6 ms·

> If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar pure

> If you look at what MakerDAO is doing with the Dai stablecoin, they've proven that it's possible to create a synthetic asset closely pegged to the dollar purely through financial incentives, and they did it all just using Ethereum v1. A holder of Dai can earn 4% APY through a Dai Savings Account, and a vote is currently in place to raise the rate to 6%. >I personally find it incredible that an asset exists on the blockchain that's equivalent in value to USD, with a higher APY than you can get from any US bank. I also find this “incredible”, but in the old sense of the meaning as “not believable”.

ianferrel 7y ago
Seriously. The risk adjusted return on whatever that crazy contraption is is almost certainly negative, and probably incalculably so. The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.
- induetimesir 7y ago
  In a way, you're absolutely right. In another way, you're totally missing the point. Net ROI hasn't been great for people who were earning x% interest on their ETH while it tanked 50%+. But the _idea_ the animates DAI, the dream of a decentralized synthetic digital bearer asset, that's a worthwhile dream imo. It's not a simple idea to understand. And it's not simple to implement technically/socially. But DAI has been a beautiful experiment in attempting to create this new-fangled thing. and while the jury is still out on whether the model/architecture they've chosen will hold up, the experiment itself should, in my view, be declared a massive success - it has, for the most part, worked very well. And DAI opens the door to new experiments. And they'll come. A trickle at first. but in 10yrs, it'll be an entirely different landscape when it comes to complex financial instruments. They'll be available in the way stocks can be had on Robinhood. and more. bcs financial instruments that are currently too complex or expensive to be practical, will be within reach. The rabbit hole is deep. and it is real. You can dive in and start learning. Or yell at clouds until your boat gets lifted by a wave of innovation...
- v64 7y ago
  > The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words. Raising the savings rate will also raise the interest rate that those holding loans must pay. If a loan holder doesn't agree with the new interest rate, they are free to close out their loan.
  - jacobsenscott 7y ago
    I'm not familiar with this product. How do you "close out" one of these loans? If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.
    - v64 7y ago
      > If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up. It's true that the interest rate can be arbitrarily voted up. Despite this, 1.46% of all existing Ether (currently valued at $210,036,816) is staked as collateral in the system, so it's not accurate to say nobody would do this.
    - vinniejames 7y ago
      The loans are mostly used for leveraged trading or liquidity while maintaining a long position. Each loan is fully collateralized with the Ethereum token by the borrower
    - thebean11 7y ago
      > nobody would take a loan they can just pay off at anytime Isn't this just a revolving credit line?
- spir 7y ago
  > whatever that crazy contraption is The people who built "that crazy contraption" are pioneers in an industry that is going to help lift hundreds of millions out of poverty via cheap, non-predatory financial services and create trillions in wealth by further unifying the global market. I am somebody who spends hundreds of hours per year reading about Ethereum and blockchain. I could stop doing this whenever I want, I'm not bound by my employer or anything. I keep at it because the underlying technology and things being built with it are amazing and valuable. If you take one thing away from this thread, let it be that Bitcoin is the "Ask Jeeves" of cryptocurrency and the future is actively being built on Ethereum.
  - lngnmn1 7y ago
    I would call naive bullshit. First of all, without real-world, not imaginary adoption the sentences like "lift hundreds of millions out of poverty via cheap, non-predatory financial services" are nothing but literally empty memes. Second, the projects like https://iohk.io/ https://iohk.io/ are way superior than current Ethereum in any dimension except that, and this is what makes it still alive, Ethereum is here for many year. Other than that, Ethereum is an amateur hobby project, badly designed by an uneducated amateurs, badly implemented by inexperienced amateurs, and has been obsoleted by literally tens of world-class teams. That iohk folks, for example, has been smart enough to employ (as research fellows) world's top experts in relevant fields who have produced world-class solutions way above any amateur crap currently in use. Even most of HN alumni barely understand what does it mean to have an executable specifications in Haskell (guaranteed lack of contradictions and guaranteed correctness of implementation) and verified by a proof-checker on-chain language (guaranteed soundness of the other-peoples's code) Nevertheless, it seems that there is literally no demand for adoption of these already up and running world-class top-tier solutions (by iohk) given that there is literally nothing better, nothing even close. Why? Because, it seems, that no one is interested in anything but speculations and memes. You literally have no idea, my friend.
  - gl00pp 7y ago
    Ethereum is a centralized shitcoin
v64 7y ago
The complete functioning of the MakerDAO system is publicly documented here [1] and here [2]. Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation. [1] https://community-development.makerdao.com/makerdao-mcd-faqs https://community-development.makerdao.com/makerdao-mcd-faqs [2] https://docs.makerdao.com/ https://docs.makerdao.com/
- nordsieck 7y ago
  > Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation. The problem with bad financial instruments is not that they don't work at all, but that they work fine for a period of time and then blow up. I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy. I don't know of anyone who things the US economy has a real growth rate of 6%.
  - v64 7y ago
    There are certainly black swan scenarios, such as the value of Ether dropping largely overnight, that would test the system and possibly lead to a decoupling of the peg. The bubble bursting in early 2018 tested this aspect of the system and the peg was able to be maintained. The 6% Dai savings rate is not static. Overtime, both the interest rate charged to those taking loans and the savings interest rate will need to be adjusted in response to economic conditions in order to maintain the peg. These adjustments have occurred many times and are part of the normal operation of the system. That being said, MakerDAO has considered these scenarios and in the event that the peg can't be maintained, an emergency shutdown procedure occurs that gracefully shuts down the system. There's a separate token called MKR, and holders of the MKR token are the lenders of last resort. In the event of an emergency shutdown, MKR token is printed and auctioned off to settle debts in the system, devaluing the MKR token. Similarly, when a loan holder pays off their debts to the system, they pay that in MKR token and the MKR they paid is burned, creating scarcity of the token to reward MKR holders.
BookmarkSaver 7y ago
I can easily believe it. I believe there was another famous pre-crypto version of this run by a guy... Madoff or something? I wonder how that's going today.
- v64 7y ago
  The difference between MakerDAO and Madoff is that MakerDAO, being on the blockchain, is completely auditable. You can see exactly where money is coming in and where money is going out. Websites such as DaiStats [1] provide basic stats based on this ability to audit MakerDAO. For instance, as of this post, there are 74,223,081.54 Dai in existence, 1,591,183 Ether currently being collateralized for Dai loans, and a bank surplus of 257,346.17 Dai collected in interest. This level of transparency is the very opposite of Madoff. [1] https://daistats.com/ https://daistats.com/
TylerE 7y ago
Paying 6%, or even 4%, on a savings account is a MASSIVE red flag to anyone with a bit of financial sense.
- v64 7y ago
  Those with loans in the system will have to pay a 6% interest rate. Since not all holders of Dai have savings accounts, this allows for the system to use the interest charged to loan holders to pay out the savings rate while accumulating a surplus. A 6% interest rate on USD would be a red flag, but Dai isn't USD. As far as I know, no banks allow you to use Ether as collateral for a USD loan, so the comparison isn't apples to apples.
  - TylerE 7y ago
    Who eats the cost when one of these borrowers defaults?
    - v64 7y ago
      If a borrower defaults, their account is flagged and their Ether collateral is eligible to be auctioned off to pay off their debt. The mechanism is designed so that a loan is closed at a point where auctioning the collateral will cover the debt. In the event that the value of their collateral doesn't cover the debt, the Maker system has a surplus account that would cover the difference. In the event that the surplus can't cover the remainder of the debt, MKR token is created and auctioned off to to cover it. Since this devalues MKR, holders of MKR token are incentivized to ensure that the system always runs at a sufficient surplus to cover these events and that loans are liquidated early enough to prevent having to dip into the surplus. In addition to this, interest on loans are paid in MKR token and destroyed when the loan is closed, which also incentivizes holding MKR.
    - vinniejames 7y ago
      A default is not possible. The loans are fully secured by Ethereum. If collateral dips below an acceptable threshold, the collateral is liquidated and the debt is payed back to the system in full

ianferrel 7y ago

Seriously. The risk adjusted return on whatever that crazy contraption is is almost certainly negative, and probably incalculably so. The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words.

induetimesir 7y ago
In a way, you're absolutely right. In another way, you're totally missing the point. Net ROI hasn't been great for people who were earning x% interest on their ETH while it tanked 50%+. But the _idea_ the animates DAI, the dream of a decentralized synthetic digital bearer asset, that's a worthwhile dream imo. It's not a simple idea to understand. And it's not simple to implement technically/socially. But DAI has been a beautiful experiment in attempting to create this new-fangled thing. and while the jury is still out on whether the model/architecture they've chosen will hold up, the experiment itself should, in my view, be declared a massive success - it has, for the most part, worked very well. And DAI opens the door to new experiments. And they'll come. A trickle at first. but in 10yrs, it'll be an entirely different landscape when it comes to complex financial instruments. They'll be available in the way stocks can be had on Robinhood. and more. bcs financial instruments that are currently too complex or expensive to be practical, will be within reach. The rabbit hole is deep. and it is real. You can dive in and start learning. Or yell at clouds until your boat gets lifted by a wave of innovation...
v64 7y ago
> The idea that any sane financial instrument could increase its return by two points by the holders of it voting to do so is... I haven't the words. Raising the savings rate will also raise the interest rate that those holding loans must pay. If a loan holder doesn't agree with the new interest rate, they are free to close out their loan.
- jacobsenscott 7y ago
  I'm not familiar with this product. How do you "close out" one of these loans? If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up.
  - v64 7y ago
    > If you mean pay it off, nobody would take a loan they can just pay off at anytime, or where the interest rate can be just arbitrarily voted up. It's true that the interest rate can be arbitrarily voted up. Despite this, 1.46% of all existing Ether (currently valued at $210,036,816) is staked as collateral in the system, so it's not accurate to say nobody would do this.
  - vinniejames 7y ago
    The loans are mostly used for leveraged trading or liquidity while maintaining a long position. Each loan is fully collateralized with the Ethereum token by the borrower
  - thebean11 7y ago
    > nobody would take a loan they can just pay off at anytime Isn't this just a revolving credit line?
spir 7y ago
> whatever that crazy contraption is The people who built "that crazy contraption" are pioneers in an industry that is going to help lift hundreds of millions out of poverty via cheap, non-predatory financial services and create trillions in wealth by further unifying the global market. I am somebody who spends hundreds of hours per year reading about Ethereum and blockchain. I could stop doing this whenever I want, I'm not bound by my employer or anything. I keep at it because the underlying technology and things being built with it are amazing and valuable. If you take one thing away from this thread, let it be that Bitcoin is the "Ask Jeeves" of cryptocurrency and the future is actively being built on Ethereum.
- lngnmn1 7y ago
  I would call naive bullshit. First of all, without real-world, not imaginary adoption the sentences like "lift hundreds of millions out of poverty via cheap, non-predatory financial services" are nothing but literally empty memes. Second, the projects like https://iohk.io/ https://iohk.io/ are way superior than current Ethereum in any dimension except that, and this is what makes it still alive, Ethereum is here for many year. Other than that, Ethereum is an amateur hobby project, badly designed by an uneducated amateurs, badly implemented by inexperienced amateurs, and has been obsoleted by literally tens of world-class teams. That iohk folks, for example, has been smart enough to employ (as research fellows) world's top experts in relevant fields who have produced world-class solutions way above any amateur crap currently in use. Even most of HN alumni barely understand what does it mean to have an executable specifications in Haskell (guaranteed lack of contradictions and guaranteed correctness of implementation) and verified by a proof-checker on-chain language (guaranteed soundness of the other-peoples's code) Nevertheless, it seems that there is literally no demand for adoption of these already up and running world-class top-tier solutions (by iohk) given that there is literally nothing better, nothing even close. Why? Because, it seems, that no one is interested in anything but speculations and memes. You literally have no idea, my friend.
- gl00pp 7y ago
  Ethereum is a centralized shitcoin

v64 7y ago

The complete functioning of the MakerDAO system is publicly documented here [1] and here [2]. Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation. [1] https://community-development.makerdao.com/makerdao-mcd-faqs https://community-development.makerdao.com/makerdao-mcd-faqs [2] https://docs.makerdao.com/ https://docs.makerdao.com/

nordsieck 7y ago
> Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation. The problem with bad financial instruments is not that they don't work at all, but that they work fine for a period of time and then blow up. I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy. I don't know of anyone who things the US economy has a real growth rate of 6%.
- v64 7y ago
  There are certainly black swan scenarios, such as the value of Ether dropping largely overnight, that would test the system and possibly lead to a decoupling of the peg. The bubble bursting in early 2018 tested this aspect of the system and the peg was able to be maintained. The 6% Dai savings rate is not static. Overtime, both the interest rate charged to those taking loans and the savings interest rate will need to be adjusted in response to economic conditions in order to maintain the peg. These adjustments have occurred many times and are part of the normal operation of the system. That being said, MakerDAO has considered these scenarios and in the event that the peg can't be maintained, an emergency shutdown procedure occurs that gracefully shuts down the system. There's a separate token called MKR, and holders of the MKR token are the lenders of last resort. In the event of an emergency shutdown, MKR token is printed and auctioned off to settle debts in the system, devaluing the MKR token. Similarly, when a loan holder pays off their debts to the system, they pay that in MKR token and the MKR they paid is burned, creating scarcity of the token to reward MKR holders.

BookmarkSaver 7y ago

I can easily believe it. I believe there was another famous pre-crypto version of this run by a guy... Madoff or something? I wonder how that's going today.

v64 7y ago
The difference between MakerDAO and Madoff is that MakerDAO, being on the blockchain, is completely auditable. You can see exactly where money is coming in and where money is going out. Websites such as DaiStats [1] provide basic stats based on this ability to audit MakerDAO. For instance, as of this post, there are 74,223,081.54 Dai in existence, 1,591,183 Ether currently being collateralized for Dai loans, and a bank surplus of 257,346.17 Dai collected in interest. This level of transparency is the very opposite of Madoff. [1] https://daistats.com/ https://daistats.com/

TylerE 7y ago

Paying 6%, or even 4%, on a savings account is a MASSIVE red flag to anyone with a bit of financial sense.

v64 7y ago
Those with loans in the system will have to pay a 6% interest rate. Since not all holders of Dai have savings accounts, this allows for the system to use the interest charged to loan holders to pay out the savings rate while accumulating a surplus. A 6% interest rate on USD would be a red flag, but Dai isn't USD. As far as I know, no banks allow you to use Ether as collateral for a USD loan, so the comparison isn't apples to apples.
- TylerE 7y ago
  Who eats the cost when one of these borrowers defaults?
  - v64 7y ago
    If a borrower defaults, their account is flagged and their Ether collateral is eligible to be auctioned off to pay off their debt. The mechanism is designed so that a loan is closed at a point where auctioning the collateral will cover the debt. In the event that the value of their collateral doesn't cover the debt, the Maker system has a surplus account that would cover the difference. In the event that the surplus can't cover the remainder of the debt, MKR token is created and auctioned off to to cover it. Since this devalues MKR, holders of MKR token are incentivized to ensure that the system always runs at a sufficient surplus to cover these events and that loans are liquidated early enough to prevent having to dip into the surplus. In addition to this, interest on loans are paid in MKR token and destroyed when the loan is closed, which also incentivizes holding MKR.
  - vinniejames 7y ago
    A default is not possible. The loans are fully secured by Ethereum. If collateral dips below an acceptable threshold, the collateral is liquidated and the debt is payed back to the system in full