Reconciling the two opposing paths for Decentralized Stablecoins
From the moment Dai started scaling, it has been straddling two worlds.
One world is the culture of pure decentralization as introduced with Bitcoin. The other is the desire to fulfill the original purpose of Dai, by delivering utility and value to real people at scale.
Unfortunately these two worlds are fundamentally in friction with each other, as noted by the Stablecoin Trilemma, which states that achieving a dollar peg, maintaining pure decentralization, and scaling to large sizes simultaneously is not feasible.
There are two main options for solving the Stablecoin Trilemma:
1. Prioritize Utility and Scale by choosing dollar peg + real world asset collateral, which requires integration with traditional finance (TradFi) and alignment with real world entities. Because utility and scalability are so fundamental for growth, it is almost impossible to find a major DeFi project that hasn’t made this tradeoff, or relies on stablecoins that have made this tradeoff. Decentralization is important everywhere it offers the best path towards practical resilience.
2. Take the path of pure decentralization and demand complete independence from centralized control and strict reliance on decentralized collateral. While conventional wisdom says that it is a lot harder to achieve significant growth when optimizing for decentralization above all else, the Maker community has always believed that there is potential in this approach, and that a natural legitimate userbase exists for this kind of stablecoin.
Endgame is an opportunity for the Maker community to execute decisively on realizing the full vision of both of these competing directions, without compromise, by doing them separately.
This post describes changes to accomplish this. That will be introduced through a future proposal to edit the Maker Atlas, to be confirmed by a governance vote by MKR holders.
The transition to the dual stablecoin solution should be a gradual, deliberate process over several years. Eventually, most Dai use cases will be succeeded by NewStable, which will focus on mass market adoption and regulatorily compliant Real-World Asset (RWA) backing, with decentralization used as a powerful tool to ensure transparency, resilience, and checks and balances.
To complement NewStable, a second, purely decentralized stablecoin, called PureDai, will also be made available as an option for users who prefer the vision of pure decentralization.
Holders of Dai will be able to upgrade to either of these options. The ability to upgrade from Dai to NewStable at a 1:1 basis will begin in the short term, while the option to upgrade from Dai to PureDai will follow at a later date. Dai will continue to function as today, and if in doubt Dai users can simply keep holding their Dai.
NewStable
NewStable will be the main successor to Dai focused on growth, yield and resilience. As noted in previous Endgame posts, NewStable is a code name that will be dropped once the new branding is unveiled later this year.
NewStable follows the trajectory Dai has taken and will focus on utility and adoption, with all of its features tailored towards this goal. NewStable will be a decentralized stablecoin that uses decentralization as a means to achieve practical ends, by making its governance and infrastructure as resilient and transparent as possible.
NewStable will take over the RWA- and tradfi integrations of Dai, deepening and improving them, and making them more resilient over time through its resilient and decentralized governance processes and transparent infrastructure.
NewStable will remain attached to Maker and gain the tokenomics, growth focus and governance features of Endgame.
Future freeze function
To ensure NewStable can safely reach global scale, it will eventually be upgraded to have a freeze function similar to the industry standard of other major RWA-backed stablecoins. The freeze function will not be implemented in NewStable at launch, but the token will have upgradeability so that it can later be implemented by governance vote.
Dai will remain as it is today with no possibility of adding a freeze function due to the technical immutability of its ERC-20 implementation.
The future freeze function is generally expected to follow rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against RWA collateral. This will result in a much greater level of security, stability and reliability of using large scale RWA collateral for NewStable as it scales to global mass market adoption.
The timeline for when the freeze function is implemented will likely be many months or even years, depending on the growth trajectory of NewStable. The future freeze function will be implemented in a way that leverages the decentralized governance and transparent processes of MakerDAO, to ensure it will be a risk-minimized process with checks and balances.
A follow up post that details how the advantages of decentralized governance and infrastructure can be tapped into will be published later this week.
Dai after NewStable Launch
Dai users will be able to upgrade to NewStable during Launch Season as planned, however they can also choose to stay with Dai. Dai will remain as it is today with no possibility of adding a freeze function due to the technical immutability of its ERC-20 implementation.
Dai will remain pegged to USD and will be upgradeable to NewStable any time the user wishes. It will also be possible to instantly reverse the process and convert any amount of NewStable to Dai. Dai will be used as a liquidity and integrations backend for NewStable, as NewStable apps and frontends can leverage the instant 1:1 Dai/NewStable conversion to provide better UX.
After an initial transition period (the current estimate is at least 1 year), DSR will begin to be phased out by gradually ramping the rate down over time. Eventually, yield will only be available on NewStable.
PureDai
Dai users in the future will have the option of upgrading their Dai to PureDai, which is a return to the ideological roots of Dai. PureDai will feature only purely decentralized collateral such as ETH and stETH, free-floating peg like Rai, maximally decentralized oracles and no governance or budgets.
PureDai will be available after a few years, and will be released in its final, immutable form. From the moment it is released it will require no further upgrades or changes, and will be completely independent from Maker. The launch of PureDai will have similarities with the launch of the Initial SubDAOs, and will leverage tools and experience to help make it as successful as possible, but PureDai will be fundamentally different from a SubDAO as it will have no permanent connection to Maker once launched.
Once PureDai is released, Dai users will be able to easily upgrade to it from the Maker frontends. PureDai will be deployed only on Ethereum mainnet, but L2’s and bridges may choose to support transporting it to other blockchains.
PureDai will feature a new brand that is optimized for communicating the specific, unique value proposition of PureDai. Until the rebrand is unveiled in advance of the launch of the finished PureDai system, PureDai is used as a temporary placeholder name.
A follow-up post that goes into detail about the preliminary specification of PureDai will be posted later this week.
What happens to Dai in the long term?
After the launch of PureDai, Dai users will have two complementary choices available to them: They can upgrade to NewStable and take advantage of its USD peg and yield features, or they can upgrade to PureDai to gain the advantages of its fully decentralized collateral.
Eventually, after multiple years, it is expected that Dai will be fully deprecated as all users and integrations migrate to either NewStable or PureDai. The timeline for when this happens will depend on how quickly the ecosystem adopts NewStable and PureDai.
What happens to MKR?
As communicated in earlier Endgame Posts, MKR will stay around and be attached to MakerDAO as it rebrands and Launch Season begins. MKR holders will have the option to upgrade to NewGovToken at a ratio of 1:24,000. It will also be possible to convert NewGovToken to MKR, reversing the process.
MKR holders can choose to keep holding their MKR, as the new features of NewGovToken also apply to MKR. It will be possible to use the LockStake Engine directly with MKR without having to upgrade to NewGovToken.
Upcoming explainers
* Thursday there will be a follow-up post containing a deep dive on PureDai, with its current specification. The specification is relatively simple, and of course will be subject to change, but will still provide a good overview of the principles at this stage.
* Friday there will be a follow-up post providing more context about the principles and ideas for how decentralized governance and the advanced governance capabilities of Maker Endgame can be leveraged to make a more transparent and more fair stablecoin freeze function process.
Link to forum post: forum.makerdao.com/t/reconciling-…
From the moment Dai started scaling, it has been straddling two worlds.
One world is the culture of pure decentralization as introduced with Bitcoin. The other is the desire to fulfill the original purpose of Dai, by delivering utility and value to real people at scale.
Unfortunately these two worlds are fundamentally in friction with each other, as noted by the Stablecoin Trilemma, which states that achieving a dollar peg, maintaining pure decentralization, and scaling to large sizes simultaneously is not feasible.
There are two main options for solving the Stablecoin Trilemma:
1. Prioritize Utility and Scale by choosing dollar peg + real world asset collateral, which requires integration with traditional finance (TradFi) and alignment with real world entities. Because utility and scalability are so fundamental for growth, it is almost impossible to find a major DeFi project that hasn’t made this tradeoff, or relies on stablecoins that have made this tradeoff. Decentralization is important everywhere it offers the best path towards practical resilience.
2. Take the path of pure decentralization and demand complete independence from centralized control and strict reliance on decentralized collateral. While conventional wisdom says that it is a lot harder to achieve significant growth when optimizing for decentralization above all else, the Maker community has always believed that there is potential in this approach, and that a natural legitimate userbase exists for this kind of stablecoin.
Endgame is an opportunity for the Maker community to execute decisively on realizing the full vision of both of these competing directions, without compromise, by doing them separately.
This post describes changes to accomplish this. That will be introduced through a future proposal to edit the Maker Atlas, to be confirmed by a governance vote by MKR holders.
The transition to the dual stablecoin solution should be a gradual, deliberate process over several years. Eventually, most Dai use cases will be succeeded by NewStable, which will focus on mass market adoption and regulatorily compliant Real-World Asset (RWA) backing, with decentralization used as a powerful tool to ensure transparency, resilience, and checks and balances.
To complement NewStable, a second, purely decentralized stablecoin, called PureDai, will also be made available as an option for users who prefer the vision of pure decentralization.
Holders of Dai will be able to upgrade to either of these options. The ability to upgrade from Dai to NewStable at a 1:1 basis will begin in the short term, while the option to upgrade from Dai to PureDai will follow at a later date. Dai will continue to function as today, and if in doubt Dai users can simply keep holding their Dai.
NewStable
NewStable will be the main successor to Dai focused on growth, yield and resilience. As noted in previous Endgame posts, NewStable is a code name that will be dropped once the new branding is unveiled later this year.
NewStable follows the trajectory Dai has taken and will focus on utility and adoption, with all of its features tailored towards this goal. NewStable will be a decentralized stablecoin that uses decentralization as a means to achieve practical ends, by making its governance and infrastructure as resilient and transparent as possible.
NewStable will take over the RWA- and tradfi integrations of Dai, deepening and improving them, and making them more resilient over time through its resilient and decentralized governance processes and transparent infrastructure.
NewStable will remain attached to Maker and gain the tokenomics, growth focus and governance features of Endgame.
Future freeze function
To ensure NewStable can safely reach global scale, it will eventually be upgraded to have a freeze function similar to the industry standard of other major RWA-backed stablecoins. The freeze function will not be implemented in NewStable at launch, but the token will have upgradeability so that it can later be implemented by governance vote.
Dai will remain as it is today with no possibility of adding a freeze function due to the technical immutability of its ERC-20 implementation.
The future freeze function is generally expected to follow rule of law from jurisdictions where Maker needs a high level of certainty that the legal system will enforce recourse against RWA collateral. This will result in a much greater level of security, stability and reliability of using large scale RWA collateral for NewStable as it scales to global mass market adoption.
The timeline for when the freeze function is implemented will likely be many months or even years, depending on the growth trajectory of NewStable. The future freeze function will be implemented in a way that leverages the decentralized governance and transparent processes of MakerDAO, to ensure it will be a risk-minimized process with checks and balances.
A follow up post that details how the advantages of decentralized governance and infrastructure can be tapped into will be published later this week.
Dai after NewStable Launch
Dai users will be able to upgrade to NewStable during Launch Season as planned, however they can also choose to stay with Dai. Dai will remain as it is today with no possibility of adding a freeze function due to the technical immutability of its ERC-20 implementation.
Dai will remain pegged to USD and will be upgradeable to NewStable any time the user wishes. It will also be possible to instantly reverse the process and convert any amount of NewStable to Dai. Dai will be used as a liquidity and integrations backend for NewStable, as NewStable apps and frontends can leverage the instant 1:1 Dai/NewStable conversion to provide better UX.
After an initial transition period (the current estimate is at least 1 year), DSR will begin to be phased out by gradually ramping the rate down over time. Eventually, yield will only be available on NewStable.
PureDai
Dai users in the future will have the option of upgrading their Dai to PureDai, which is a return to the ideological roots of Dai. PureDai will feature only purely decentralized collateral such as ETH and stETH, free-floating peg like Rai, maximally decentralized oracles and no governance or budgets.
PureDai will be available after a few years, and will be released in its final, immutable form. From the moment it is released it will require no further upgrades or changes, and will be completely independent from Maker. The launch of PureDai will have similarities with the launch of the Initial SubDAOs, and will leverage tools and experience to help make it as successful as possible, but PureDai will be fundamentally different from a SubDAO as it will have no permanent connection to Maker once launched.
Once PureDai is released, Dai users will be able to easily upgrade to it from the Maker frontends. PureDai will be deployed only on Ethereum mainnet, but L2’s and bridges may choose to support transporting it to other blockchains.
PureDai will feature a new brand that is optimized for communicating the specific, unique value proposition of PureDai. Until the rebrand is unveiled in advance of the launch of the finished PureDai system, PureDai is used as a temporary placeholder name.
A follow-up post that goes into detail about the preliminary specification of PureDai will be posted later this week.
What happens to Dai in the long term?
After the launch of PureDai, Dai users will have two complementary choices available to them: They can upgrade to NewStable and take advantage of its USD peg and yield features, or they can upgrade to PureDai to gain the advantages of its fully decentralized collateral.
Eventually, after multiple years, it is expected that Dai will be fully deprecated as all users and integrations migrate to either NewStable or PureDai. The timeline for when this happens will depend on how quickly the ecosystem adopts NewStable and PureDai.
What happens to MKR?
As communicated in earlier Endgame Posts, MKR will stay around and be attached to MakerDAO as it rebrands and Launch Season begins. MKR holders will have the option to upgrade to NewGovToken at a ratio of 1:24,000. It will also be possible to convert NewGovToken to MKR, reversing the process.
MKR holders can choose to keep holding their MKR, as the new features of NewGovToken also apply to MKR. It will be possible to use the LockStake Engine directly with MKR without having to upgrade to NewGovToken.
Upcoming explainers
* Thursday there will be a follow-up post containing a deep dive on PureDai, with its current specification. The specification is relatively simple, and of course will be subject to change, but will still provide a good overview of the principles at this stage.
* Friday there will be a follow-up post providing more context about the principles and ideas for how decentralized governance and the advanced governance capabilities of Maker Endgame can be leveraged to make a more transparent and more fair stablecoin freeze function process.
Link to forum post: forum.makerdao.com/t/reconciling-…
• • •
Missing some Tweet in this thread? You can try to
force a refresh
