Dai Stablecoin

[Music] hello everyone I'm here to talk about maker Dow one of the oldest and most ambitious projects in all of etherium that seeks to create a stable coin those of you who don't know a stable coin is a cryptocurrency that is stable with respect to fiat currencies making it a more useful form of digital money so what is maker at its core maker is comprised of two tokens the first is called die this is the stable coin it is an asset-backed hard currency this means that every die coin is backed by some kind of valuable asset and this is because die is a permissionless credit system and all die are issued when users lock up their valuable assets in this permissionless credit system an issue die against them the stability of die is maintained a system of dynamic autonomous interest rates that automatically react to emerging market conditions and change the fees and incentives associated with using this permissionless credit system the second token is called MKR it is the administrative token of the system and its holders comprise a decentralized regulatory body who use token governance to decide what type of assets are truly valuable and can be used as collateral to back the dice table coin in exchange for their services MKR is used as the fuel for the credit system and when people repay die and reclaim their collateral from the system they must include some mkr as a fee which is consumed by the system so what have we been up to over the last year in a word refinement this last year has been all about removing complexity adding simplicity paring down the code making it easier to understand this is not easy stuff a good day at maker last year a good day often involved putting one line of code on trial and scrutinizing it and thinking about it and at the end of the day removing it we have used the UNIX design philosophy to great effect in the maker Tao system now I talked about this a lot yesterday so I'm gonna sum it up simply today and say the UNIX design philosophy encourages programmers to write contracts that do one thing and do it well and to write contracts that work together what I'm talking about is a modular approach to system design focusing on one component making sure it's right and then composing these into higher order systems this is not a new idea this is a decade's old idea and we have leveraged it to great effect in the maker Dow code we have also sponsored the creation of a ton of interesting developer tools and repeatable smart contracts all the stuff I talked about yesterday we pretty much exclusively built in the pursuit of our goals for maker Dow and so all of that cool stuff is just one cool way that maker has contributed to the broader development ecosystem and it's something that we're very proud to do here in aetherium something else that we're very proud of achievement we're very proud of is the creation of the purple paper the purple paper is our Haskell reference implementation of the dice table coin system and it has been invaluable in the design of dye the reason it has been valuable are three the first is comparison it is well understood in computer science but creating multiple freestanding implementations of a system is a great way to verify your assumptions and see what kind of behaviors translate between one and the other in fact the etherium community has leveraged this fact to great effect in the create in the diverse client ecosystem that we all enjoy and in the creation of multiple implementations of the casper algorithm similar sort of thinking there we did this in Haskell it was very very valuable the second reason is for verification Haskell has a very advanced type system especially when compared to solidity we can achieve more expressiveness and we can specify the behaviors a lot more rigorously using Haskell than we were able to achieve with solidity and it has helped us to think more clearly about the design of the dice table coin system and the third reason is simulation when you have when you design something like this a separate programming language you can actually run it what I'm look what you're looking at here is code of course so the purple paper is actually a model of the dice table coin system and we can use it on the command line to simulate the system and test our economic hypotheses it will help with the administration of maker over the long term so all of this stuff so refinement there's a high standard of quality these investment in our tooling the purple paper all of it over the last year it's been culminating it's been leading up to something leading up to me standing on the stage right now it is my great pleasure to announce to you that the first release of dye is coming in December of this year so long we've been working towards this for so long I'm so excited I'm so excited I might faint I'm so excited I may explode into 10,000 pieces of confetti on this stage right now now I'd say this is the first dye release because this is the first major step on the road to formula verification and all of the important dye stability features that we need but make no mistake this is a major step the landscape of ethereum to dab the landscape of dabs is going to be changed forever when we have consumer grade stability everybody knows that and we have been working towards this moment for years and we're ready we finished our audit just two weeks ago we are currently responding to feedback and we are getting ready to launch this thing I'm gonna go into some detail about what is coming in this release let's dive in and talk about the credit system mechanics this will be especially useful if you're not as familiar with the dice table coin system so I spoke before about how users lock up collateral assets and issue die against them this is done in what's called a collateralized debt position a CDP and users issue they create CDP's issue die and use it for whatever and then later they repay that die plus a fee and reclaim their collateral but as you can see in the diagram it looks like there's more value in terms of collateral than there is in terms of die why is that it's because the system enforces it and the reason that it enforces it is because the value of the asset the collateral fluctuates and it always needs to be backing the dye because dye is an asset back to hard currency so because the collateral value can fluctuate the dye system needs to protect itself now if the value of the collateral asset fluctuates up if it appreciates in value that's fine if our diet doesn't matter but if it fluctuates down and it loses value dye needs to take steps to protect the integrity the entire system and what it does is it liquidates the CDP it reclaims the collateral and it sells it off or die to reclaim the dye that it needs to get and make sure that all the books are balanced you can think about it you can analogize it to a margin call where the CDP owner made a bet here they were wrong and they pay the price so what type of collateral is going to be used in this first release of dye it's called pooled eath and it allows us to pack the system with ease and protect the system in the event of extreme market volatility in the next release of dye and in future releases we will use the MKR token to protect the system in the event of extreme market volatility downward volatility but in this system because it's simpler to do so and because we are still working on that aspect of the system we use pooled eath so let's go into a little bit how it works we call this a bailout mechanism let's go into how this work mechanism works at the high level peth is very very simple you just put your ease into a contract and you get pass out and path can be used to reclaim your eat so if there's 100 eath and 100 paths and you put any eath into the system you will get one path maintaining the ratio between path and ease but that ratio is not static it is dynamic and the reason it is dynamic is because paths have text the system with this bailout mechanism in exchange for that service half of the fee from the CDP is used to bypass and burn it destroy it so if you think about it if we're buying path and destroying it taking that CDP fee CDP fee and destroying it that means that the remaining path has greater claim power on the east here you can see it can claim 1.5 years where before I was saying it claimed 1/8 that ratio is increasing and it's causing paths to appreciate in value this is what happens when the system is experiencing normal levels of eath volatility but what if the blacks want the dreaded Black Swan event happens a Black Swan event the price of ease rapidly loses value faster than the dice table coin system can liquidate positions and will we wind up with is an insolvent GDP an underwater CDP this means that the totality of the collateral that has been issued against this die is lower than the value of the die itself something needs to be done we need to collect this die somehow and the way that it's done is by minting paths so here this red area on the diagram would be minted path and it's minted and sold for die in order to keep the system solvent so we're accessing the value of the pool of ease in order to keep the entire system solvent and balance the books but as you can imagine minting paths means that the claim power is diminished here we can see now one past claims 0.66 is causing the value to depreciate this is why in times in times of normal volatility should appreciate and only falls in value in the event of these snap moments extreme volatility the next feature is the governance fee as I said half of the fee is given to path holders the other half is given to MKR as a payment for their service administering the system and choosing the important security parameters that keep the system safe this is paid in MKR as I said it's denominated and die and here we will have the first main use case for this vision that we've all kind of thing been thinking about when it comes to token is this vision of decentralized exchange whenever we think about tokens we often think about the user buying them and not even realizing that they're buying them buying them behind the scenes automatically without thinking about it without even knowing about it we have developed this technology for this use case so users aren't gonna have to think about em care but they're gonna automatically buy it in a decentralized exchange like Oasis or ether Delta or 0x automatically and use it to close their CDP's this M care will be burnt consumed by the system the last feature is called global settlement this is how we wind down the system gracefully and it will allow us to upgrade like I said be graceful this is an orderly process when the system is globally settled by the MKR holders a few things happen in order the first is that Dai becomes a claim on eath on the eath collateral at a fixed price so it is as if your dye which is an actively managed stable coin suddenly became easy just like that the fixed price next CDP holders will be able to free their excess path so if I put 100 paths $100 worth of path into a CDP and I issued $80 worth of dye against it and then the system was globally settled I would get my $20 worth of pets back and whoever I gave that $80 worth have died to would get the other $80 worth of eath simple orderly and then last the path holders can exit to eath and whatever rate exists for path at that time have a claim power it has there are only three conditions upon which the system will be globally settled the first is in cases of bugs this is a safety precaution you can never be too sure until the system has been formally proven the second is extreme events of market irrationality we're all used to this encrypted currencies it's something that we are quite certain won't be happening and die both of these things bugs and market of rationality but it's something that we're prepared to handle nonetheless and by market of rationality I mean something like an unstoppable amount of demand for die that threatens its very stability and in the third case is in terms of upgrade or in cases of upgrade this is definitely going to happen because as I said we have another release of die coming which is going to have more important stability features and this will be an orderly way to go from the old system to the next system so what's coming next a lot of exciting things we're gonna be working a lot on exchange integrations this means that you're gonna get by trading pairs is gonna be a great base pair to trade against and we hope to get our CDP system integrated into exchanges so that you get safer borrowing with much lower rates margin trading at 1% sounds awesome the last feature is of course the last aspect there going up we're going to be working on is of course the importance ties stability features I mentioned a few here there's a few more that I can't get into but we're gonna be heads down over the next quarter working really really hard to get the next release of dye out there which is gonna be even better and even closer to ready to the to the final formally verified product we are so excited that we've been working for so long on dye we're so excited to deliver a working DAP to you this is something that we're really really proud to put out there and I think that it's going to like I said completely change the landscape of ethereum getting consumer-grade stability if you're interested in learning more please visit maker.com there's a lot of information there you can join our chat chat maker.com thank you very much [Music]