Interview with MakerDAO
For the Stable.Report’s fifth interview, we had the pleasure of conversing with the fantastic Rune Christensen, Founder of MakerDAO — makers of the stablecoin DAI — if you listen to this podcast, you probably are familiar with it. At the moment, MakerDAO allows anyone with Ether to deposit it as collateral and receive DAI, a crypto-collateralized stablecoin, in exchange. But many things are happening at Maker, including the collateral they accept, so we were really excited to learn more about the organization’s developments.
I have to say, DAI was probably the first stablecoin I heard of, the work being done by the community at educating people and introducing them to stablecoins is worth learning from.
This interview is 35 minutes long, feel free to click play and listen to it now, subscribe to our podcast here to listen later, watch it on YouTube, or simply go ahead and read the edit below. Please enjoy and let us know what you think!
SR: What got you into crypto and what inspired you to develop a stable coin?
RC: I got into crypto with Bitcoin early in 2011, there was this first wave of “anarchist idealism” that Bitcoin inspired, and I really stayed engaged in the space throughout this time. But after realizing a a massive gain from my Bitcoin holdings during the bubble in 2014, and basically seeing it all disappear, I came to the realization that it is not acceptable for regular people to use Bitcoin with this volatility. So me and a lot of other people jumped on a project called BitShares, which had just invented the first stablecoin (bitUSD), using the very basic mechanics of crypto-collateralized stablecoins (i.e. deposit BitShares as collateral to create bitUSD). However, the BitShares projects stagnated for various reasons, and me and other developers and users decided to take the idea of BitShares and build it in Ethereum. We developed the idea further into a multi-collateralized stablecoin, with dynamic and continuous governance and heavy focus on proper risk assessment and management.
SR: How did you come up with the name Maker and Dai?
RC: Originally it was called eDollar, and Maker was the name for the DAO behind it to support liquidity, which now is focused on the risk assessment and management, but not initially…initially it was the marketmaker. We also didn’t want to be pegged to the USD, we thought the SDR was more international and more stable on a global scale, so we wanted a different name to represent that this stablecoin was its own thing. At the time we believed that the main focus was going to be China and delivering products in Chinese because of the conditions there, so DAI is Chinese for “lent” or “loan”.
We eventually went back to the USD-peg, although the goal is for DAI to eventually move to its own universal CPI or currency basket once we have the ability to create a more synthetic fiat, or stablecoin pegged to various local currencies. Obviously there has to be a USD-pegged stablecoin if you have a live product, because its just the most popular currency.
SR: Absolutely. But I do agree that there needs to be a future where we do not have to peg to the USD but just create our own peg somehow. I’m excited to see how that develops.
You mentioned China as the initial market and I also know that you recently opened an office in Argentina as well…how many people are working at DAI full time and how distributed is the team?
RC: It is a very big team and it is very experienced. Originally, for almost 2 years, it was entirely distributed with people from all over the world working from home. At that time we didn’t really consider ourselves a company or an organization, we were just community members in the DAO, but today we are significantly globalized and a proper business organization. We’ve set up offices in several locations: New York, Buenos Aires, London, Coppenhagen, Warsaw and Shangai; and then we also have distributed team members in a bunch of locations. The total full time work force, if you also count contractors, is somewhere between 70 and 80 people. So it’s growing really fast, we added 20 people to work full time in the last 3 months and we are probably going to continue growing at this rate, because we need a lot of people to help us integrate in the economy and also reach out in various regions. We need to set out a lot of local community management and business development teams in all the various markets that have a natural need for stablecoins.
SR: Three years ago, you could count the stablecoin projects with your hands, and today you have over 70 projects. What do you make of that, is it a positive or negative development?
RC: That’s certainly a positive development in the sense that it means that people are realizing how important stablecoins are for the ecosystem. Stablecoins are one of the necessary building blocks of the blockchain economy, its a fundamentally necessary technology if you want to build decentralized applications and actually do stuff in the real world.
SR: Interesting. Do you welcome all of the developments, whether they have collateral or not, they are all equal to the ecosystem?
Interviewee: Yeah, to a degree, I think there are niches for all different kinds of stablecoins. I don’t think that [centralised stablecoins] have the same characteristics as decentralised stablecoins, they don’t really fit into the core ecosystem and infrastructure of decentralised applications because they will effectively centralise them, and if we have one of these projects getting too big, we’re getting back into the old world of too big to fail. But they actually work and have a fantastic niche as the interface/gateway between traditional banking systems and decentralised stablecoins, so they can work really well with MakerDAO to be used as collateral and on-ramps. When it comes to seniorage shares/algorithmic stablecoins, I am very skeptical because they are based on the idea that if you write code correctly you can create money out of nothing. My basic argument is that they are sort of combining the illusion of stability today by selling off stability in the future because the value has to come from somewhere.
SR: Yes, I want to believe in these [no-collateral]models, but it is really hard to. Has the recent collapse in Ether’s price diluted DAI’s collateral (PETH), or have you seen worse before?
RC: In terms of the recent crash effects on collateral for DAI, this is nothing compared to what the system is designed to withstand. What we’ve seen is that the total amount of DAI outstanding has decreased, there has been a deleveraging in the system. People decided to not take as much debt and not hold as much collateral in the system, but there has not been anything close to a black swan that could put the system at risk or dilute PETH. In fact, PETH holders made money because they earn every time there is a liquidation.
SR: Can you explain what the Target Rate Feedback mechanism is in the case of a black swan event, or a sudden drop in the market?
RC: So target rate feedback mechanism is probably the most misunderstood and also the most complex idea described in the whitepaper. That mechanism is actually being deprecated, and we are adjusting the stability fee to ensure that the demand for DAI is in line with the demand for holding CDPs so they meet at equilibrium. The foundation proposed to the community we should increase the stability feed to 2.5% from 0.5%; and this way, attempt to get a better balance in terms of how much DAI can be generated or how much demand there is for new people coming in, holding more DAI. In the short run, the foundation really is playing the role of the leader and being very proactive on what should be done to keep DAI safe in the short run especially at this very early stage where fluctuation can be a little more severe. But in the long run, the way that is going to work is that the community will actually use the scientific governance process, that is also used for risk assessment and decisions on the collateral portfolio, to decide holistic rate policy solutions that fully covers what to do with the rates in different market scenarios to reduce volatility. This should be done in a way that creates reasonable expectations in the community.
SR: That sounds like a step in the right direction. It has been a really long journey of experimentation for you guys, recently you posted the Maker Foundation Proposal on your blog, I’m curious how it aligns with current developments that have already been announced but also the upcoming developments. Could you talk about the the multi-collateral, and how the MKR token for governance influenced those decisions?
RC: In terms of how multi-collateral is going to work, basically anything that is not a scam coin could go to the collateral portfolio because it is not really a question of what you accept as the collateral, but in which terms you accept the collateral. So you can have this really highly experimental and high risk token and can still use it as collateral and set very high collateral requirements and a very high stability fee to hedge risk. But the real interest of multi-collateral is to move towards different types of assets than the classical ICO tokens coming out of Ethereum, and more towards this trend of tokenization of real-world assets.
SR: Can anybody propose baskets? How would that work?
RC: Yes, once it is fully available as an ERC-20 token, the idea is that anyone can propose new collateral. There will be a platform for researchers to come with their own suggestions, but also for companies themselves to propose their token for risk assessment.
SR: As an investor, should I purchase MKR or should I hold collateral?
RC: I guess the answer to that question depends on what you think is mispriced, but you should diversify and have different types of risk products in your portfolio.
SR: It’ been really hard to keep up with all of the announcements coming out of Maker, congratulations! The last one we heard was the partnership with Wyre for on/off ramps, can you talk about that?
RC: Yeah, it’s really interesting for us because it marks the first time that a user friendly fiat on/off ramp integrates with a stablecoin. Wyre’s specialty is servicing businesses and high volume with low fees. What this means for regular users is that now it will be much easier to move into DAI and to take out loans with CDPs to buy something in the real world, the hurdles and fees are now significantly reduced. It’s really nice to be able to have this bridge from DAI into USD, so we don’t have to deal with those big spreads, it’s going to be cheaper and also more convenient.
SR: Is Maker considering getting more involved in the developing world?
RC: That was one of the main ideas behind the 20% donation principle. It’s a really interesting use case and there is big potential to gain users by providing real value in their everyday lives. We are looking at how to actually approach this, obviously it’s a little bit difficult because you need the right infrastructure, but one of the main areas we’re looking at is charity and making it easy to send money to crisis zones or impact areas. The big question is how to accelerate adoption in the ground, and there are different approaches to this, such as handing out smart phones to people or focusing on merchants — similar to what DASH is doing in Venezuela.
SR: I think it’s going to take time to reach the developing nations; just like it’s going to take time to go mainstream. In terms of DASH in Venezuela, I commend their work in terms of educating the population, but in terms of actual adoption, I don’t know how much traction they actually have and how much is noise, but it is amazing that the people are in the ground there educating people on what cryptocurrencies are and that’s something that we need as well.
If you would like to learn more about MakerDAO, visit their website at makerdao.com; follow them on twitter at @makerdao; chat with the community at chat.makerdao.com or go down the rabbit hole on reddit at reddit.com/r/makerdao.