MakerDAO's Endgame: The Boldest Gamble in Crypto History | Rune Christensen

Introduction to MakerDAO's End Game

In this section, the host introduces the guest, Rune Christensen, founder of MakerDAO. They discuss the history of MakerDAO and how it led to their current end game plan.

The Early Days of MakerDAO

• Started in early 2015 as a hyper-ideological libertarian project.

• Goal was to transplant the ideals of BitShares onto Ethereum and build a stablecoin based on the original BitShares model.

• Ran the entire project through open Sunday governance calls where all decisions were made unanimously by whoever showed up to those calls.

• All decisions related to payments and so on were done through these open calls where anyone could join and veto everything.

Challenges with Total Decentralization

• It became impossible to reach consensus because there was no structure whatsoever.

• People stopped getting paid because there was no mechanism for handling payments.

• The DAI Foundation was set up as a proper organizational structure with a leadership team and hierarchy.

MakerDAO's End Game Plan

• The end game plan consists of five phases that will lead to complete decentralization.

• Phase one is focused on creating multi-collateral DAI (MCD).

• Phase two involves transitioning from MKR token holders being responsible for risk management to having professional risk teams handle it.

• Phase three involves transitioning from a single collateral DAI (SCD) system to an MCD system.

• Phase four is focused on creating a DAO that can govern the entire Maker protocol.

• Phase five is the final phase where the DAO will be fully decentralized and able to operate without any human intervention.

Benefits of Complete Decentralization

• Complete decentralization will allow for greater security, transparency, and trust in the Maker protocol.

• It will also enable anyone to participate in governance and decision-making processes.

MakerDAO Foundation and Governance

In this section, Rune Christensen talks about the history of MakerDAO Foundation and how it culminated in the launch of MCD. He also discusses how the community came up with the co-unit system to run the system once the foundation was dissolved.

History of MakerDAO Foundation

• December 2017 marked the beginning of MakerDAO Foundation.

• The foundation launched MCD at the end of 2019.

• After launching MCD, the foundation stayed on for another one and a half years to maintain and finalize protocols security.

Co-Unit System

• The co-unit system was created by the community to run the system after dissolving the foundation.

• It was like black boxes that got a bunch of money with an expectation that people would use it to self-organize efficient market-driven processes.

• However, Dows are intensely political, leading to a political dynamic where people play politics to get money.

• As bull market ended, income started drying up in the system, and there wasn't any connection between paying out money and getting actual results from these core units.

Governance Issues in MakerDAO

In this section, Rune Christensen talks about governance issues in MakerDAO. He explains how governance has been heavily criticized due to low participation levels and few voters.

Governance Issues

• Governance has been heavily criticized due to low participation levels and few voters.

• MKR supplies held by a few insiders who initially funded project but don't vote or participate.

Reorganization Plan

• A total reorg plan is being implemented by creating five different sub-dials.

• Initially skeptical about the viability of this structure, Rune Christensen believes that it is necessary to solve the problem of governance and resource allocation.

• As money increases, political forces become more intense, making it difficult to assume that people will participate.

MakerDAO Governance and Politics

In this section, Rune Christensen talks about how politics plays a significant role in MakerDAO governance. He explains how humans follow their incentives leading to politics playing a big part in Dows.

Politics in MakerDAO Governance

• Humans follow their incentives leading to politics playing a big part in Dows.

• The realization that Dows are intensely political was disappointing for many people who got into the house because they don't like politics.

• It's challenging to solve the problem of politics since it's already an impossible problem to solve, and adding anonymity and internet makes it even harder.

Understanding the Principles of MakerDAO

In this section, the speaker discusses how politics can be exploited and how he had to figure out a way to fix the voter apathy problem in his own MPR. He talks about building mechanisms around human nature and using rules, documentation, and processes as fundamental principles for MakerDAO.

Building Mechanisms Around Human Nature

• The speaker suggests that building mechanisms around human nature is key to creating a successful DAO.

• He explains that the more focused the task of a DAO is, the more possible it becomes to make it pure by engineering it to have much less human issues.

• The speaker emphasizes that rules, documentation, and processes are fundamental principles for MakerDAO.

Challenges of Setting Rules in Place

• The speaker acknowledges that putting rules in place can be challenging because things change rapidly in crypto.

• He compares crypto to the Constitution of the United States, stating that while certain values and principles can be agreed upon, it's difficult to codify these things into rules.

Settling on Fundamental Principles

• The speaker states that fundamental questions around ideal principles for MakerDAO have been settled at this point.

• He emphasizes that settling on a vision and principles is necessary for achieving decentralization.

Slippery Slope Misalignment

In this section, the speaker discusses how human nature and incentives can lead to a slippery slope misalignment towards centralization in governance.

The Slippery Slope Effect

• The asymmetry of internalization allows for an easier slide towards centralization.

• A power vacuum can occur when someone pulls back from a project, leading to others building their own system.

• The speaker has irrational exposure to the Maker Protocol (MPR2), making long-term success more important than personal gain.

MKR Governance Token

In this section, the speaker discusses the value of the MKR governance token and its relationship with the Maker Protocol.

Value of MKR

• The value of MKR is currently underappreciated in the market despite being a governance token.

• The value locked in the Maker System is roughly 7 billion while the value of MKR is roughly 650 million.

• Market psychology has led to MKR being seen as unexciting and not like a meme coin.

Adoption of DAI

• Fundamentals such as surplus cash flow are more important than price or adoption of Imperial.

• Adoption of DAI is more important than the value of MKR.

English Buy and Make Upgrade

In this section, the speaker talks about the upcoming upgrade that will change the buy and burn mechanism to buy and make. This new mechanism will use surplus to buy tokens and market make them in Uniswap, providing long-term value for the token.

Buy and Make Upgrade

• The upcoming upgrade will change the buy and burn mechanism to buy and make.

• Surplus will be used to buy tokens, which will then be market made in Uniswap.

• This new mechanism provides long-term value for the token by building up liquidity in the marketplace.

English Quick Node Blockchain Development Platform

In this section, the speaker talks about Quick Node, a blockchain development platform that offers unlimited endpoints across 18 different chains and 35 different networks with faster response times than competitors.

Quick Node Blockchain Development Platform

• Quick Node is a blockchain development platform that reduces costs, streamlines time-to-market for apps, and offers consistent performance at scale.

• It offers unlimited endpoints across 18 different chains and 35 different networks with response times two-and-a-half times faster than competitors.

• It has a dedicated 24/7 customer support team trusted by companies like Coinbase, Twitter, Adobe, OpenSea, etc.

• Using Quick Node can help developers focus on building beautiful products while letting it handle blockchain infrastructure, security, and performance. Use code Empire for a free month on their build plan.

English Five Phases of End Game

In this section, the speaker talks about the five phases of End Game, which is a step-by-step approach to deploying core immutable pillars until the project reaches its final immutable state.

Five Phases of End Game

• End Game has a step-by-step approach to deploying core immutable pillars until it reaches its final immutable state.

• The first phase is beta launch, which focuses on the new brand and simplifying complexity.

• The second phase is decentralized governance and stack development.

• The third phase is creating sub-DOWs for farming, governance, and AI tools.

• The fourth phase is integrating real-world assets as collateral.

• The fifth and final phase is reaching the end game state, which is an immutable state like Bitcoin that provides opportunities for innovation.

Rebranding and User Experience

In this section, the speaker discusses the rebranding of their stable coin and how they plan to make it user-friendly and fun for regular people. They also talk about working with global top-tier branding and user experience agencies to achieve this goal.

Goals of Rebranding

• The rebrand is focused on making the stable coin as simple, user-friendly, safe, and interesting as possible.

• The speaker mentions fintech apps like Public.com or Robinhood as examples of brands that evoke a feeling or experience they want to elicit.

• The new brand needs to communicate stability, reliability, simplicity while also being fun and frontier-like.

Features of Phase One

• The cornerstone of the new brand is farming and yield use experience which will be made available globally except for American users.

• This feature will be delivered in a way that's safe for users unlike other crypto products tied to Ponzi schemes or hastily put together dangerous smart contracts.

• The first feature launched will be the ability to farm a new governance token aligned with the new brand.

New Tokens

• There will be a completely brand new stable coin and governance token aligned with the new brand but DAI in API will remain in place forever.

• The focus of these tokens is onboarding, making saving fun, financial inclusion user experience.

Incentivizing Liquidity for the New Stablecoin

The new stablecoin will replace the current liquidity sitting in smart contracts with an allocation system that injects liquidity directly into decentralized exchanges. This will make it more accessible to regular users and provide a lower spread.

• The Cornerstone of Dias liquidity is giant smart contracts called psms that hold centralized stable coins.

• Psms allow people to swap their die one-to-one with UCC, GUSD, and USDP, providing arbitrage opportunities that ensure there are arbitrages trading against them.

• The first version of the allocation system will eventually replace the old Vault system or CDP system as a feature of the core system.

• The allocation system generates DAI directly from the mega protocol and allocates it into the marketplace, injecting liquidity straight out on decentralized exchanges like Uniswap.

Phase Two - Launching Six Decentralized Sub-Dials

Phase two involves launching six fully decentralized sub-dials that take over most of Maker governance's decision-making responsibility. These sub-dials will be more flexible, fast-moving, experimental, innovative, growth-focused and culture-oriented than Maker governance.

• Sub-dials take over most of Maker governance's decision-making responsibility.

• They embody a fair launch because their tokens are distributed through farming only.

• It signals a new era of DeFi and crypto if executed correctly.

• A big community building around this update is expected.

Building a Decentralized DAO

In this section, the speaker talks about the idea of building a fully decentralized DAO and community from the ground up. The hope is to see small but aligned communities emerge that generate real fundamental value.

Decentralized DAO

• The DAO will be entirely in the hands of the community from launch.

• Multiple sub-DAOs can specialize in different things.

• Sub-DAOs can self-select and focus on one thing without political struggle.

• The goal is to see small but aligned communities emerge that generate real fundamental value.

Reaction of Existing MKR Holders

• Initially, there were mixed reactions among those deep into the project.

• Over time, excitement and alignment around this idea grew among those with skin in the game.

• Some funds did not fully understand it due to its complexity.

• There were notable political battles over it, but ultimately voter apathy prevailed.

Risks of New Model

• Execution risk is the biggest concern.

• It may be impossible to establish reliable resolid political dynamics in a DAO.

Importance of Decentralized Stable Coins and Blockchain

In this section, the speaker discusses the importance of decentralized stable coins and blockchain in fighting for the future of how society is fundamentally structured.

Decentralization and Resilience

• The speaker believes that decentralized stable coins, blockchain, open source AI are tools that we cannot ignore in our fight for a better future.

• It is important to organize people in a way where there doesn't have to be a big boss or hierarchy but instead people can self-organize in a way where they do what's equally and fairly in everybody's interest.

• The speaker thinks that resilience is a much better word to describe what we want to achieve than decentralization because it has become very loaded with baggage and buzzwords.

Grappling with Decentralized Governance and Centralized Collateral

In this section, the speaker talks about how to grapple with decentralized governance while bringing more centralized forms of collateral onto the system.

Real World Assets

• There is only massive demand for a dollar-denominated, dollar-collateralized stable coin.

• The best way to do that at scale is with real-world assets.

• Bringing more centralized forms of collateral onto the system creates tension between decentralized governance and centralized collateral.

Sustainable Economics

In this section, the speaker discusses sustainable economics as a solution to mercenary capital in DeFi farming.

Tokenomics Design

• Sustainable economics is fundamental to solving the problem of mercenary capital in DeFi farming.

• The end game tokenomics is designed around the principle of value recapture.

• The system saves expenses when users farm tokens instead of using the savings rate.

Mitigating Mercenary Capital in DeFi

In this section, the speaker talks about mitigating mercenary capital in DeFi and how to solve that problem.

Sustainable Economics

• Sustainable economics is fundamental to solving the problem of mercenary capital in DeFi farming.

• If you design something like farming the wrong way, you hand away a bunch of money and hope to get it back.

• End game tokenomics is designed around value recapture.

Yield in Subter Tokens

In this section, the speaker discusses the possibility of getting a high yield in subter tokens and how it is not economically sustainable.

Getting a Higher Yield in Subter Tokens

• It is possible to get a higher yield in subter tokens because they are volatile.

• However, it is not economically sustainable to provide yields that are above market.

• The market will find a way to close that gap.

Tokonomics of Subtap Tokens

In this section, the speaker explains how tokonomics works for subtap tokens and how value is continuously funneled back and forth between different stakeholders.

Tokonomics of Subtap Tokens

• The value that builds up inside the system is used to maintain the value of the token in the long run.

• The subtap tokens continuously funnel value to die holders, new stable card holders, and new governance term holders.

• Maker continuously funnels value to subtap token holders initially through a relatively crude fixed setup where internal treasuries receive cash denominated in MPR.

• As subnet tokens are distributed, Maker captures that value because users are not getting the savings rate.

Phases 3 and 4 - Governance Consolidation

In this section, the speaker discusses phases 3 and 4 which focus on consolidating governance and preparing for full decentralization.

Phases 3 and 4 - Governance Consolidation

• Once subdials have been established, the next focus is consolidating governance.

• A prerequisite for locking things down fully is getting governance into a decentralized equilibrium.

• The key characteristic of a decentralized equilibrium is that outsiders need to be able to be an effective check on the much more powerful insiders.

• Phase 3 involves adding artificial intelligence to the mix to solve the complexity and information asymmetry that normally exists in a DAO.

• The AI system is designed to tell whether rules are being followed or not, making it impossible for someone to flush away out of being held accountable.

Governance Failure and AI Tools

In this section, the speaker discusses how powerful AI tools can help prevent governance failure in a decentralized system. The tools can alert outsiders to any group or person not publishing information as they should, and ensure that rules are followed. This leads to stability and resilience in the system.

• Powerful AI tools can help prevent governance failure in a decentralized system.

• These tools can alert outsiders to any group or person not publishing information as they should.

• Ensuring that rules are followed leads to stability and resilience in the system.

• With stable governance, more things can be parallelized, multiple bets taken, and pace increased without worrying about dangerous power dynamics.

Phases Four and Five of Decentralized System

In this section, the speaker provides an overview of phases four and five of a decentralized system. Phase four is called "governance participation rewards" which puts rewards for participating in governance in place while solving voter apathy problems. Phase five re-architects everything from the bottom up on its own special purpose blockchain.

Governance Participation Rewards

• Phase four is called "governance participation rewards."

• It puts rewards for participating in governance in place while solving voter apathy problems.

• Paying people to vote creates unaccountable governance power unless preceding phases have been put into place first (e.g., solid rules, immutable systems).

Re-Architecting Everything

• Phase five re-architects everything from the bottom up on its own special purpose blockchain.

• It is the largest phase of all but doesn't introduce anything new.

Governance and Sustainability

In this section, Rune Christensen talks about the governance mechanism of the Maker system and how it can be improved for sustainability.

Emergency Shutdown vs Hard Fork

• The current governance mechanism of the Maker system is emergency shutdown. It allows a minority to shut down the system to prevent central control or theft.

• However, this mechanism is not sustainable as it can lead to disastrous consequences.

• With the new blockchain, a hard fork can replace emergency shutdown. This will allow the system to recover from worst-case scenarios in terms of governance attacks.

• A sovereign blockchain that can hard fork by itself will create a fully sustainable design that can last through ages.

End Game Optimization

In this section, Rune Christensen discusses his end game optimization strategy for MakerDAO.

Leaving MakerDAO

• The litmus test for success is if he can leave MakerDAO.

• Leaving MakerDAO is important because it shows that the system works without him.

• It's not just about leaving but also being able to relax and do other things.

Counter Take Pushback

• There are three buckets of pushback: wrecking Dai and MakerDAO, AI tools cannot paper over governance issues, blocking US users from participating due to real-world assets being in the US financial system.

• Even if new features don't have an immediate impact on Dai and MakerDAO, they will introduce future-proofed and sustainable self-organizing systems that allow governance to run itself without relying on whales' votes.

• Adapting to regulatory landscapes is one of the key components of resilience. Endgame optimizes for adaptability to regulatory reality.

• There's a possibility that at some point, completely untethering from the real world may be required. The mechanism for detecting when that's necessary and moving step by step is in place.

Core Rules for the System

In this section, the speaker discusses the core rules that need to be in place to ensure the system's longevity.

Key Points:

• The core rules must be able to carry the system forever.

• No other pressing issues were discussed.

The Allocation System

In this section, the speaker talks about the allocation system and how it will work with new stablecoins.

Key Points:

• The allocation system will provide liquidity for new stablecoins.

• The allocator dial will be responsible for managing this system.

• Allocator dials will compete with each other to wield economic power and distribute stablecoins optimally.

• This system will create business opportunities and jobs for companies, hackers, and other tiles.

• It will capture value from arbitrageurs and bring it back into the corporate system.

Efficiency of the System

In this section, the speaker discusses how efficiency is going to affect users and ecosystem participants.

Key Points:

• The distribution of stablecoins through an efficient ecosystem will directly affect things like savings rates and farming yield.

• This increased efficiency benefits users and contributors while taking away from Mev Bots and arbitrages.

Budget Allocation Problem

In this section, Santi asks a question about budget allocation problems related to solving massive problems in execution.

Key Points:

• Solving massive problems requires solving budget allocation problems effectively.

• Execution is key in solving these types of problems.