystem. Now, for dye that we pre-mint into the bridge, that could be be. potentially be stolen. And that would be in the sort of worst case scenario where the chain is compromised. Now how we limit that is we use debt ceilings on all of these. As chains sort of solidify their security,

we can continually raise these, but if we're concerned about these types of hacks, we can limit our exposure via debt ceilings. And on the wormhole in particular, we can say, you know, from this chain, let's say, I don't know, I've got some side chain that's not very well known, and I'm wanting to go to arbitrate

We would set the arbitrum die that we're minting from that source chain that we're not too sure about to some low number. So people can do it. But if it's compromised, we'll shield ourselves in that way. And the bottom line is that maker holders are responsible for this loss. We make sure we do not put this loss on the die holders. So maker holders are making a decision on which the debt ceilings are. They should be responsible for the loss if they make a mistake. can I put ether into the Ethereum L1 maker instance and then mint dye on like any of the other maker replicas?

Like if I have $1,000 of ether collateral in the main maker Dow, can I mint 500 die on like Arbitrum? Yeah, this cross sort of lending thing, I've been hearing more about that. We have no plans at this moment, but it's something we're sort of initially investigating. It could very well be in the near future. Neat, Ney or Nick, anything you guys want to add to this layer two conversation? No, Sam is the layer two, man. He's our god. I think maybe only one thing I'd add is just it's like exciting to think that we can kind of balance liquidity needs and rates across all of these different domains. Not only with wormhole, but we can use stuff like the D3Ms to target specific interest rates on different platforms.

platforms. So yeah, I think, you know, we're just going to bring a ton of utility to all of these L2s. Amazing. All right, guys, this is, I want to bring us, unless there's anything else to talk about in the layer 2 section, I think what we want to get into the final topic, which is the MKR token and MKR tokenomics. First question I want to ask is, how much revenue is Maker Dow as a platform making right now? And then how does that relate to the value of the MKR token in its current form. Manet, can I throw this one to you? Yeah. So I think we're earning currently around like $60 million in profit. And then we on a yearly basis. On a yearly basis. And we know, we have overheads. We have, you know, numerous core unit teams that were paying for. So the actual amount of

stability fees that we're earning is significantly above that. I want to say it's over 100 million, or I'm not actually certain right now, but it's a pretty significant amount. So yeah, we're very strong from like a revenue and earning standpoint. And then how does all of this revenue translate into the value of the MKR token on the secondary markets? So in theory, if we have met our goal for how much we want to have saved in that surplus buffer, anything above that, we use to buy back MKR tokens and burn it. And as a regular MKR holder, what that means is that your percent ownership of the protocol goes up a little bit whenever Maker is burning tokens.

So it's almost like you're passively being distributed that income. I think at the moment we're actually not burning because we want to build up those reserves even more so that we can, you know, take on more risks and then hopefully over time just kind of accelerate our earnings potential even more. Is this going to be the tokenomics model for Maker going forward? I've heard some clamoring, some there's been debate about the how the burn, the buyback and burn model maybe doesn't actually capture value all that well. I'm wondering if you guys have any thoughts on the, uh, the future of the NKR tokenomics model.

So there's been several new tokenomics kind of proposals. Actually, there was one, I think, even just like a couple of weeks ago from, from Andreessen Horowitz, from A16Z, where they came up with a model. And I believe even Runa, right, Runa is the co-founder of Maker, even leaked kind of some of his own ideas, I think yesterday or two days ago in the Discord around some potential tokenomics changes. So I would very much say there's a lot of different ideas on implementations, but I wouldn't say there's a solid consensus yet on which direction that the community wants to go yet. Is there a consensus that change is wanted, even though we don't know what the change should be?

Is there consensus that we should move into something else? I think so. I think the burn mechanism was good for when it was created because it showed a clear transfer of value, right, from the protocol back to the token holders. Remember that, you know, in 2015, 2016, you know, this was when you had utility tokens, right? you know, you, uh, people were trying to make their tokens as useless as possible, right? You know, to make sure, ensure that, you know, this could never be misconstrued as a security. Right. So the, the burn mechanism at the time was already fairly, I think, revolutionary in that respect. Um, but I think it's shown to be rather dated, right? And because it incentivizes the wrong things, right?

Um, when you're burning MKR, right, you're really, um, what, what really, what really? happens, right, is there's an auction that gets triggered, right? There's a certain amount of die that's up for auction and people bid with their MKR, right? And whoever wins the auction, right, they get the die and the auction that the, the MKR, that the auction return from the bidder, right, that gets burned. The problem here is that this kind of incentivizes, right, the people who are selling their MKR. And this is almost like the wrong, incentive that you want to create, right? You don't really want to, you don't really want to incentivize people to sell, right? If anything, you want to incentivize the holders, right? And so I think

there's a lot more interesting crypto economic kind of innovations that we've had like in recent years, right, that we can implement. Primary one being, right, you want to incentivize the holders, right? So you want to incentivize, you know, locking up and serving as some kind of sponge or sync, right, for the tokens on the cell side. One of my favorite things about the Maker Dow Protocols, there's just so many data and so much data and numbers to be able to consume. One of my favorite websites is MakerBurn.com, which I'm going to ask for Sam to pull up here in a second.

There's just so much, so much numbers to be able to look at. And this definitely kept me entertained. during the bear market of 2018 to 2020. I just want to kind of zoom out and get like a gist for the fundamentals, right? The current state of the fundamentals of the MKR token. Sam, can you kind of just walk us through what we're seeing on the screen here and allow people, help viewers interpret what it means to what the fundamentals of the MKR token are? Yeah.

So as you can see, some of the stuff we previously talked about, as you can see in the top you know, there's a count down to 10 billion dye. There's the surplus buffer, which we talked about previously. We can see the total dye supply, which we're just shy of 10 billion. I think we actually crossed it not too long ago, but we've slightly retraced. As well, you can see the system surplus, which is actually kind of synonymous with the surplus buffer. This is the amount of sort of extra dye we have to take on losses and protect the system. We also have annual profit estimate here.

This is, you know, Maker Burn, the guy who does this he's like compiled everything, right? Like it's sort of a, you can see it here actually. It takes into account stability fees, liquidations, even sort of stuff that's kind of a little bit off chain, sort of how much the core units cost, as well as like Maker Vesting and the DSR. So this is actually a profit estimate. It's not revenues. So that's pretty interesting. You could see like PE numbers and stuff here. It's pretty low.

And you see the Maker price down here. Yep, let's go back. And Maker tokens burn so far on the bottom right here. So we've burned 2.24% of the supply. There's some amount sitting in the Treasury as well. Yeah, $83,000. These are sort of like famously given from the foundation. to the Dow back in, I think that was August of last year, as the Maker Foundation dissolved.

So, yeah, this site's really great for a breakdown of, like, what's going on in detail. The guy who runs this, he's doing an awesome job. And so I think this gets me into my very last set of questions, the costs of the protocol. There are Maker Dow core groups, is what I think you guys call them. And it's one of the very unique things about the Dow, the Maker Dow, in the sense that it's not, know, a discord with 10, you know, 50 people all doing work, it's actually different organizations that are all focused on their one particular set of goals, and then they lobby the central or the central Dow for capital, right, saying, hey, this is the work they were doing, please

give us capital. Can you guys just talk about that model and how it's unique and, and also can we illustrate some, like, these are the costs of the protocol, right? We got to fund, the salary, has got to pay the bills. So how much do all of these core groups cost the protocol? all. And maybe you guys can just talk about why this model of a Dow structure is advantageous at large. Who wants to take this one? I think I can do it. So, David, right? What is the, what do what are Dow's optimized for? How are Dow's different from companies, right? Companies optimize for efficiency and Dow is optimized for resiliency, right? So if you're going to do a Dow and then still just be some kind of

company on the legal end, it doesn't really make any sense. You're kind of just doing Dow like decentralization theater, right? If you want to be a real Dow, if you want true decentralization, you cannot have a top-down hierarchy. You cannot have, right, everyone in this same legal entity. Like to get that resiliency, you really have to have this type of hub and spoke model where it's really just these different autonomous groups, right? You know, it's almost like, right, to if, if something happened to me, right, it wouldn't be a problem, right? Because someone else can just come in and be like, well, you know, we're, I'm leading the Oracle core unit now. Or if I go, you know, rogue or I'm deciding, you know, I hate this shit or whatever, right? Anyone else can go and just,

like, say like, you know what, hey Dow, I'm going to do oracles for you from now on, right? And this is the amount of budget I'm going to need in order to pull it off, right? Do you approve? Right. And what you eventually want to build this into is you don't even want just like, you know, one like smart contracts team, one Oracle's team, one risk team, one real world asset team. You really want just like redundant and redundant layers of different teams, right, in different geographical areas, locations, right?

All kind of, you know, just adding layers and layers and layers of extra resiliency. And that's really where this core unit model comes from. It's just these isolated operating units. And while I would say that, you know, it's not all flowers and rainbows, right? You know, there are disadvantages to working in this kind of like, distributed fashion. I would say coordination, right, becomes, is something that centralized corporations do a lot better than kind of like distributed decentralized dows, right? That's just the tradeoff you make for resiliency. And so I would argue that anyone who's doing

a Dow that's not doing it this way, right, is really not being true to, you know, and taking advantage to the innate benefits of being a Dow. Sam or Manet, guys want to add any perspectives as to the structure of Maker Dow? Yeah, I think, in my view, Maker has like a really good balance of trying to not be too centralized and too hierarchical like a company, but then also not trying to be too flat of an org. Like some DAOs, I think, you know, it ends up just kind of everything is like bike shedding. And I think we have a good balance of, you know, we have clear accountability that runs up to the

token holders and the delegates. Teams have their own kind of accountability that they are able to like figure out themselves because they're kind of self-sovereign. And yeah, I think it's, it's like a really good mixture of like really distributed, but also not not falling into like the flat org like curse or sciop or whatever you want to call it. Sam, I want to let you take this home for us. Let's zoom all the way back out and just view this whole entire episode, this whole podcast from a bird's eye view, especially MakerDAO from, you know, a bird's eye view. Why bullish MakerDAO?

I mean, so many things. From like, I guess our strategy to branching out into the real world, sort of, there's just so much opportunity out there. Like, we are just scratching the surface and, you know, Maker, as for usual, as kind of taking the lead. We expect others to come along with us. But yeah, sort of getting into this much bigger market, like sort of spearheading that,

and sort of providing, I would say, the backbone infrastructure for modern-day defy, which I view as sort of incredibly diverse set of chains and sort of connecting them all together, like basically being the liquidity powerhouse of multi-chain defy. Guys, this has been a fantastic panel. Thank you for coming on and helping me illustrate the bull case for Maker Dow. Bankless listeners, you know what to do.

Like and subscribe, that's how we get the views. And if you guys, like I said in the beginning in the intro, if you think that there is a Dow or organization or token that has really bullish fundamentals, yet the market isn't appreciating it, assemble a team, put some notes together, hit us up on Twitter, and we'll make a show about this. Sam and Ney and Nick, thank you for coming on. kicking it off this new series that we're doing out of bankless and really helping us illustrate the bulk case for MakerDAO.

Thanks so much, David. All right. Cheers, guys. Bankless listeners, thank you so much for tuning into the show. As always, this is not financial advice. Crypto is risky. Bitcoin is risky. Ether is risky.

Dever is risky. You can lose what you put in. But we are headed west. It's not for everyone. We are glad you are with us on the bankless. journey. Thanks a lot.