Bessie Liu

Community governance that oversees MakerDAO, the decentralized protocol behind stablecoin DAI, has voted in favor of the “Maker Constitution,” making its first steps toward Endgame.



The Endgame plan is a roadmap designed by <a href="https://blockworks.co/news/rune-christensen-wants-out-of-maker">Rune Christensen</a>, the protocol’s co-founder, to decentralize governance at <a href="https://blockworks.co/tag/makerdao" target="_blank" rel="noreferrer noopener">MakerDAO</a> and improve DeFi innovation.



It includes a set of 14 different Maker Improvement Proposals (MIPs) — designed collectively to create rules and corresponding frameworks that will eventually enable the launch of Endgame.



The first MIP up for a vote was the Maker Constitution, otherwise known as <a href="https://mips.makerdao.com/mips/details/MIP101">MIP101.</a>



The Maker Constitution can be considered the foundation of Endgame. Made up of 11 constitutional articles and 12 scope frameworks, the constitution will implement the following changes at MakerDAO:



<ol>
<li>Create a “purpose system” to enable token allocations to SubDAOs, which will determine charities to donate to through community votes.</li>



<li>Make strides toward <a href="https://blockworks.co/price/dai">DAI</a> stablecoin decentralization through <a href="https://blockworks.co/price/mkr">MKR</a> token generation in the event there is not enough DAI collateral.</li>



<li>Introduce a standardized and regulated application to align voter incentives and prevent voter manipulation.</li>



<li>Invite “constitutional conservers” or external entities to facilitate governance operations.</li>



<li>Create “constitutional voter committees” consisting of groups of MKR holders tasked with reaching compromises with other teams to minimize chances of making bad decisions.</li>



<li>Establish a protocol delegation system that will enable the delegation of MKR tokens as collateral to generate more DAI to increase voter incentive.</li>



<li>Continue the function of Core Units and project-based funding.</li>



<li>Launch six new SubDAOs alongside the activation of Endgame.</li>



<li>Create modifiable subcomponents designed to move MakerDAO toward greater decentralization.</li>



<li>A new set of boundaries to manage the modifiable subcomponents or “Scope Frameworks.”</li>



<li>A process to make amendments to the Maker Constitution.</li>
</ol>



A shadow delegate <a href="https://vote.makerdao.com/polling/Qmbndmkr#comments">noted</a> the constitution gave them a “good starting point to grab [the] whole view of [the] next governance structure of MakerDAO,” and hence chose to vote “yes” for the proposal.&nbsp;



London Business School Blockchain association, meanwhile, <a href="https://vote.makerdao.com/polling/Qmbndmkr#comments">wrote</a> in a forum that they chose to vote against the proposal because there were “important aspects of the Constitution that we do not understand, or simply cannot support.”



Ultimately, a total of <a href="https://vote.makerdao.com/polling/Qmbndmkr#vote-breakdown">76%</a> of delegates voted in favor, and <a href="https://vote.makerdao.com/polling/Qmbndmkr#vote-breakdown">24%</a> voted against. Less than 0.01% of members abstained.&nbsp;



Endgame has been in talks since May 2022. Only recently has it finally been given the go-ahead by MakerDAO’s community governance.&nbsp;&nbsp;



A governance delegate of MakerDAO that goes by the pseudonym <a href="https://twitter.com/park_eth">park_eth</a> told Blockworks that, “anyone who’s involved with DeFi governance will know that Maker is probably the most complicated one.”&nbsp;



“Maker has actually built a very good culture of encouraging different opinions and voices onto the community platform and actually having rigorous debate on the issues. Generally the quality of discussion [is] very, very high,” they said. “I think [decentralization] is not necessarily a bad thing [but] decisions always feel really hard.”



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MakerDAO Makes First Steps Toward Endgame

<div id="highlights-block_635707cc7f523" class="highlights">
 <ul>
 <li>80% of MakerDAO community members voted in favor of launching the Endgame Plan</li>
 <li>A proposal to move $1.6 billion worth of USDC from Maker’s reserve into Coinbase Prime has also received the green-light</li>
 </ul>
 
</div>



MakerDAO has <a href="https://vote.makerdao.com/polling/QmTmS5Nf#vote-breakdown" target="_blank" rel="noreferrer noopener">voted in favor</a> of moving forward with founder <a href="https://cms.blockworks.co/rune-christensen-wants-out-of-maker/" target="_blank" rel="noreferrer noopener">Rune Christensen</a>’s “Endgame Plan” — which aims to make the protocol more decentralized.



As one of the largest DeFi protocols, MakerDAO has had to <a href="https://cms.blockworks.co/could-endgame-ease-makerdaos-governance-tensions/" target="_blank" rel="noreferrer noopener">navigate</a> complicated internal political and structural disagreements. The Endgame Plan was designed by Christensen in the hopes of improving protocol governance mechanisms. 



In early October, Christensen submitted a set of Maker Improvement Proposals (MIPs) to set the ground rules that would enable the launch of the Endgame Plan



The plan proposes a new structure for the DAO to better align incentives between the different community members —&nbsp; including the DAO workforce, MKR holders, governance delegates, holders of the DAI stablecoin and Maker vault owners — by restructuring the DAO into smaller teams with one aligned mission.



These smaller teams, dubbed MetaDAOs, will each have its own governing token — they will have a specialized purpose that is aligned with the protocol at large but will be its own fully functional decentralized governance.&nbsp;



In an interview with Blockworks, Lucas Vogelsang, MakerDAO community member and founder of Centrifuge — a protocol bridging real-world assets to DeFi — said the Endgame Plan will be a huge experiment for MakerDAO to figure out exactly how it can run a fintech-startup in a fully on-chain and transparent way.



<blockquote class="wp-block-quote">“If you want to do something different, it’s not going to be building the same structures that we already have — we have to experiment a bit, and that’s what we’re doing with MakerDAO,” Vogelsang added. “We’ll see how it works in six months from now and re-evaluate.”</blockquote>



Another proposal which received a <a href="https://vote.makerdao.com/polling/QmbMaQ9A#comments" target="_blank" rel="noreferrer noopener">green light </a>from the MakerDAO community today is moving <a href="https://cms.blockworks.co/coinbase-looking-to-acquire-1-6b-of-makerdaos-usdc/" target="_blank" rel="noreferrer noopener">$1.6 billion worth of USDC</a> from Maker’s reserve into Coinbase Prime, the centralized crypto exchange’s institutional investment arm, that will allow the protocol to earn a 1.5% yield on its assets.



In a <a href="https://vote.makerdao.com/polling/QmbMaQ9A#comments" target="_blank" rel="noreferrer noopener">community forum</a>, the London Business School Blockchain Society, which supported the proposal, noted that the “1.5% yield is an attractive way to bring immediate income to Maker.” 



“That said, this proposal is likely to create lock-in to holding USDC because of the revenue stream it creates, which runs contrary to the intention to decentralise our stablecoin holdings,” the group added. “We need to actively source other revenue opportunities to relieve this exposure.”



DAI is one of the largest stablecoins by market capitalization, with over $7.6 billion in circulation. Its price is pegged to the US dollar through a module known as the Price Stability Peg (PSG), which allows users to swap collateral for DAI at a fixed rate.&nbsp;



Currently, USDC makes up about <a href="https://daistats.com/#/" target="_blank" rel="noreferrer noopener">39% of DAI’s backing</a>, but following the US Treasury’s decision to <a href="https://cms.blockworks.co/coin-center-sues-over-treasurys-tornado-cash-sanctions/" target="_blank" rel="noreferrer noopener">sanction crypto mixer Tornado Cash</a>, MakerDAO has been looking at alternative ways to back the protocol’s crypto treasury.



It’s, as such, unsurprising that the community has also <a href="https://vote.makerdao.com/polling/QmRVN2SB#poll-detail">voted in favor</a> of transferring $500 million worth of USDC to hedge fund Appaloosa and crypto broker Monetails. The USDC will be loaned to centralized exchange Coinbase, collateralized by bitcoin and ether.



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MakerDAO Votes in Favor of Rune Christensen’s ‘Endgame Plan’

Jack Kubinec

<div id="highlights-block_6332d16682b7e" class="highlights">
 <ul>
 <li>The endgame would create sub-DAOs in Maker and shift the protocol’s backing to ether</li>
 <li>“If crypto still needs founders and token whales to stick around, then crypto as a whole has just failed,” Christensen said</li>
 </ul>
 
</div>



Enigmatic Maker founder Rune Christensen has long intimated his plans to step away from running the DeFi protocol behind the DAI stablecoin. This time, Christensen says, he’s serious.



Following months of paralysis caused by Maker’s increasingly decentralized structure, <a href="https://cms.blockworks.co/could-endgame-ease-makerdaos-governance-tensions/" target="_blank" rel="noreferrer noopener">Christensen laid out his so-called “endgame”</a> — a plan for the DAO to become self-sustaining without its founder.



Part manifesto and part proposal, the plan would shift Maker’s war chest into ether and create meta-DAOs which can make quick decisions about the protocol.&nbsp;



Christensen is deeply concerned with a world he sees as being led toward a climate crisis by increasingly dysfunctional governments, which only permissionless DeFi protocols like Maker can resist. In his view, the endgame is the last chance for Maker — and maybe for humanity, too.



<h3>Crypto and the Apocalypse</h3>



Christensen’s apocalyptic outlook drew him to invest in Bitcoin in 2011.



Following the 2008 financial crisis, Christensen realized “the authorities that are meant to watch over us are actually the most irresponsible and most careless of all,” the Maker founder told Blockworks.



This distrust of the governing elite led Christensen to found Maker in 2014. As a fledgling DeFi protocol, Maker became the first automated crypto lending platform, allowing users to lock up ether as collateral for the yield-bearing stablecoin dai (DAI).&nbsp;



Christensen’s “doomer” worldview makes him a folk hero for segments of MakerDAO, some of whom fear government tyranny while others worry over the looming climate crisis.



“All of his doomer-isms appeal to a different subset of the community,” Greg di Prisco, who was the head of business development at the Maker Foundation, said. “By appealing to all of them, he technically appeals to everybody.”&nbsp;



Fast forward to 2018, Christensen’s Maker Foundation had over 50 employees, and Maker’s MKR governance token price <a href="https://coinmarketcap.com/currencies/maker/" target="_blank" rel="noreferrer noopener">more than quadrupled</a> following its release. Crypto venture capital firm Andreessen Horowitz made a <a href="https://a16z.com/2018/09/24/maker/" target="_blank" rel="noreferrer noopener">$15 million investment</a> in MKR. Then, Christensen’s protocol did what relatively few protocols have actually managed to pull off — it decentralized.



<h3>Maker’s evolution</h3>



Christensen dissolved the Maker Foundation in 2021, handing over control to so-called Core Units run by the community and accountable to MakerDAO.&nbsp;



As a parting message to Maker, Christensen published <a href="https://forum.makerdao.com/t/the-case-for-clean-money/10684" target="_blank" rel="noreferrer noopener">“The case for Clean Money”</a> on Maker’s governance forum, prophesying the climate-fueled collapse of industrial society and calling on Maker to position itself as the peer-to-peer currency for renewable energy. He then stepped back to become an ordinary DAO member.



But when the DAO failed to follow through on his clean money vision, Rune decided to return to a more active involvement in the DAO, publishing the <a href="https://forum.makerdao.com/t/the-endgame-plan-parts-1-2/15456" target="_blank" rel="noreferrer noopener">first pieces of his endgame plan</a> in mid-2022.



The <a href="https://cms.blockworks.co/tag/tornado-cash/" target="_blank" rel="noreferrer noopener">Tornado Cash sanctions</a>, which seemed to point towards <a href="https://cms.blockworks.co/tornado-cash-sanctions-expose-potential-defi-achilles-heel/" target="_blank" rel="noreferrer noopener">a potential kill switch</a> for dai, prompted Christensen to re-enter Maker governance in force, leveraging his persona in pursuit of his endgame plan and even encouraging the DAO to <a href="https://cms.blockworks.co/makerdao-plans-to-yolo-usdc-into-eth/" target="_blank" rel="noreferrer noopener">“Yolo” the protocol’s USDC into ether</a>.



Bold proclamations are common for Christensen, who weighs decisions based on how he sees Maker moving the needle of history rather than creating short term stability.



<blockquote class="wp-block-quote">“He&#8217;s really good at saying exactly where the world is going to be in ten years, but he has no idea where it&#8217;s going to be in two days,” di Prisco said.</blockquote>



<h3>A Reluctant Savior</h3>



Christensen “hates running Maker,” according to di Prisco, calling Christensen a “reluctant savior” for the gridlocked DAO.



DeFi protocols often struggle to become fully decentralized and move past the influence of their founders, a trend of which Christensen is well aware. But he sees his continued involvement as a necessary evil, for now.



While Maker’s Core Units were able to establish the first DeFi-traditional bank credit line with <a href="https://cms.blockworks.co/makerdao-opens-100m-dai-loan-to-huntingdon-valley-bank/" target="_blank" rel="noreferrer noopener">Huntingdon Valley Bank</a> this year, Maker’s post-Foundation governance has been largely slow-moving and inefficient. The DAO’s <a href="https://dirtroads.substack.com/p/-42-valkyrie-makerdao-and-our-side" target="_blank" rel="noreferrer noopener">chaotic</a> rejection of a proposal creating a lending oversight Core Unit was emblematic of what <a href="https://twitter.com/hexonaut/status/1540728768138022912?s=20&amp;t=sXykxq4kpgAQlbkHYvSByQ" target="_blank" rel="noreferrer noopener">many believed</a> Maker had become — a rudderless DeFi giant unable to make important decisions.



<blockquote class="wp-block-quote">“If crypto still needs founders and token whales to stick around, then crypto as a whole has just failed,” Christensen said.</blockquote>



Christensen hopes the endgame can put the finishing touches on a fully decentralized Maker and “prevent all of the work we&#8217;ve put into DAOs over the last many years from being for nothing.”



<h3>The Face of Maker</h3>



Christensen speaks his mind when it comes to Maker. His uncapitalized multi-message threads in Maker’s Discord governance channel have made headlines on multiple occasions. This level of access to a leader’s thoughts could only happen in crypto.



“In private companies, these types of things are normally discussed privately,” Sam McPherson, an engineer at MakerDAO, said.



<blockquote class="wp-block-quote">“In a DAO you see everything out in the open, so you kind of see the odd thoughts that people may have,” he added.</blockquote>



Christensen was known to pitch ambitious ideas in private meetings while the Maker Foundation existed, relying on his coworkers to rein in his excesses. The Maker founder has now crowdsourced what was once person-to-person feedback. His colleagues aren’t particularly worried.



“The context a lot of people missed about Rune is that he’s Danish. This is how Denmark works: everybody has a voice. Everybody just says what&#8217;s on their mind and then they come to a consensus,” di Prisco said.



But not everyone in Maker has been willing to laugh off Christensen’s excesses as a symptom of his nationality. Christensen owns a bit under 10% of the MKR supply, and he delegates his votes to members of the DAO who <a href="https://twitter.com/hexonaut/status/1542905782819241987?s=20&amp;t=FbNaEEnA_YV_i519Ov_5VQ" target="_blank" rel="noreferrer noopener">agree with his positions</a>, creating sticky conflicts of interest.&nbsp;



“Delegates are paid according to how much MKR is delegated to them, so there really is a monetary reason for delegates to behave like a sycophant,” Joshua Pritikin, the head of Maker’s security Core Unit, said.&nbsp;



In typical Christensen fashion, the endgame plan is being proposed all at once, creating a sweep of simultaneous potential changes. Pritikin hopes to see the DAO take a more piecemeal approach when it comes to potentially risky moves like buying staked ether with leverage.



But Christensen wants each piece of the endgame to pass. After years of tinkering with MakerDAO, he believes this final governance push will let him leave for good.



“Over the years I&#8217;ve [made] that same mistake again and again and again of thinking ‘oh, it&#8217;s just this one next thing, and then that&#8217;s enough, and then the community can figure it out,’” Christensen said. “If we can&#8217;t make it work now, I don&#8217;t think that it&#8217;s actually likely that it&#8217;s possible at all.”



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Rune Christensen Wants Out of Maker

<div id="highlights-block_6328ee88a7515" class="highlights">
 <ul>
 <li>Infighting at MakerDAO could compromise MakerDAO’s market dominance</li>
 <li>“There are political and structural issues in the workforce nobody has ever uncovered before that I have just recently encountered as little as a few weeks ago,” MakerDAO co-founder said</li>
 </ul>
 
</div>



Not long ago MakerDAO’s co-founder shared <a href="https://forum.makerdao.com/t/the-endgame-plan-parts-1-2/15456">The Endgame Plan</a>, a roadmap that aims to improve the protocol’s governance mechanisms and tap into DeFi innovation.



But disagreements within MakerDAO community members have inhibited the protocol’s ability to make complicated decisions, leading to voter apathy and poor accountability.



“The reality of the situation is that the status quo of maker is untenable,” Rune Christensen, the co-founder, wrote in MakerDAO’s governance Discord. “MKR is near valueless because of the compounding multidimensional risk.”



Following the <a href="https://cms.blockworks.co/makerdao-plans-to-yolo-usdc-into-eth/" target="_blank" rel="noreferrer noopener">Tornado Cash sanctions</a> and Circle’s move to blacklist all USDC in Tornado Cash contracts, members of the MakerDAO community — the <a href="https://etherscan.io/token/tokenholderchart/0xa0b86991c6218b36c1d19d4a2e9eb0ce3606eb48" target="_blank" rel="noreferrer noopener">single largest holder of the stablecoin USDC</a> — <a href="https://cms.blockworks.co/makerdao-founder-lays-timeline-for-free-floating-dai/" target="_blank" rel="noreferrer noopener">contemplated</a> whether the decentralized autonomous organization could completely move away from its dependency on “seizable” centralized assets.&nbsp;



But completely shifting away from USDC has its downsides — as free-floating DAI would lose its Price Stability Peg to the US dollar — a measure, Rune said, which would only be taken under an “authoritarian threat.”&nbsp;



Torn <a href="https://cms.blockworks.co/us-treasury-pressure-ideologically-separates-makerdao-community/" target="_blank" rel="noreferrer noopener">between ideologies</a> of relying on centralized assets and being completely decentralized, Christensen said on Discord, “there are political and structural issues in the workforce nobody has ever uncovered before that I have just recently encountered as little as a few weeks ago.”



<blockquote class="wp-block-quote">“The reality is that almost nobody can just fix it, and those who could, would never waste their time and sanity fighting against the garbage politics of those who want to just create drama or those who have a vested interest in keeping the budgets flowing,” Christensen said.</blockquote>



Despite his disdain for the MakerDAO, Christensen is of the opinion that The Endgame proposal could resolve some of the tensions.



“The Endgame is a solution that understands these issues and deals with them and in doing so delivers sustainable advantages from decentralization and token governance that isn’t just regulatory arbitrage we hope the governments won’t keep up with,” Christensen said. “The only way to really do it is to just show it in action.”



Not all community members of the DAO are convinced.&nbsp;



Pseudonymous MakerDAO member psychonaut replied to Christensen, saying “Given your MKR weight, nobody who is a key person will admit to disagreeing with you. You are inevitably surrounded by sycophants.”



It seems the only thing that the MakerDAO community has been able to agree upon over the past few weeks is turning toward real-world assets to ensure the value of the DAI would remain stable.&nbsp;



Most significantly, the protocol partnered with <a href="https://cms.blockworks.co/makerdao-opens-100m-dai-loan-to-huntingdon-valley-bank/" target="_blank" rel="noreferrer noopener">Huntingdon Valley Bank</a>, a community bank in Philadelphia, by offering it 100 million DAI to support the growth of existing businesses and investments.



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Could Endgame Ease MakerDAO’s Governance Tensions?

<div id="highlights-block_62fab4bcd7a11" class="highlights">
 <ul>
 <li>USDC is currently the largest source of collateral backing DAI at 33.9%</li>
 <li>Moving 3.5 billion USDC to ether is likely an open invitation to hackers</li>
 </ul>
 
</div>



After MakerDAO’s co-founder Rune Christensen floated converting <a href="https://cms.blockworks.co/makerdao-plans-to-yolo-usdc-into-eth/" target="_blank" rel="noreferrer noopener">USDC to ether</a> from the protocol&#8217;s treasury backing crypto’s fourth largest stablecoin DAI, community members are torn.



Unlike stablecoin giants Tether and Circle, Maker’s <a href="https://cms.blockworks.co/the-investors-guide-to-daos/" target="_blank" rel="noreferrer noopener">decentralized autonomous organization</a> (DAO) is, as the name suggests, decentralized — so all its decision-making is open to the public.&nbsp;



Every DAI is overcollateralized by a real-world asset, and DAI’s value is held together by its so-called Price Stability Peg (PSG), which allows USDC holders to swap their tokens for DAI with the protocol.



But since one-third of all DAI is backed by USDC, and after its issuer <a href="https://cms.blockworks.co/treasurys-tornado-cash-sanctions-have-companies-stepping-back-from-users/" target="_blank" rel="noreferrer noopener">Circle froze all blacklisted Tornado Cash addresses</a> based on US sanctions, MakerDAOs DAI is <a href="https://cms.blockworks.co/tornado-cash-sanctions-expose-potential-defi-achilles-heel/" target="_blank" rel="noreferrer noopener">hypothetically at risk</a> of depegging, despite the $10.9 billion in digital assets backing it.



<a href="https://cms.blockworks.co/tag/makerdao/" target="_blank" rel="noreferrer noopener">MakerDAO</a> figures have <a href="https://cms.blockworks.co/makerdao-plans-to-yolo-usdc-into-eth/" target="_blank" rel="noreferrer noopener">voiced concern</a> about the potential for the US Treasury to sanction the smart contract associated with the PSG, which would effectively send the value of USDC sent to the protocol’s stability peg to zero if Circle follows suit.



But moving USDC collateral to ether (ETH) is not a simple task. Luca Prosperi, a prominent MakerDAO community member, told Blockworks that MakerDAO faces two major issues with&nbsp; offloading $3.5 billion in USDC for ETH.&nbsp;



<h3>MakerDAO is backed by the status of the US dollar</h3>



The first problem Prosperi identified is that the Maker community is torn between two ideologies.



“The first [group] is looking at the protocol with rational eyes and the other wants to detach as much as possible from the US dollar and US regulation in general,” he said.&nbsp;



“It’s very difficult to know what the protocol will prioritize because the two camps are not compatible.”



DAI’s value, pegged to the US dollar and partly collateralized by USDC, is ultimately backed by the status of US-issued fiat, Prosperi said. Many investors are using DAI as a proxy for the dollar on-chain, which they can then off-ramp and use in the real world.



Removing USDC from DAI’s collateral means saying goodbye to the real world — and Prosperi said he was unsure how this would be received by DAI token holders writ large.



The second major issue that concerns Prosperi is the technicalities behind moving so much USDC to ETH.



A handful of MakerDAO community members believe switching off the protocol’s Peg Stability Module (PSM) would inspire DAI to outstrip the dollar, depegging it upward, as there would be organic excess demand for DAI.



“This is true in the short term,” Prosperi said. “But obviously things could go both ways.”



<h3>Realities of moving USDC to ETH</h3>



Further, Prosperi is concerned that publicly announcing that the protocol intends to buy $3.5 billion of another asset can lead to unwanted attacks.&nbsp;



“There are so many ways a hacker could attack this situation — the existential risk of this move for the protocol is massive,” he said. “I will do everything I can, governance-wise, to make sure to carefully engage MKR whales to think this through properly.”



Prosperi said he’ll soon release a recommendation piece on his blog <a href="https://dirtroads.substack.com/" target="_blank" rel="noreferrer noopener">Dirt Roads</a>, covering the potential MakerDAO move.



Meanwhile, Christensen has backtracked some of his earlier statements made in MakerDAO’s Discord server. “What I actually wrote…was that yoloing all the stablecoin collateral into ETH would be a bad idea,” he tweeted. Christensen last Thursday <a href="https://twitter.com/WestieCapital/status/1557736335607500802" target="_blank" rel="noreferrer noopener">said</a> risks associated with partially swapping USDC for ETH “may be worth it.”



In any case, considering MakerDAO is one of the largest — and oldest — DAOs in the crypto ecosystem, all eyes are on the protocol to see what its next moves will be. After all, it may just set a precedent for the rest of DeFi to follow.



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US Treasury Pressure Ideologically Separates MakerDAO Community

<div id="highlights-block_62f518433a0b7" class="highlights">
 <ul>
 <li>The sanctions are “a lot more serious than I first thought,” MakerDAO co-founder Rune Christensen said</li>
 <li>The risk of uprooting and moving collateral from USD to ETH may overweigh the consequences of DAI&#8217;s depeg</li>
 </ul>
 
</div>



MakerDAO is weighing a Hail Mary move to replace what backs its decentralized stablecoin DAI.&nbsp;



Following the US Treasury’s <a href="https://cms.blockworks.co/tornado-cash-sanctions-expose-potential-defi-achilles-heel/" target="_blank" rel="noreferrer noopener">sanctioning of crypto mixer</a> Tornado Cash, <a href="https://cms.blockworks.co/tag/makerdao/" target="_blank" rel="noreferrer noopener">MakerDAO</a> co-founder Rune Christensen wants to uproot USDC from the protocol’s massive $10.9 billion crypto treasury.



Earlier this week, authorities added <a href="https://cms.blockworks.co/us-treasury-bans-citizens-from-using-mixing-service-tornado-cash/" target="_blank" rel="noreferrer noopener">Tornado Cash’s blockchain addresses to the Office of Foreign Assets Control (OFAC) blacklist</a>, making it illegal to interact with those particular addresses.



Many of the newly banned addresses were USDC contract addresses tied to Tornado Cash, and the stablecoin’s issuer Circle toed the US line almost immediately by adding dozens to its own blacklist. Circle’s move automatically rendered any USDC controlled by those addresses — collectively <a href="https://twitter.com/bantg/status/1556712790894706688">around</a> $75,000 — moot, practically valueless.



On MakerDAO’s official Discord channel, Christensen said the consequences of the Tornado Cash sanctions are “a lot more serious than I first thought.”



Even though DAI would very likely depeg from the US dollar if MakerDAO ditches USDC, the risk is “acceptable,” Christensen said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">And Rune might want to &quot;yolo&quot; the PSM <a href="https://twitter.com/search?q=%24USDC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$USDC</a> into <a href="https://twitter.com/search?q=%24ETH&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$ETH</a> lmaooo <a href="https://t.co/tVugbNlyaj">pic.twitter.com/tVugbNlyaj</a>&mdash; Westie 🟪 (@WestieCapital) <a href="https://twitter.com/WestieCapital/status/1557736335607500802?ref_src=twsrc%5Etfw">August 11, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“The market may finally start to reward decentralization to the point where these risks are acceptable, because USDC is no longer the no-brainer it used to be,” Christensen said.



<h3>MakerDAO relies on USDC arbitrage to hold DAI peg</h3>



DAI is the fourth-largest stablecoin by market capitalization, with over $7.6 billion in circulation.



Decisions regarding the token’s backing, alongside everything else, are made by MakerDAO, a decentralized autonomous organization. This contrasts stablecoin giants Tether and Circle, which are both run behind closed doors by centralized teams.



DAI’s dollar-value is inspired by what&#8217;s known as the Price Stability Peg (PSG). Minting DAI usually demands overcollateralization, but the PSG enables USDC holders to mint one DAI for every USDC deposited, opening a lucrative arbitrage opportunity when DAI rises above $1.



But when Circle signaled it would follow the US Treasury in blacklisting any blockchain addresses sanctioned by OFAC, a new hypothetical attack vector had been opened, MakerDAO delegate and crypto researcher Mika Honkasalo <a href="https://cms.blockworks.co/tornado-cash-sanctions-expose-potential-defi-achilles-heel/" target="_blank" rel="noreferrer noopener">explained to Blockworks</a> in a call on Tuesday.



“If that specific USDC ever happens to be on the sanctions list, the value of that USDC is zero,” Honkasalo said. “I suppose there&#8217;s some market price for it, but, in theory, the price is very low, so you lose a lot of your collateral.” USDC currently <a href="https://daistats.com/#/" target="_blank" rel="noreferrer noopener">makes</a> up about 32% of DAI’s backing, representing roughly $2.26 billion.



Ridding MakerDAO of its USDC collateral would mean shedding its stability peg mechanism. But without arbitrage pulling DAI back to $1 when demand is high, the token would ultimately depeg — upwards.



Honkasalo said: “You can just get rid of all of it and be okay with the price going higher. Centralized stablecoins have no actual $1 peg, they have a $1 minimum — the peg can go as high as the collateral itself. If you have a collateralization ratio of 120, technically it can go anywhere between $1 and $120, or whatever the collateral ratio is.”



But while the researcher noted this was technically doable, for MakerDAO it’s a bit more difficult as it still takes engineering. “It’s not an overnight solution,” he said.



<h3>DeFi’s canary in the coal mine</h3>



MakerDAO CEO Christensen is now realizing that by solving the stability problem, using USDC as a conduit, MakerDAO created another — arguably more dangerous — threat: The USDC it receives is, in theory, subject to US government control.&nbsp;



Honkasalo stressed that this is not just a problem for MakerDAO. It’s an issue for every single DeFi protocol that has USDC assets as collateral.



“What if an automated market maker’s USDC smart contract, that&#8217;s actually the market, ends up on the sanctions list?” Honkasalo asked.



“All the lending markets suffer from this equally, people have just realised DAI was a problem because of how it’s backed — but the auto lending markets are just as much backed by USDC as DAI.”



Luca Prosperi, another prominent MakerDAO figure, was very critical of the idea when it was floated in MakerDAO’s Discord. “So let me understand, we have 80%-plus collateral concentration in our balance sheet, and we openly say that collateral is crap.”



Christensen does have considerable sway over MakerDAO governance. He’s been constantly involved in many of Maker’s big decisions, Blockworks Research analyst Ryan West said.



“For example, in the vote for the Lending Oversight Core Unit, which was the largest governance vote in the DAO’s history, he was able to garner 33,70 MKR votes or 11.5% of the total voting power himself,” West said.



Christensen had pushed enough of the community to vote against large venture capital funds and popular delegates such as a16z, BlockTower and Hasu, he added.



The MakerDAO CEO sees this move as essential given the potential for government crackdown.



“This is my thought process: There’s now a demonstrated way to instantly and unconstitutionally nuke any smart contract of all centralized stables at will, with no lead time to take preemptive actions. Countries tend to ban crypto when their economic conditions start tanking.”



David Canellis contributed reporting.



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MakerDAO Co-founder Plans To ‘Yolo USDC Into ETH’

Macauley Peterson

<div id="highlights-block_62bc4a78e6f3f" class="highlights">
 <ul>
 <li>Recent MakerDAO governance battle was seen as a clashing of interests: venture capital vs. small fry</li>
 <li>Roughly 30% of MKR token holders took part in the vote, with 60.17% voting against the proposal and 38.28% voting in favor</li>
 </ul>
 
</div>



MakerDAO community members voted against adding an advisory committee that would manage internal checks and balances within the DAO and educate governance token holders on complexities surrounding future proposals.



The <a href="https://mips.makerdao.com/mips/details/MIP39c2SP33#sentence-summary" target="_blank" rel="noreferrer noopener">proposal</a>, introduced by MakerDAO figure Luca Prosperi, intended to create a Lending Oversight Core Unit (nicknamed “LOVE”), an addition to the current <a href="https://forum.makerdao.com/c/core-units/31" target="_blank" rel="noreferrer noopener">22 other core units</a> (CUs). The idea was to implement a more streamlined leadership structure within the DAO (decentralized autonomous organization).



But the broader community didn’t love the concept. The decision to turn down a potential advisory committee was finalized on Monday, after more than <a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown" target="_blank" rel="noreferrer noopener">60%</a> of votes were cast against the proposal and <a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown">3</a><a href="https://vote.makerdao.com/polling/QmWYajMq#vote-breakdown" target="_blank" rel="noreferrer noopener">8%</a> voted in favor. By Maker governance standards, these were close votes with a high turnout — holders of 293,911 governance tokens holders took part in the LOVE vote, amounting to nearly 30% of the circulating supply.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Over the last several days, we&#39;ve seen the number of votes cast reach an all-time high, MKR borrow rates on Aave spike and a massive shift in MKR delegation in the last minutes of voting.&mdash; GFX Labs (@labsGFX) <a href="https://twitter.com/labsGFX/status/1541488161968340992?ref_src=twsrc%5Etfw">June 27, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



“I do not believe that the DAO should be engaging in activities that require large amounts of trust in isolated groups of individuals, have little to no real-time transparency, or that are not driving us toward a decentralized future,” Chris Blec, recognized delegate of MakerDAO, <a href="https://vote.makerdao.com/polling/QmWYajMq#comments" target="_blank" rel="noreferrer noopener">wrote</a> in the forum discussion. 



Blec continued: “Every CU is incentivized to find ways to justify its own existence, and I feel that the proposed scope of LOVE would allow far too much subjectivity in that regard.”



According to GFX Labs, a group focused on DAO governance matters, clear battle lines were drawn between opposing philosophical camps.



“Those who want to see more organization and control voted YES (TradFi and VCs). The NOs (most of the community) generally opposed the price tag and few deliverables and favored&nbsp;[Rune Christensen’s] Endgame plan.”



<h3>Heading for the endgame</h3>



MakerDAO is a cornerstone of the Ethereum decentralized finance ecosystem, allowing users to lend and borrow cryptocurrency, peer to peer. The protocol has its own native token, MKR, which allows holders to vote on various governance proposals. 



Since December 2017, the DAO has regulated over-collateralized stablecoin DAI, which aims to maintain a one-to-one peg with the US dollar and has grown to become the fourth largest stablecoin, with a market capitalization in excess of $6.2 billion, <a href="https://www.coingecko.com/en/categories/stablecoins" target="_blank" rel="noreferrer noopener">according to CoinGecko</a>.



Christensen, who founded MakerDAO in 2014, <a href="https://forum.makerdao.com/t/the-endgame-plan-parts-1-2/15456" target="_blank" rel="noreferrer noopener">outlined</a> an “ambitious initiative” two months ago to move the DAO toward a “predetermined, immutable end state” sometime in the future, which he called The Endgame Plan.



“A key objective for me is to deal with the major contradictions and challenges that I see, and to also ensure that the project gets on a path towards a truly decentralized equilibrium,” Christensen wrote.



The plan calls on Maker DAO to restructure itself around a series of “MetaDAOs” or subDAOs that would replace the CUs with their own distinct incentive-aligning token.



<h3>A slow road to effective governance for DAOs</h3>



Voter apathy has been a problem in Maker governance, despite the recent uptick in participation.



Delegates such as the pseudonymous Hasu, host of the Uncommon Core podcast, have been advocating for a more streamlined approach “to move away from micromanagement and towards a board-of-directors style DAO that sets the strategic direction for the protocol,” as he <a href="https://twitter.com/hasufl/status/1540683663385407488" target="_blank" rel="noreferrer noopener">wrote on Twitter</a>, in the final days of the vote. 



Although DAOs are primarily member-driven organizations, as it currently stands, DAOs have two main membership models: token-based membership and share-based membership. Over the past few months, a number of challenges have arisen around token- and share-based DAO governance, and MakerDAO is not alone in its examination of new governance structures. 



Last week, Solana-powered lending protocol Solend DAO passed a governance proposal limiting users&#8217; borrowing to $50 million per account, with rollouts starting at $120 million and gradually decreasing. This proposal came after a single whale wallet gained over 90% of the protocol’s available lending assets, throwing into question how DAOs can practically deal with contract law in the physical space. 



Staking community Lido DAO had also <a href="https://cms.blockworks.co/lido-dao-proposes-governance-switch-up/" target="_blank" rel="noreferrer noopener">proposed a dual governance solution</a> to reduce the decision-making scope of its LDO token holders. Although Lido DAO is currently deployed on the Ethereum network, LDO token holders have governance over liquid staking protocols on Polygon and Solana, which means their motivations may vary from those of stakers who are primarily on the Ethereum network. 



“Token-based governance is great for product-based protocols, but it is not the best for media DAOs or ecosystem DAOs because a community should not be owned by the richest or the one that arrived before others,” Marco Moshi, DAO lead at Polygon, told Blockworks. 



Moshi says an organization&#8217;s stakeholders will likely change over time, and DAOs should take into account that their organization is evolving and the individuals involved will also be regularly changing. 



“The DAO space is very interesting and is a main evolution of Web3, it is one of the places where we can witness a real big level of engagement on the community side and on the builder side, so we must support new developments that will come after existing DAOs, and evolve and adopt a new generation of DAO tooling systems,” Moshi said.



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