📺 The Bullish Case for MKR | Sam MacPherson, Niklas Kunkel & monetsupply.eth

welcome bankless nation to this very special episode today we are talking all about maker dow and the bowl case behind maker dow you guys all know banker dow it's the organization it's the the dow product behind the die stable coin the first ever trustless stable coin that crypto has ever seen but i'll ask the listeners do you really know maker dow have you really been paying attention to what's going on behind the scenes because in my mind from my understanding it's a dow like none other uh and maker dao has made

fundamentally different choices less about different smart contract design choices but more about how the dow operates how the dao is organized and what is going on behind the scenes i've been a long supporter of maker dao before i started writing about ethereum i started writing about maker dao first so i've been very close with the team and organization behind maker dao they have been an organization since 2016 and has blossomed and grown since then uh it really started very emergently uh people

that were just interested in figuring out how to produce a decentralized stablecoin 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. um 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 which with like that operated as a typical company more normally would and that foundation existed for for years uh 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 doubt of dao structure and maker governance really is just capital allocation decisions rather than you know voting on what the brand or icon should be or you know who should be

able to tie their shoes with a snapshot vote uh so entire companies work for the meta dow 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 dao community members to give the bold case for maker dow and to illuminate what is going on behind the scenes with maker doubt 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 bowl 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 gotta 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 a 100 of the purchase

price of primary sales of the uh keith herring nft collection will be donated to the mac viva glam fund to support to support youth impacted by hiv and aids there are three rarity levels in this nft drop 1000 total red tokens available for 25 each 250 blue tokens nfts are available for 150 each and 25 yellow tokens available for a thousand dollars each minting has not yet happened that is uh 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 the show notes to sign up and learn more and you can access all of that information there in the show notes and so uh with one last comment before we get started this is a future this is a coming up an experimental show model out of bankless uh future bullish blank shows are definitely going to be a thing

this is the bullish maker show which i think is has a compelling story but i'm sure there are many other communities many other dows many other projects that have the bowl 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 bank lists if you think that their the market is under appreciating a particular token a particular dao 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 bowl case for your particular token ready to

go and you've got the team assembled to get it done uh 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 dows maker dao of course so we will be right back to get into the show and the bowl case for maker dao teaser they actually just announced a 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 maker dow and

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and use your collateral to mint die directly with maker the power to mint new money is in your hands the maker protocol is extremely hardened and operated by one of the most experienced dows in existence they've been here since the beginning they've seen it all and so you can mint die 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 xerion zapper or any other d5 protocol that you use follow maker on twitter at maker dow and learn from the oldest and most resilient down existence

all right bankless nation here is our bowl case for mkr a bowl case for maker dow panel on the top left we got sam who uh is all the three of these uh our dow members got top left is sam bottom left we got monet supply you probably know him on twitter uh and in the bottom right we got nick kunkel who i've actually had the pleasure of spending uh cobia time with nick and i went skiing a lot in during during cove and that that has been a fun time uh and so guys are you guys ready to get into the bowl case for maker dao yes yeah all right let's do this i gave

a little bit of an intro about the maker foundation the origin originating story about maker doubt 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 uh let's zoom forward to the present like what is maker dow and what about maker dao is just so different than the typical dow that people are familiar with and and also just who is a part of maker dow like who composes it and how is how is the culture of maker dow just different from other organizations that we find in defy sam i'll start with you yeah sure uh first thanks for having us david uh 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 dao and other dows 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 dao um no legal entity that's an interesting piece another thing is that uh we're completely sustainable uh the protocol revenues more than pay for all the

expenses of uh running the workforce and you know paying out various uh things on the protocol uh so that that's something that's really interesting and unique i think uh in terms of who's involved uh there's a number of different groups in the dow uh we have what's called core units this is like our main uh unit of like workforce so me i'm on the protocol engineering core unit so we're responsible for maintaining and building the uh smart contracts for the core protocols as well as other things

involved with that you know we have risk we have mones on that uh nick's on the oracle's team uh so this is sort of the fundamental unit we have uh we also have what are called mandated actors uh and uh so these are sort of uh 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 um that like we kind of uh go over like 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 uh how would you illustrate the differences between maker dow and and how maker dao came to be and how people think about dows these days um well okay so uh right i mean we have we had the dao right um and uh right uh right af right before kind of the dao blew up right you had a

every project was trying to be a dao because we we thought we had just discovered this uh new kind of social primitive a way of like you know of like collectivism right and so you had maker dao and you had digix dao and you had a couple of these other ones right and then the dow got hacked um and then dao was kind of a dirty word for a long time right uh maker we considered dropping the word dao from our name you know for like a long time and uh now it's almost like enough time

has elapsed that like dao zar um like this idea that came back that people are like no wait that was actually like like a very useful uh concept um i wha what i think kind of makes maker like unique and and special really is is not just the way that we we structure ourselves as a dow but the way that we build is just very uh comes from a perspective that's very

adversarial right uh we really think of like um truly every little thing that could go wrong and try to have as little kind of direct human control or authority as possible uh you know we as you know the developers like we don't have special knobs and switches of turning the 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 is quite rare um in in in d5 especially right where uh i 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 uh but then later uh

they don't actually decentralize and i think maker is one of the few that really stuck to that promise and and is following through on that monet i want to get your perspective in on this as well what are really the the properties or characteristics about maker dow that stand out is unique and special that only really maker dao exhibits i wouldn't say onlymaker now 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 um you know we have a clear goal of making a really reliable um financial system that people can trust and that that people can actually be safe to put their money in and um you know it attracts just kind of like a special committed group of people um and i think you know other protocols really are striving for that but maybe

are still in the 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 every single maker dow 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 d5 when there's so much churn

all the time people that seem to work for maker tend to commit really really hard to make her monet you you kind of alluded to this i want to ask this next uh this next question is i've always thought the 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 in

the mkr token uh and so i want to get your guys's 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 uh yeah um 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 um 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 uh makerdale's been building so hard for so long and just do do you see like a discrepancy between the the what the story of the price is being uh is telling versus what's actually happening with the fundamentals

um yeah but i but i think it's quite obvious how we kind of ended up here uh 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 the i think the rationale was quite reasonable right uh

make dye have utility make that 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 uh 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 could talk about die we can talk about the contracts getting a vault all that stuff but in a industry which clamors for attention the the legal side of uh in the compliance side of the foundation was like you guys can't talk about mkr uh monet would you agree that that would 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 on the mkr token yeah i think that um i i imagine that a lot of that was like some legal influence but i think it's also um you know kind of goes back to just the discipline of the project which um you know if if you just are disciplined and you keep doing the right things for long enough like it does pay off um and i think there's you know lots of advanced new tokenomics that we've seen people deploy in the

last couple years um a lot of that is like kind of very flywheel based where you can accelerate your growth um but then you know on on the rivers it also you know kind of accelerates your decline um and i think maker has just been very sort of um 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 funds are at risk um so yeah i think it's 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 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 uh it was kind of where a lot of people put their attention including 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 dye how demand uh how demand is induced into die we're going to talk about maker's

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 to to talk about so 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 my desk sorry does uh the what does the protocol want

die number die supply to go up loan fees to go up like what are the really bullish metrics for maker dow that you guys are trying to to optimize for and monet i'll throw it back to you on that one i think total die supply um and then also like usage and integrations across different platforms you know being able to use it in real commerce um as well as just you know defy um and then i think kind of more directly to the bottom line like what's our actual pro like amount of dye

that's being generated through um through vaults rather than through stable coins because that's that's where we're actually able to to earn revenue so yeah i think those are probably the two biggest fundamental drivers sam nick anything to add on about the the optimizing metrics for for maker dow which metrics are the most important uh yeah i would say um like in the short term uh what monet said uh we need to get sort of the interest bearing supply up uh to replace the stablecoin supply

i would say a medium term goal is to at least for me is to reactivate the die savings rate start getting a die demand growing in a more organic way um 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 um as like a credibly neutral alternative nick anything to add no i think that uh it covers up pretty

well all right so let's start with the supply side of things what is the actual strategy for increasing the die supply sam you just talked about interest-bearing collateral um so i think we can also talk about usdc and like the dominance inside of usdc inside of maker dow do you guys consider the dominance of uscc in maker a problem uh and if so how what's the plan to fix that and overall what is the overarching like strategy for increasing the total die supply on the secondary market sam i'll start with you

uh okay um so i've uh 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 a sort of debt uh or equity offering or some mix between the two uh the idea behind this is uh the

surplus buffer uh if you can see in the image um this is sort of our making sure we're solvent kind of uh number so currently it's at 65 million and this is uh 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 take uh basically move up the risk curve and uh you know take defaults on individual loans without like breaking the protocol

and so as you can see here we we don't really do high-risk loans all that much um 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 um sort of grow the revenues in a in a good way but you know 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 uh surplus buffer uh

is basically um well okay it's a buffer of die rep so let me start with i guess stability piece so if you open up uh vault on eath or something like that um and you take out a die loan you're paying interest on that now so currently it's i think 2.25 so where does that go uh that goes into what's called the surplus buffer so this is basically um an excess of dye that the protocol controls and it can be used for a couple things so we use it to pay for things like core

units and whatnot but it's also there just in case uh we take a loss on one of the loans say one of the loans defaults and we have bad debt uh this will eat into the surplus buffer but it will as long as the surplus buffer is larger than this bad debt the protocol is still solvent we're all good um 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 such 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 um okay so yeah the 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 this to the supply of

the surplus buffer to give maker a larger buffer so that it can start to lean into more risky loans than it what it currently has because if it can uh 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 uh without having to really increase the risk because of the supply of the the increased supply of the surf surplus buffer is all that correct yes exactly cool um 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 uh in anticipation of the future so uh you know how we do that is some sort of combination of debt and equity offering um so yeah basically what this gives us is the ability to experiment more uh integrate with more protocols under collateralized lending reputation based lending loans to trade phi where

we don't necessarily have all the legal uh recourse in place yet these are the types of things we can do with a larger surplus buffer and so that 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 dow 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 uh viewers who are watching the youtube would 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 uh which would just yield a lot more die on a yearly yearly base is that all right yup exactly nick anything you want to add or any any additional element to discuss here uh no but i i did want to circle back uh because part of your original question was uh trying to address usdc

and uh you know what what were we going to do about this problem and i and i just want to push back on that a little bit uh because i don't necessarily see um the maker protocol having a lot of uscc's a problem i think of it as a capital battery um so when we say like right anyone can mince die one to one against usdc right what we're essentially saying

is that uh 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 uscc to the maker protocol get die and sell the die in the open market and essentially arbitrage that that peg imbalance and bring it back down exactly towards the dollar so

i think that's very useful property because one it even though die has a kind of market based kind of algorithmic peg because it's not hard redeemable for dollars uh we essentially get an artificial hard peg to the dollar and that's incredibly useful when you're dealing with uh kind of more traditional uh kind of trade five counterparties um so okay so we've accumulated a bunch of

uscc um people kind of refer to this blacklist like risk and i i don't really see the difference uh between having like 200 million of uscc versus having 5 billion of of uscc 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

uh for for die against dollars and so what this really is is a capital battery to supercharge real-world asset lending um so i i know probably later you you want to get into this a little more right what are we doing uh with with real-world assets uh but essentially it's maker lending you know against uh against assets that exist in the real world instead of off chain um and essentially what they want to do is these lenders they don't necessarily

want dye right they can't do anything with dye 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 five billion dollars 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 uh if if you have anything to say uh no i think nick covered it pretty well okay so yeah this usdc supply in in maker i'm i'm seeing uh correct me if i'm wrong but i'm seeing 227 million uh usd die generated from usdc a comparable amount of uscc locked in locked in maker dow and then the stability fee on that almost that 227 million is about one percent so maker is charging one percent on that 227 million dollars which you

know that's a decent amount of revenue uh but is that is is usd revenue from uscc collateral inside of maker just like less revenue than your typical collateral because of how just like low risk it is and it's the idea that you still want to displace the usdc collateral with other collaterals that you can charge higher revenue for uh so so david i i think you're misunderstanding something so um from uh uscc