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Risk #12 - 10/18/2018

Introductions

  • Rich & Steven

MKR is a governance token. What can I do with it?

  • The goal: How can you manifest value from the token ownership?

Where should you hold your MKR tokens?

  • In the voting structure or in a liquidity pool (store of value like Dai)
  • In theory, there should be a deluge of proposals that will need to be voted on regularly.
  • Continuous approval is part of executive vote
  • Only want to keep your MKR in your wallet when you don’t have the liquidity preference for MKR -> Dai or if the voting structure doesn’t align with your security preference

Will retail users be less likely to lock up their position long term in comparison to a larger institutional investor?

  • "Will a new proposal increase the supply of Dai?"
  • Generally both should be incentivized to seek increased MKR value

Should we incentivize smaller holders to vote (and not incentivize larger holders)?

  • This is based on the assumption that any proposal can pass
  • All proposals will need to be thoroughly vetted to make sure it fits within the systems’ objectives

Is there a plan to encourage people to vote in general?

  • This is the first system where you are able to take initiative into your own hands
  • We can’t go blame the board of directors or management if something goes wrong

Would delegated voting be a way for smaller holders to seek representation?

  • When considering an executive vote, we should be well past the tipping point of consideration as it has already passed a governance vote
  • If there is still contention at the time of the executive vote, then we should let it go
  • On the governance vote, it could be much more fluid

If a collateral is being used, what is the process for removing a collateral?

  • The debt ceiling would be moved to 0
  • Whatever is left in the system can only be unwound

How do we assemble a collateral portfolio?

  • If we want to have similar risk per collateral then we need to identify what parameters we can hold constant
  • At a full outstanding debt ceiling the expectation would be the portfolio is balanced
  • The risk teams can incentivize CDP creation with specific collateral types through stability fee
  • We don’t know which collateral type will hit its debt ceiling first —> leads to new question.. do we raise just that collateral ceiling?
    • Constantly need to reevaluate the portfolio makeup
    • If we only adjust the one ceiling it will overweight that collateral type in the portfolio
  • Keep in mind, the debt ceiling is built on the liquidity profile of the collateral and considering the makeup of the whole portfolio

How do you incentivize the risk teams to stay working on MKR risk?

How do you reduce or mitigate the high correlations between collaterals in the system?

  • When creating any portfolio we want to consider the std dev of the entire portfolio
  • Marginal value at risk, provisional value at risk
  • We have to either wait for orthogonal collateral types to become available or work with small debt ceilings to reduce the overall risk