Macauley Peterson

Sky (<a href="https://blockworks.co/news/maker-rebrands-as-sky-dai-will-be-changed-to-usds">formerly MakerDAO</a>) governance is grappling with the implications of an emergency proposal <a href="https://vote.makerdao.com/executive/template-executive-vote-out-of-schedule-executive-vote-risk-parameter-changes-february-18-2025">executed today</a> that alters MKR’s role within the ecosystem. Pitched as a necessary move to protect protocol security, these changes’ swift approval has instead ignited debates over transparency, process integrity and the risk implications for DAI/USDS.



The proposal eliminates the longstanding 5% exit fee on MKR withdrawals, significantly expands borrowing against MKR collateral and raises borrowing rates — while simultaneously lowering liquidation thresholds. Critics argue these measures increase the protocol’s risk of exposure, particularly given that MKR now has one of the highest loan-to-value (LTV) ratios in DeFi.



Community members have questioned the rationale behind these decisions. Others raised concerns over the timing, suggesting that the proposal was pushed through with minimal explanation just as governance critics were being silenced.



Rune Christensen, Sky’s founder, defended the move in a community call on Wednesday. He argued the changes were necessary to prevent a governance takeover. In Discord and X posts, he <a href="https://blockworks-research.beehiiv.com/p/kaito-s-attention-airdrop">alleges</a> a cooperation between PaperImperium, the pseudonym of a known activist investor with <a href="https://gfx.xyz/">GFX Labs</a> and governance participant in Sky, and a group of investors hoping to wield influence in Maker.



Other prominent voices within Sky have <a href="https://x.com/hexonaut/status/1892253800796422518">linked</a> Nexo to the effort, <a href="https://x.com/MonetSupply/status/1892288025851265134">citing</a> a leaked plan.



Framework Ventures general partner Vance Spencer, a long time Maker bull, <a href="https://x.com/pythianism/status/1892276559790153880">referenced</a> Zeus Capital in connection with the governance kerfuffle. Zeus Capital has been <a href="https://x.com/MyNameIsHugh/status/1892278080925839858">associated with</a> Nexo in the past.



In response, PaperImperium cited a long track-record of positive contributions to DAO governance. “GFX has not agreed to work with Nexo beyond listening to their opinions and sharing ours,” noting they are generally willing “to talk to anyone requesting a meeting or open channel of communication in any DAO we work in,” he told Blockworks.



A Nexo spokesperson responded that “Nexo&#8217;s team is on the way back from [Hong Kong],” and thus not immediately available to rebut the allegations.



&#8220;Historically, Nexo is the largest client of Maker and we have consistently tried to proactively contribute to its long-term growth by engaging with their team. We will release an exclusive, in-depth overview of the protocol’s intricacies, decentralization shifts and evolving dynamics, providing and critical insights,&#8221; the spokesperson said.&nbsp;



PaperImperium is known for frequently engaging in governance debates and pushing for transparency reforms. The account has been vocal about Sky governance practices, often criticizing decisions that concentrate power among insiders.



Christensen maintains that the adjustments align with a broader effort to simplify the Seal Engine framework and improve governance efficiency, as <a href="https://forum.sky.money/t/simplifying-seal-engine-and-activation-removing-exit-fee/26023">outlined</a> in a forum post on Wednesday. The Seal Engine is a component of Sky that allows anyone to lock MKR tokens as collateral to borrow USDS. The elimination of the exit fee reflects a shift toward reducing governance complexity, as SKY holders would primarily delegate decisions to Core Executors, Christensen said.



Rather than conferring an insider benefit, defenders such as “chud” on Discord pointed out that the proposal wasn’t just about raising debt ceilings — it also increased the stability fee from 12% to 20%, making borrowing against MKR more expensive.



Christensen has <a href="https://x.com/intern_cc/status/1892502606192189771">significant</a> MKR-backed loans on Aave and Morpho, where he’s subject to those platforms’ more conservative LTVs and liquidation thresholds. By allowing more aggressive borrowing terms within Sky, he could shift his leverage away from third-party platforms to the Seal Engine.



This could reduce his risk of liquidation on Aave/Morpho — which was allegedly part of the governance takeover plot (though one which Christensen <a href="https://x.com/RuneKek/status/1891984687288963140">characterized</a> as “laughable”).



“Rune refinanced his debt from Morpho/Aave and consolidated it on Maker, where his collateral can vote,” PaperImperium said.



“GFX would never support putting a protocol or its users at risk,” he said, calling the matter “a typical DAO governance dispute about policy.”



As the dust settles, the community is left with pressing questions: Was the emergency proposal truly about securing Sky’s future, or rather a consolidation of control? And if governance processes can be bypassed in this way once, what’s to stop it from happening again?



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Emergency Sky proposal sparks governance debate

Donovan Choy

This is a segment from the 0xResearch newsletter. To read full editions, <a href="https://blockworks.co/newsletter/research">subscribe</a>.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



USDS is doing great. The SKY governance token, however&#8230;not so much.



About two months since Maker’s announced rebrand to Sky, the team is now contemplating a U-turn.



Maker first revealed its <a href="https://blockworks.co/news/maker-rebrands-as-sky-dai-will-be-changed-to-usds">rebrand to Sky</a> in late August and went live on Sept. 24. The rebrand was intended for holders of the original MKR governance token to convert to the new SKY governance token at a 1-to-24,000 exchange rate.&nbsp;



Since going live, only about 10.7% of MKR token holders have converted to the new SKY governance token.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfH8xHxY_2Qp8XcUh7iuFpP7GG-dv_tE3DmDGn_6YgAdINr9wubTfsv3-7sp24Jy72xj3U-LvuWEHwUJSSqImFrC3kLfRaU-A-RMBn2Jd-7NeqOlMJ49d_yRNUwwuyOMYXNVvGiGTKgjKNgKj3uI2RlV9zH?key=QFflPVH2iAmMxemdVr1yfw" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://dune.com/seoul/sky">Dune</a></figcaption></figure>



Usage of USDS has had a relatively more positive reception, with its growth to a $1.26 billion market cap.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdzJ-WDAXs1dbt0SwTzyvNh-CaKl4B_vSULZZXbwRy5jDEJ94YMXc3SLXF6wEqC-NSuHzJ9jkD5q53vp0ZiP0WCjOl2gZofTs00a_rywHF_xNEUElbfCnaiAiGEh7VjPK2f-bJXm8U7hv1XpO6wYTX_P_U?key=QFflPVH2iAmMxemdVr1yfw" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://info.sky.money/tokens/0xdc035d45d973e3ec169d2276ddab16f1e407384f">Sky.money</a></figcaption></figure>



Rune Christensen, Maker’s co-founder, <a href="https://x.com/RuneKek/status/1848383711802212426">tweeted</a>: “It is also now more clear than ever just how much the DeFi community loves and trusts the Maker brand…there is a lot of commitment to holding the MKR token versus upgrading to SKY.”



As Christensen explained, the Maker team will have three voting options on Oct. 28:&nbsp;



<ol class="wp-block-list">
<li>Continue with Sky as the core brand.</li>



<li>Make a full U-turn to Maker’s original brand identity.</li>



<li>Return to Maker’s original branding, but lightly update it “to better align it with USDS and the StarDAOs.”</li>
</ol>



The redenomination into a higher token supply from MKR to SKY was widely perceived by many as a kind of positive psychological catalyst that plays on what is commonly referred to as “unit bias.”



The idea here is that investors may find MKR less appealing due to its high price — over $1,000 per MKR — while the significantly lower price of SKY, at a few cents (due to its higher total token supply) makes it more psychologically attractive for retail investors to hold compared to fractional amounts of MKR.



Christensen acknowledged on an <a href="https://x.com/SkyEcosystem/status/1848801350844547139">X space</a> yesterday that this redenomination strategy “clearly did not work out at all” after the SKY token failed to get listed on centralized exchanges.



To incentivize this conversion, Sky planned to offer “seal rewards” and “activation rewards” for token holders who chose to stake SKY — features that Christensen now points to as “<a href="https://x.com/RuneKek/status/1848383711802212426">hard to follow</a>” amid a swathe of new features based on community feedback.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeyUUdPdbr67AY7k4eIs6iFtKhwa0wRTQi1HAtu8VlcWZJFzpC4NGUdXlw2QFFXXF6nNAbuOGTUVLSm2AKEMXJyDnJ_JJRvVLgoOebNlXypL7PnS8rapL1B8T29poTDLYah8z-0CvQm89O0fLs0OSJLB6Hk?key=QFflPVH2iAmMxemdVr1yfw" alt=""/><figcaption class="wp-element-caption">Source: <a href="https://sky.money/">Sky</a></figcaption></figure>



<a href="https://x.com/KatiegarciaEth/status/1848815403990143401">Critics</a> on X have wasted no time taking shots at Maker for wasting $50 million on a failed rebrand.



In response, Christensen acknowledged on yesterday’s <a href="https://x.com/SkyEcosystem/status/1848801350844547139">X space</a> that the criticism was a “funny meme” and while he doesn’t “blame people for using that as a dunk,” the entire sum of money was not spent exclusively on “rebranding.”



Christensen elaborated that the value of the rebrand was to drive demand for the USDS stablecoin and the importance of the product’s adoption, which has shown success thus far.



<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">Sky Launch wasn&#39;t a rebrand, it was a huge amount of features including: * A new stablecoin: USDS, which has now surpassed 1.2 billion market cap within 5 weeks * A new frontend <a href="https://t.co/MTE5XbdURu">https://t.co/MTE5XbdURu</a> which has had more than 400k visits and is the main driver of the USDS growth…&mdash; Rune (@RuneKek) <a href="https://twitter.com/RuneKek/status/1849088161130967280?ref_src=twsrc%5Etfw">October 23, 2024</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Since the Sky rebrand, the team has <a href="https://x.com/RuneKek/status/1839281322533204471">embarked</a> on a series of high-profile launches, such as an integration of USDS with Aave (dubbed the Sky Aave Force), and the launch of <a href="https://blockworks.co/news/lightspeed-newsletter-sky-solana-stablecoin-market">USDS to Solana</a> and other Ethereum L2s.



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Maker wants to rebrand again

Bessie Liu

DAI Savings Rate (DSR) is paying up to 8% yields in a bid to “attract more users,” MakerDAO founder Rune Christensen said in a tweet on Monday.&nbsp;



DAI is MakerDAO’s decentralized stablecoin and can be minted by depositing collateral into a smart contract.&nbsp;



DAI token holders can opt into locking their DAI into a DSR contract, which accrues yield — the only additional costs to use DSR are gas transactions, which involve locking and unlocking the token.



DSR can be accessed via <a href="https://blockworks.co/news/makers-spark-protocol-dai">Spark Protocol</a>, a borrowing and lending protocol and Aave spinoff catered specifically to <a href="https://blockworks.co/price/dai" target="_blank" rel="noreferrer noopener">DAI</a>.



“The rate is so high because there are currently not that many people using the DAI Savings Rate &#8211; only about 8% of DAI holders use DSR currently,” Christensen <a href="https://twitter.com/RuneKek/status/1688236842217549824" target="_blank" rel="noreferrer noopener">tweeted</a>.



The Enhanced DSR system had increased rates, according to Christensen, to attract additional users, adding that the savings rate will go back down once more people use it.



Following Christensen’s tweet, data from makerburn.com showed that DAI deposited into DSR has almost <a href="https://makerburn.com/#/dsr">doubled</a>, from roughly 396 million DAI on August 6 to 676 million DAI at the time of writing.&nbsp;



The doubling equates to a total of 14.1% of all circulating DAI on the market placed into DSR.



The DSR, notably, can only be accessed by customers outside of the US, and no users signed into a VPN will have access to Spark Protocol, Christensen said.



The news has alerted crypto internet personalities such as Chris Blec, who <a href="https://twitter.com/ChrisBlec/status/1688236822399217666" target="_blank" rel="noreferrer noopener">tweeted</a> “Spark Protocol is going above and beyond what is required by law by blocking VPN users from accessing DAI Savings Rate.”



Blec has called this decision a “war on privacy.”



<a href="https://blockworks.co/tag/makerdao" target="_blank" rel="noreferrer noopener">MakerDAO</a> did not immediately respond to a request for comment.



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DAI Savings Rate is at 8%, just not for Americans

Darren Kleine

MakerDAO did not turn out the way founder Rune Christensen hoped it would. The rise of undesirable human behavior, he realized, was inevitable.



“It started to become clear to me that, as the money increases, the political forces become more intense.”



“To find out that actually, it&#8217;s a big, giant, political game is disappointing.”



It’s not exactly what one might consider a ringing endorsement for what was once considered a revolutionary <a href="https://blockworks.co/tag/governance">governance</a> system — a decentralized autonomous organization or <a href="https://blockworks.co/tag/dao">DAO</a> — particularly coming from <a href="https://blockworks.co/tag/makerdao">MakerDAO</a>’s founder.



Christensen spoke to Blockworks in an interview on the <a href="https://www.youtube.com/watch?v=supK6P3DJIA">Empire podcast</a> about his disillusionment with DAOs before going on to explain how he plans to rejuvenate the MakerDAO platform in a series of upcoming phases.



<h2 class="wp-block-heading">A toxic crypto cocktail</h2>



MakerDAO — mostly known for its stablecoin <a href="https://blockworks.co/price/dai">DAI</a> — started out as a “hyper-libertarian project” in 2015, Christensen says, but “at one point,” he says, “I just wrote off DAOs entirely.”



After crypto’s bull market subsided, the connection in MakerDAO’s structure between paying out money and getting actual results disappeared, Christensen says. “Increasingly, it was a question of politics — of who&#8217;s getting paid, not so much what&#8217;s getting paid for.”&nbsp;



Combining internet anonymity with speculation and “crypto craziness,” he says, ended up creating an “insurmountable toxic cocktail.”



Christensen says putting a bunch of people in a room with a high-stakes money game will inevitably devolve into “insufferable politics.”



“And the only people who want to play it are the people trying to exploit it.”



What’s worse, the founder couldn’t even leave without collapsing the system he had worked so hard to build. <a href="https://blockworks.co/news/makerdao-votes-against-a-more-streamlined-leadership">Voter apathy</a> meant he was one of only a handful of major holders actively involved in making decisions. “I would lose everything, right?”



<h2 class="wp-block-heading">The Endgame update</h2>



The solution, according to Christensen, is to understand human nature and build mechanisms around it, as he has planned in MakerDAO’s Endgame update. Like a democracy, DAOs can be messy, he says, but it’s the “least bad approach.”



The Endgame update, described on Christensen’s <a href="https://forum.makerdao.com/t/the-5-phases-of-endgame/20830">post</a> to the MakerDAO forum, uses <a href="https://blockworks.co/tag/artificial-intelligence">AI</a> tools to create a “governance equilibrium,” enabling the “permissionless growth of SubDAOs” and “parallelized product development” in a “community-driven ecosystem.”



The goal in the next few years for the Endgame project is to build “the most widely used <a href="https://blockworks.co/tag/stablecoin">stablecoin</a> project” that is “anchored in an autonomous and vibrant DAO economy.”



The “silver bullet,” Christensen says, is rules, documentation and processes that ensure system resilience. “That&#8217;s also how a country and a democracy works, right?”



<h2 class="wp-block-heading">The most powerful tool of slavery</h2>



Creating a successful alternative to centralized governance structures and currencies is critical, according to Christensen. “<a href="https://blockworks.co/news/fednow-cbdc-save-us">Centralized currency in the age of blockchains</a> and artificial intelligence is the most powerful tool of slavery you can possibly imagine.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG7949484564" width="100%"></iframe>







DAOs, decentralized currencies, open-source programs, artificial intelligence and <a href="https://blockworks.co/news/blockchain-advocacy-congress-legislation">blockchain</a> are all tools that can’t be ignored, he says. “We have to fight for the future of how society is fundamentally structured,” he says, “and this is what&#8217;s available to us.”



“It&#8217;s the most important and most interesting challenge possible.”



The biggest risk to the system, Christensen says, can be generalized as an execution failure — that a resilient political dynamic in the form of a DAO turns out to be impossible.&nbsp;



“And that may be some kind of law of nature, in which case, Endgame isn&#8217;t going to work.”



If that happens, Christensen says, “no other DAO&#8217;s going to work, either.”



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MakerDAO Founder: Decentralized Currency Can Prevent Monetary Enslavement

MakerDAO is making strides toward Endgame, a detailed plan designed by its founder Rune Christensen with the hopes of improving governance.



Being one of the largest DeFi protocols, MakerDAO has been forced to navigate the complicated world of scaling and internal politics — which are faced by many startups that are transitioning into their growth phase — all whilst trying to remain decentralized.



According to <a href="https://forum.makerdao.com/t/the-5-phases-of-endgame/20830">the latest forum pos</a>t by Christensen, Endgame’s short-term goal is to ensure that MakerDAO’s stable token, DAI, becomes one of the most widely used stablecoins within the next three years without sacrificing governance equilibrium.



He proposes that to achieve this, Maker DAO must launch following Endgame’s comprehensive five-phase roadmap.



<h2 class="wp-block-heading">Phase 1: Beta launch</h2>



The first phase of Endgame will be establishing a new unified brand with its own stablecoin and governance token separate from DAI and MKR, Christensen said.



“Maker and Dai are established and trusted brands in the cryptocurrency space. Unfortunately they have drawbacks, including having two separate brands rather than a single cohesive concept,” he said.



The Accessibility Governance Process is currently working on redesigning MakerDAO with the ultimate goal of resolving fragmentation by creating a new, unified brand.



DAI and MKR token holders will have the choice to remain holding the tokens or upgrade to the new stablecoin and governance token, Christensen <a href="https://twitter.com/RuneKek/status/1656731619753852951">noted</a>.



<h2 class="wp-block-heading">Phase 2: SubDAO launch</h2>



Following the Beta Launch will be the creation of six Maker <a href="https://blockworks.co/news/are-subdaos-the-future-of-dao-governance">SubDAOs</a>, each one with its own governance tokens.



SubDAOs are designed to function independently from Maker, but are tied to the protocol through its mission.



“By delegating day to day complexity to SubDAOs, MakerDAO significantly streamlines the workload and complexity that Maker Governance needs to manage,” Christensen wrote.



<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">Phase 2: SubDAO Launch follows some months afterwards with 6 new SubDAOs and 6 SubDAO token farms available for NewStable users. All initial SubDAO tokens will be distributed through these farms only. NewStable users can freely choose which to farm. USA &amp; VPN IPs are ineligible.&mdash; Rune (@RuneKek) <a href="https://twitter.com/RuneKek/status/1656731623478513664?ref_src=twsrc%5Etfw">May 11, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<h2 class="wp-block-heading">Phase 3: Governance AI tools launch</h2>



Designing tools using AI for governance will be the third phase of MakerDAO’s Endgame.



The purpose of these tools will be to improve “Alignment Artifacts” which will guide the governance experience and improve processes over time without needing a centralized leadership.



These tools will be designed to be open source, Christensen noted.



“This both helps MakerDAO improve its own Governance AI Tools while also delivering on it’s public good purpose,” he wrote.



<h2 class="wp-block-heading">Phase 4: Governance participation incentive launch</h2>



The launch of the Sagittarius Lockstake Engine (SLE) will be the fourth phase of the Endgame plan.



This engine is designed to ensure the token holders of the new governance token will be actively incentivized to participate in governance.



Tokens are designed to be delegated to aligned voter committees and will be executed through “a user-friendly, gamified frontend for easy access,” Christensen said.



<h2 class="wp-block-heading">Phase 5: NewChain launch and final Endgame state</h2>



Launching a rebranded new chain will be the final stage of the Endgame State.



In this state, it will be difficult for major changes to occur in this state, Christensen notes. This means that MakerDAO’s core processes will be balanced, decentralized and sustainable “forever.”



This new chain is designed to be the hub of all backend tools operating MakerDAO.&nbsp;



“This means that on Ethereum, NewStable and NewGovToken, as well as Dai and MKR, will continue to function as normal, and the only change will be that they will be protected by a governance backend that operates through a secure, state of the art bridge,” Christensen wrote.



A new feature that Christensen is particularly excited about is the ability for the chain to hard fork in the case of “catastrophic governance disputes.”



“This provides a final level of governance security to users, businesses and protocols that rely on the Dai Stablecoin and NewStable, which ensures even the most extreme governance attack scenarios will only have a minimal impact on their user experience and will not put their funds or their stability at risk,” he said.



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Takeaways From MakerDAO’s 5-phase Endgame Update

Community governance recently <a href="https://blockworks.co/news/makerdao-makes-first-steps-toward-endgame">approved</a> MakerDAO’s newly proposed constitution, an important step toward Rune Christensen’s “Endgame&#8221; plan, and many changes can already be observed in the community.



Part of the project’s Endgame is to transition existing Maker core unit teams into <a href="https://blockworks.co/news/are-subdaos-the-future-of-dao-governance">metaDAOs</a>, known also as subDAOs, which will each have its own governance token.



As part of the transition, <a href="https://blockworks.co/tag/makerdao" target="_blank" rel="noreferrer noopener">MakerDAO</a>’s existing protocol engineering core unit will <a href="https://forum.makerdao.com/t/protocol-engineering-core-unit-transition/20327/4">disband</a> by the end of the month and move into the new operations framework. Many engineers will also be leaving the team. 



Sam MacPherson, a protocol engineer at MakerDAO, explained to Blockworks that none of this should come as a surprise.&nbsp;



“Maker is undergoing a lot of changes to prepare for the next phase of decentralization. Rune&#8217;s Endgame plan has passed the governance vote, so Maker is being split into smaller DAOs,” MacPherson said. “Naturally, this involves people shuffling around to different positions, some new people joining and some moving on to other things.”



Although there are members that look forward to the transition, others are not so excited about the changes.



In an interview with Blockworks, MakerDAO delegate Mika Honkasalo noted that it is difficult to determine whether Endgame will change MakerDAO in a way that makes the platform unrecognizable from what it once was, or if the DAO will simply continue to move forward.



“I think one of the things, if you read the Endgame materials, is that they’re very difficult to understand…it’s a wait-and-see process of understanding how much things actually will change,” Honkasalo said.&nbsp;



One concern that Honkasalo noted was the dilution of <a href="https://blockworks.co/price/mkr" target="_blank" rel="noreferrer noopener">MKR</a> that would likely come with the introduction of metaDAOs. MKR is an ERC-20 token used for governance and utility at MakerDAO.



“The token economics is strange, and I don’t feel like it does anything interesting…it dilutes existing token holders,” Honkasalo said. “Rune would disagree with that, but I think it just makes Maker a potentially unreliable business partner.”



Despite his concerns, Honkasalo noted, “We’re just going to have to see how it goes.”&nbsp;



Honkasalo became a MakerDAO delegate after being a fan of the protocol for a long time. He believed that it could help shape the direction of the protocol at a higher level and make strategic contributions.&nbsp;



But, he notes that the recent process has been difficult, as many decisions around Endgame have very much been driven by Christensen.&nbsp;



“Besides a couple of funds, it’s been a struggle to get a lot of the large [MKR] holders to be active in [governance],” he said.&nbsp;



Another concern Honkasalo raised is the push to rely more heavily on on-chain assets to back MakerDAO’s stablecoin <a href="https://blockworks.co/price/dai" target="_blank" rel="noreferrer noopener">DAI</a>.



“I understand the perspective that in the long term, it needs to be fully decentralized, but I don’t think that’s how this [stablecoin] tech can win,” he said.&nbsp;



Emphasizing the importance of integrating with real-world assets, he said, “You need to integrate with the real world — and not this cyberpunk thing that Maker is preparing itself for.”



Specifically, Honkasalo noted that if DAI were to be completely backed by assets such as ether (<a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a>) or bitcoin (<a href="https://blockworks.co/price/btc" target="_blank" rel="noreferrer noopener">BTC</a>), which are volatile assets, there would be very little difference between holding a DAI stablecoin and these other assets.



“The product is only popular if it&#8217;s actually stable, and if it&#8217;s not stable, you might as well hold ETH,” he said. “There are other protocols that will serve those real-world asset needs in a more balanced way, without these very extreme ideas.”



Despite his criticism, Honkasalo said he is still happy to be proven wrong.



“I understand the need for change, and that’s one of the reasons why it may end up being a good thing…we just cut the fat and the extra stuff and restart with a leaner, bettered structured team…we have these weird token economics, but that ends up being fine,” he said. “That’s the positive case you can make here.”



Ultimately, the next few months will be an important time for Honkasalo, as it will help him reconsider his position as an MKR token holder and whether or not he wishes to remain a delegate.&nbsp;&nbsp;



“The changes that are being proposed are ones that would make me think to sell my entire position in a way,” he said.



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MakerDAO’s Endgame Is Making Some Delegates Uneasy

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 class="wp-block-list">
<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 is-layout-flow wp-block-quote-is-layout-flow">“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 class="wp-block-heading">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 class="wp-block-heading">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 is-layout-flow wp-block-quote-is-layout-flow">“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 class="wp-block-heading">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 is-layout-flow wp-block-quote-is-layout-flow">“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 class="wp-block-heading">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 is-layout-flow wp-block-quote-is-layout-flow">“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 is-layout-flow wp-block-quote-is-layout-flow">“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 class="wp-block-heading">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 class="wp-block-heading">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 class="wp-block-heading">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 class="wp-block-heading">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’

<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 class="wp-block-heading">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 class="wp-block-heading">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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