Thread by @brendan_dharma

Golly gee willikers #DeFi Batman, more MCD news!

Disguised as a boring "Risk Construct Proposal", this document is a fascinating look at how the Maker team is approaching MCD launch.

blog.makerdao.com/governance-pol…

Let's investigate these rascals 👇

Up front Maker discusses why a facilitated migration is necessary vs. open-market

They say "the open market could represent an uncontrolled and potentially risky path for the ecosystem".

Basically: "open market -> prices out of whack, and gee whiz Batman that'd be real bad"

So how Maker will facilitate the migration?

I hadn't realized this, Batman, but "Sai holders...lock their Sai into the migration contract and generate Dai at a 0% stability fee and a 100% liquidation ratio..." effectively a Sai-to-Dai token swap

But Sai will only be burned when SCD-CDP holders repay their loans. And importantly, "CDP owners use this Sai liquidity to migrate their positions from SCD to MCD"

Oh golly Batman, boy is this important because CDP holders NEED Sai holders for migration liquidity...

...because if the migration contract doesn't hold enough Sai, then "the contract will not be able to execute the migration", and the CDP holder won't be able to move over.

Batman, seems to me like CDP holders sure better hope Sai holders want to migrate over!

Hey you CDP-holder! Thought you'd never have to pay interest huh? Thought you'd just hodl and never make a payment. Think again ha!

"CDP owners must repay their accrued stability fee in order to complete the migration. The migration app is designed to facilitate this process."

"The migration effectively represents a deleveraging of 90 million Sai and a potential re-leveraging of 90 million Dai. Two sudden supply shocks in a short period of time put a strain on market liquidity and threaten the stability of both Sai and Dai"

Not one, but TWO sudden supply shocks!

How will Maker manage these supply shocks?! By pulling two levers: Dai Savings Rate and Stability Fee.

We've been looking high and low for a sign of what DSR will be, #DeFi Batman, and we finally know!

"a DSR of 2% is likely to be competitive with the broader DeFi ecosystem, which currently offers a ~6% (and dropping) savings rate on Sai."

Did they really say "and dropping"?!?!?!

Looool, no shit sherlock, everyone in Gotham knows that #DeFi rates follow Stability Fee, and you Maker folks have been dropping SF faster than Batman can bring villains to justice!

Also Batman, do they really think 2% is enough? Why get 2% when you could get 5%? Are they going to lower SF until DSR is higher than all the other rates?

Ho ho ho, Batman, here's another whopper!

To incentivize CDP holders to move from SCD to MCD, Maker "propose[s] a 1% stability fee spread to start."

LMAO Batman, where was that restraint when Maker was lowering SF recently? 2% cuts per week for past 2 months — no problem. 4% cut last week ✅

But yaaaaa, for sure 1% spread is gonna work this time. No doubt. No doubt.

Then there's a discussion of why Sai price is likely to rise above the price of Dai.

Basically, "the migration process would entail a steady stream of Sai demand" and "one can always swap Sai to Dai through the migration contract"

Demand for Sai🆙 + 1way conversion = 🤑Sai🤑

Oh my gosh Batman, did you hear Maker is launching MCD with your token?!

It's called BAT, and each token represents one Batman-to-the-Rescue!

Ok ok, you're right, you don't owe people free rescues. But I bet BAT would be worth more if you did, huh 😉

Anyway, weird that Maker would launch such an important new version of their protocol with such an illiquid token, right?

Was Brendan Eich the only one who voted in "the asset priority poll held in July"?

"The primary reason for this addition at launch is so that engineers in the development community can fully test all of the features and functionality of the Maker Protocol."

Does this mean Maker is only using BAT so they can just treat it like a guinea pig?

Maker sure does seem to like to talk about risks. They posit five more big riskeroos:
1. migration goes too slowly
2. migration goes too quickly
3. borrowers on compound/dydx don't move
4. no Sai liquidity
5. MCD ETH debt ceiling is too low or too high

All of those risks are interesting. Read them Batman, it's important that you understand the plan!

Just when I thought I was done, Batman, I go and stumble upon something absolutely crazy!

Batman, you're not gonna believe this. When auctioning off collateral for bite-able Vaults (RIP CDPs), the time between bids can be 10 minutes! And an auction can take 3 days!

WHA?!?!?!?!?!??!?!?

No, for real, Batman, that's what it says right here.

I know Batman, TBH Batman, not sure I understand this either. What happens if the price of ETH is falling rapidly? The biter has to wait 10 minutes to win the bid? And the auction could take 3 days? Crypto could fall 10% in 10 minutes, and 40% in 3 days!

🤔🤔🤔

Well Batman, boy what an interesting read. The @MakerDAO team truly is doing an amazing job of keeping the community informed.

I'm just trying my best to keep us all aligned, including the Maker folks when they act like Superman (remember when we had to fight that guy?!)

Well #DeFi Batman, I've been trying to tell you how much of a big fucking deal MCD is. Hopefully you now understand just how much of a big👏fucking👏deal👏 it is.

We're lucky we're here to see it happen! #DeFi