Debating the MakerDAO Endgame | Vance Spencer, Mark Phillips, and Hasu

Transcript

like what's the demand to hold die and fundamentally it comes kind of from the differentiation to other stable coins right so when I borrow in defi or anywhere in crypto I always borrow from maker because it's the most tax officient has the best rates period why is usdc growing why is usdt growing um but why why is D really flat for a long time and I think the yield itself it cannot just be the answer what's up everyone welcome to back to another episode of zerx research March is just around the corner and I want to make sure to give you a quick reminder to not top tick your prices of your D London tickets if you use codes 0x10 at checkout you can lock in a 10% discount on your ticket don't miss out

on your chance to get ahead of the curve I'll see you in London before we get into today's episode just a quick disclaimer the views expressed on this podcast by either myself or any guests are their personal views and do not represent the views of any Associated organization nothing in this episode should be construed or relied upon as Financial technical tax legal or other advice all right let's jump into the episode what's up everyone welcome back to another episode of zerx research we have an awesome episode lined up today I got a little bit of an All-Star cast we got brick co-hosting with Mark from steak cows fans from framework and hu who needs no introduction today is Friday March 1st as of recording and as a reminder you can use code0x research10 at app. blockworks research.com for 10% off your annual blockers research

subscription uh so today we're going to be talking about makerd stay C put together a incredible report 50 pages long hopefully we can link to it in the show notes for people to read it but uh Mark do you maybe want to kick us off and explain just kind of how maker Dow works at a high level so the listeners have a an idea on that yeah so maker is a two token system and with mkr being the governance token and dve being the stable coin it was one of the you know first stable coins that kind of came on the market and that's what really you know caught my attention uh I got into crypto and kind of like mid 2013 when I saw Bitcoin on cmbc and it was ripping from like you know double digits to you know triple digits that

time which was you know an astronomical move for someone that had only kind of seen you know Equity like returns and you know found the white paper and became super interested in in Bitcoin and crypto um fell a little out of love with it during the you know hard Fork Wars with Bitcoin cash on the big block debates um but then later in you know 2017 uh became much more interest in crypto again with uh discover discovering about ethereum and that kind of Bitcoin Journey led me to uh maker where I always knew that a stable coin would be super important in this ecosystem just seeing how volatile Bitcoin was and the common you know

criticism of it was that no one would use it if it was unstable especially if it's appreciating constantly you know you don't want to spend a currenc that's appreciating constantly against you know your native currency so um you know maker was one of the few ways to you know get exposure to that stable coin thesis the time and uh that thus kind of began my journey with uh with maker do you maybe want to go into like how it works at a high level just because there's a lot of new people maybe coming into the market who don't fully understand and Maker's kind of evolved pretty drastically since since the beginning so maybe you know the die issuance Peg stability ensuring protocol solving see those kind of things yep so so D is an over collateralized stable coin um you

basically lock up Crypt native collateral unless you did in the first version and you mint uh die the stable coin against it um you know the over collateralization ratios depend on the collateral you know the more liquid and stable particular collateral is like eth SE e generally you have lower collateralization uh ratios and maker you know charge a stability fee which is often compared to you know an interest rate um for for that that's kind of how it ACC crws value um you know a lot of the stability fees go to creating a surplus buffer or kind of like a bad debt Reserve so the event of you know downward Market volatility uh when vaults are liquidated um the you know

die users are protected because there's you know cushion to basically absorb that bad debt um you know maker started with just eth as uh collateral uh and it was you know single collateral die then evolved to multic Collateral die where it could basically use any rs20 is collateral um so that basically led to you know rap Bitcoin being onwers collateral um and a whole slew of other altcoins and different uh types of tokens including dv2 uh LP tokens um where which are pretty much gone at this stage of the game but um you know back then it was kind of thought that you know you could onboard any type of collateral uh to maker at the E20 standard but the the reality was is the

markets kind of Pumped especially e and gas cost is explo gas cost explode um the Oracle cost became super high relative to you know the total liquidity of some of these Alin assets so now makers kind of shifted back into these you know Blue Chip collaterals like eth uh Ste and rap Bitcoin and also you know big uh theme in 2023 especially was you know getting into the real world asset game more heavily yeah maybe on the topic topic of uh real world assets like I would be interested to hear everybody's opinion on kind of changing the collateral type to a more like liquid version because of course it's easier to sell e than it is

to sell like the sof chain bonds uh do you guys think that there could be any like liquidity troubles there at some point and yeah what's Z our opinions on like maker going more into this RW this yeah I mean I think a good correl are of this was was Ste back in the day uh probably like a year ago um and you know I think people were worried pretty much across the board that you know there wasn't enough liquidity in the curve pools to absorb any sort of liquidation style Cascade of that collateral and like that just frankly wasn't true um ditto usdc um when it dep pegged and I I think what we've learned is that there's always kind of a market for various coll

Al types as long as they're not like Whit listed uh in terms of like only specific people can bid them um when things you know turn South uh and so I'm not particularly worried about them getting into uh you know collateral types especially on the fixed income side that could get them into trouble um I think there's basically infinite scale and infinite people who would bid that on chain and you know even the larger firms the larger market makers would allocate significant portions of their balance sheet to something like that if it were to happen the thing that I'm kind of like most interested in is um liquid reaking tokens lrts are going to become very zy in terms of collateral that people want to have accepted when you can yield like

theoretically at least 30 or 40% uh and you can borrow at seven like that's just going to be this natural carry trade that people put on and I think the lrts are kind of like this other bucket of it's kind of hard to tell how much risk they are it's kind of hard to tell what the slashing conditions are um and it could you know get swirly if uh if there is like this kind of cascading slashing uh moment and so like that's kind of more of what worries me over the you know medium term is uh not like you know the t- bills like those are totally fine in my mind but um kind of the other side of the Crypton native Spectrum yeah so um the solvency like managing and the

solvency and liquidity for maker is one side of the coin to your question right brick but the other is what choice does maker have because when you look at stable coins then they are fundamentally constrained in two ways right um they are they are constrained on uh on the demand side by the interest of people to hold the coin and on the supply side of the willingness of the people to borrow the coin into existence and so this is a fundamental concept of all stable coins that I we can talk about more but every single unit of die basically and every every single unit of everything like every stable coin needs to be borrowed into existence by someone and um when you uh you used to have the situation in the past where um when you have more

demand to hold the coin than to created it through borrowing then the coin just dep packs upwards right and it trades above one $1 and this was the case for a long time for maker so there was more demand to hold the coin than to create it and uh there there just isn't enough demand um to borrow uh like a St coin into existence only against crypto collateral so we've seen that and like we've seen many instances of that I mean like no no stable coin that that relies on crypto collateral can get to a meaningful uh Network effect to a meaningful size right and so uh if maker wants to ultimately play kind of in the

league with usdc and tether then it has to get big right like makeer either gets big or it it doesn't make any sense at all right and so uh because money is a network effect and so um in order to get big it it needs to be scalable on the supply side and the only way you do this is by you know accepting as much collateral as you can within the constraints of this really you know liquidity and solvency uh optimization problem well let me ask you this then do you think um at the point where the protocol is right now um how the T bills are acquired where like it takes a few days to maybe

move funds to the offchain entities and then for the offchain entities to like buy the t bills and then let's say there is a situation where the T bills would have to be sold early to like because you have so many redemptions um do you feel that yeah this structure that maker has in place right now could scale like 5x 10x or do we need some kind of a like development on that side um so I mean fundamentally it should scale fine um what you're describing is kind of the difference between two very important Concepts uh in stable coins and in banking in general uh which is the difference between liquidity and solvency so solvency means that every

unit of die that is outstanding is backed by a loan uh you know of of like more than one: one ratio uh and so uh but the difference to liquidity is that um you know it cannot necessarily be redeemed uh right at the moment when you want it you know and then you can have the potential for uh a bank run leading basically to like sell the bank uh lead the bank to sell kind of its uh its assets at uh at fire sale prices um and in order so I mean really this shows us that the main constraint that a bank has is liquidity it's not necessarily solvency and so what maker does is it just keeps uh a bunch of D in or like

usdc so it keeps a bunch of usdc and like assets that it can sell immediately uh in reserve so it always needs to kind of manage its expectations of how many people want to withdraw even in the worst case in a given time period and have uh enough money uh or enough assets liquid to to pay out all of these depositors when when they come to withdraw so this is the fundamental constraint that they have and and so far they've done I would say really good job at managing that and even if uh you know there was a case where let's say you know two billion die wanted to withdraw uh at the same time then uh you not everybody can withdraw

but the coin is the is the solvent right it's like it's just that people may uh have to wait a little bit and the coin may also deack to the downside so maybe you know just people just want out and they want out now and then die trades at 90 cents for example but then what you see is of course people there's like a natural Arbitrage here where people know that if they wait one week then they can withdraw it for $1 and so they buy it and you know now at you know at a price that's nearly a dollar and then they can basically realize their profit so I mean I would say as long as the coin is solvent and does like a decently good job at managing its liquidity then uh it should be near infinitely

scalable yeah i' just add that maker getting a lot more sophisticated around liquidity as well you know historically it had a tremendous amount of liquidity in the usdc PSM which for those less familiar makers a peg stability module since you swap die for usdc at a one to one peg kind of s we talked about um but now makers uh kind of optimizing both for liquidity and generating return on the assets um and the excess demand for die and essentially what what we're doing now is taking onchain analytics and using that to to drive the asset allocation strategy it's something that uh is called asset liability management

and we're trying to do this using purely onchain data um so kind of looking at the liquidity demands of die historically and all the different Market Market factors um and assets that we have their duration basically um boils down to looking at like the duration which is like the liability side of duse and matching that with assets uh on the asset side um so historically maker been super conservative with know super short duration treasuries um it's you know had a a foray into um some kind of bespoke less scalable Grill asset vaults um those those generat like absolutely necessary to kind of get maker to the point where

it could at Peak onward over two billion of treasuries and in terms of like unwinding those treasuries we're down to like I think about 1.3 billion in treasuries now through the two primary vaults um and that's just showing that um you can shift that liquidity essentially from treasuries uh to um you know crypto collateral quite seamlessly and right now it's uh you know at the very beginning of what this is going to look like long term there's friction you know off and onchain but longer term you know we're going to see a huge wave of these tokenized treasury products and tokenized money market funds and that's going to make this process um almost

instantaneous long term so um you know maker kind of built this what we call like a dual engine structure where you have exposure to uh uh you know rwas and short duration treasuries during you know the bare Market Per where crypto rates are lower than uh us bills and then also uh the crypto collateral loans with the blue chip assets um where you can take advantage of those higher rates during the bull market times like now um so having this like kind of dual structure allows maker to become much less volatile in terms of like an earning uh asset and much more sustainable and resilient uh longer term yeah definitely agree with that um I would continue that by saying that or

as asking that this dual structure kind of then relies on the fact that there is demand for die um because otherwise of course you can't invest into the rwas and you don't have like crypto banking um what do you feel that will be the like main demand driver for D in the next let's say one to two years it's pretty obvious right it's it's looping Ste at the moment and then looping lrts in the future but I mean maybe this is a good you know transition point 10 game or we can keep you know hold on hold on Vin because I I do want to interject here so this not actually the case so looping is not uh is not a use case for die like because

that's you know when when people just want to like deposit Steve and they want want to borrow die to buy more Steve then at the end of that trade somebody else has to hold the D right and so that's why D really is like is fundamentally constrained by uh though there must be like a pool of people who who want to hold it right for some reason that's not leverage right so um and so it's a very good question no I don't disagree with that um and I think a lot of it also boils down to or at least the demand side is like is it a PSM model that persists into the future or is it an Amo model that persists into the future um is it a hard Peg at a

dollar as kind of mandated by the PSM or is it something that floats um because if it floats and if it you know kind of is a soft Peg then there's kind of like this new aspect of demand where you know like I think we're probably one of the larger users of die today um and we denominate a lot of kind of our our at least trading and activity in D and if you're going to sell us 97 Cent die like we're going to buy that um and that's kind of like this different source of of demand and so I I think it kind of depends a little little bit on on what the future holds and endgame is obviously going to be a large part of that in terms of how people think about the Peg and what that means for demand can I ask you a question can I take like

the interviewer seat for for a moment so why do why do you um with framework why do you hold die over usdc or usdt um I mean the difference between D and usdc in my mind is just the The Lending facility um and and we're large eth holders and it's the fastest cheapest most efficient way to borrow it also has the least tax consequences um and so if we go into a and we you know put in eth and we get a eth back that's a that's a taxable event for us d d and maker doesn't have that I think that's probably not super well understood um and when we have cash we

we put it in the DSR um you know and it yields 5% uh and so you know that's kind of how we currently think of of D but and you know I would say we're probably one of the larger users I don't want to like get too specific into like what our CDP is but like we're one of the larger users today um there's just really no facility like it and in the future you know with endgame farming it it kind of totally changes the equation as well where we're going to want more die to do this stuff um and as eth continues to run like we just have a lot more Capital to work with on the die side yeah yeah yeah so I mean I think this is uh this is in in many ways I

think this is like the most important thing to talk about which is What's the de what is really the different like what's the demand to hold die and fundamentally it comes kind of from the differentiation to other stable coins right and so I'm 110% with you on like the borrow side so when I borrow in defi or anywhere in crypto I always borrow from maker because it's the most tax efficient has the best rates period you know borrowing die is sakan kind of the best way to get leverage um it's to me the demand side I think where me is really constrained right now right and I mean if if like five billion like if there was five billion D more

outstanding then you know maker could easily put it into uh into T right um but they can't because people don't actually want to hold more die than than they want right now and I think it's very interesting to ask you know why that's the case why is usdc growing why is usdt growing um but why why is die really flat for a long time and I think the yield itself cannot just be the answer because I can get 5% 5.5% on my usdc on coinbase and I can get 7% on my usdc in a so why should I put it in in maker right like why should I put it in in the

DSi are it's like it doesn't make a ton of sense so I think the answer must be must be somewhere else like it must be in the network effect or in the decentralization or in the brand like people feeling more secure in die than something else and um and this is like a thing that maker has been neglecting I would say now for a long time like they've been that very focused on the supply side um and they've been very focused on the governance side and I would say almost for two years they haven't been focused on the demand side at all and you can see that in the supply outstanding so so may maybe uh just like my thought process at least

and and why we bought maker and and you know why we're bullish on it is I'd agree with you the status quo is basically like the demand is the demand and you know they're rotating from Real World assets or t bills into you know crypto denominated back loans and like you know the the rate limiter for how big the protocol can get is kind of like how much do you want to draw out of the T bills and use to finance these crypto loans um and so like why would you hold Dy going forward um in my mind why you would hold dye is to farm spark is to get Chronicle tokens is to get you know all of the different subow tokens that exist today and like you know you think of it this way um I think personally the subd Dows will come out around like if

you add them all up you know and all the tokens that will be given to maker it's probably going to come out around like four to five billion total like every single token that launches today is launching in a billion so just you know there's five of them add them all up four to five billion um 75% of that will go to die holders so let's you know make it you know we're going to five to okay four billion is going to go to die holders and you're going to give 25% of that out a year so there's you know over four years so there's four billion you give out a billion a year to all die olders to go farm it um and let's say they farm that at a rate of 10% so you probably have like you know five to 10 billion farming a billion of

incentives over the first you know few years and you know that's doubling the die Supply and then it's like a question of like can you get into this reflexive flywheel where like you're kind of giving out like the equity like tokens to get the die liquidity to go give crypto loans to people or frankly to eild loans you know do you do something with the PSM where you transition it into an Amo and you make it more of like a game for people like us like if if that game starts like we're going to really love to play it because we can just basically pay off our debt cheaply if it deegs to the to the downside obviously if it deegs the upside we have like a different problem but in an environment of rising die Supply that shouldn't really happen um and so you

know like I think the line of sight to like 10 to 20 billion die is pretty clear to me while these sub Dows are up and up and kicking basic basically but I think to your point like why do people hold usdc versus D I think a lot of it does have to do with The Branding of Dy Dy just sounds bizarre uh and if you have like a I don't I don't know what the new brand of maker is or what the new brand of the stable coin is but if it's like USD something I think you're immediately going to get a lot more people that will hold it um and and last thing I'll say I know I've been talking for a little bit um the other thing that I would say is like things like a and specifically onchain derivatives where like think about it

like this let's say Athena and maker partnered up and you know like a like a subow style relationship where maker gives die to Athena you know maybe they even give like s die to Athena they use that to go off and and you know basically on a synthetic style exchange you know short eth you know capture that funding rate like you don't have any like liquidity pressure on die you don't need to sell that like derivatives are kind of like this just natural supply syn for stable coins I think that could be another Avenue of growth and demand for stable coins broadly on chain so that's my perspective yeah I just add like one thing that's really interesting to me

about the subow launches is it's one of like the most like Fair launch systems that I've kind of seen my career in crypto and like what I mean by that is the vast majority of the supply is being uh emitted through these you know front-end token Farms where you lock up either die uh or mkr and the only way you can farm this token is by you know going down one of those two paths there's no you know pre-sale there's no you know VC investors there's no you know massive Insider allocation it's all being admitted to the community for people that want to participate in the ecosystem and as Vance mentioned like there is a I think quite a reflexive

nature of you know you need dire mare to farm this these tokens which you know if Vance's estimates are right it's going to put a ton of buy pressure and upward pressure on D Peg which will lead to usdc inflows which will be used to either um you know subsidize uh you know crypto collateral um lending or put into us treasuries so you know and then you have higher cash flows from uh that higher dice wi it's being allocated so um there could be somewhat of a you know significant growth through this process but a lot of the details are kind of still being worked through and it's kind of um you know we're not sure what the exact form will look like we've put a lot of detail on the report around the

existing uh Envision structure for how the tokens will be emitted um but there's a lot of thought being put into kind of you know how the value will flow kind of back and forth between uh mkr and the new subow tokens because on one hand like a lot of this Revenue was going to make maker core as it is today will be going to you know the subow in the future but uh you know to offset that you have um you basically require owning maker to to farm this effectively or die right so I think that'll kind of offset any you know price pressure from you know people wanting to get exposure to the subs by kind of being acquired to own mtrr or D to get involved one one last thing is that

there's going to be maker inflation too I think I think it's like 3% or something or maybe a little bit more than that but like you know you can think of it as subow come out hot people are farming them say there's like you know 10 or five billion more die farming them you've got 10 billion of D earning at about 6% per year so that's 600 million you know you net the DSR out of that you net all the costs out like you're probably like 300 maybe 400 million of Revenue at that or of earnings at that point that goes back to buying the maker token it goes higher the inflationary rewards are worth more you know that are going to die Farmers just like the makeer inflationary rewards so like a lot of the endgame plan is to like in my mind at least to make this

reflexive and you can kind of think of it as like kind of like reaking where it's like all these abss you know they're going to give tokens to eth holders and you know that'll do something for igen lay and it'll become like like all the things are kind of all kind of the same to me at least um and it's just a matter of like who has the best kind of like subow tokens and Spark alone is like e on defi llama at this point if that keeps growing like that's going to be a seriously valuable protocol um and it's just like amazing that maker has that in their ecosystem what's up everyone March is approaching fast and I want to give you another reminder not to miss out on Das London it is coming it's right around the corner and it's in March from the 18th

to the 20th we have three full days of content this is your chance to bump shoulders with some of the world's top Executives and have open dialogue with both attendees and speakers we're going to be focusing on a range of topics that I'll let Ren discuss for you first on the list we have Bitcoin Catalyst the Haring and spot ETF next we have a view from the buy side from investors on things like strategy portfolio allocation and more we also have a topic on Aras tokenization and stable coins which I think we can all agree are going to pay a large roow in crypto future we'll also talk about global regulatory Frameworks like compliance best practices and the evolution of global standards that are shaping the global investment landscape we also have someone from the institutional front to talk about infrastructure such as Banking and payments with financial

giants like visa and JP Morgan and last on the list their macro case for digital assets so don't miss out on this Monumental event seats are limited so be sure to register today by hitting the link in the description and using the promo code 0x10 to save 10% on tickets see you in London I think that'd actually be a good spot to maybe start more high level on the endgame plan maybe Mark since you wrote this really comprehensive report you can start there because I think a lot of people are still confused about what actually is the endgame yeah sure and I guess I'll just uh brief this by saying I am in no ways a maker endgame expert it's constantly evolving and even what we wrote um in the report is you know likely to kind of change as you know the end game

continues to evolve and and iterate um I know there's like a lot of thinking kind of like steel maning about how we can make this you know even better more sustainable more resilient more scalable um so you know take everything I say with a grain of salt but uh high level as maker dissolve the foundation mid 2021 and transition to the Dow um there were a number of teams that basically spun up as independent contributors called core units and I think kind of what ended up happening and leading to the end game was there was a kind of a lot of fighting over resources uh politically and uh I think run kind of saw this and wanted to create a better system to align in sentence with value

Creation in the maker ecosystem so um you know part of that is um by continuing to innovate and that's um sometimes odd with decentralization because to innovate you need to be centralized you need to move quickly you you make decisions fast and no maker is decentralized protocol is all about um you know kind of moving slowly and not um you know taking too risky decisions too quickly um so it's kind of created this run kind of created this new model where you start to aify and simplify the core and uh push the innovation to the subd Dows where they can you know kind of be like testing grounds and almost like um you know pure types of

allocation strategies so spark you see you know the the money markets protocol you know based off of ob3 but they've got you know a ton of new exciting features uh in the pipeline that um the team over there is super excited to unveil and I think I think some people are kind of um you know downplaying what sparker is doing even with the massive TV growth that uh Vance mentioned mention they've got you know a very top tier team and uh I think they're going to surprise a lot of people uh going into the back half of this year and next year um and also um on the subow side there's um the rwa subow and they're going to have a lot more autonomy and flexibility to do interesting and I

think very uh value um creative deals for mkr um but essentially this is supposed to kind of you know it does add complexity now especially with all the rules and stuff being created all the tokenomics and value flowing back and forth but um long term the idea is basically you know simplify aify make core push Innovation to the edges and then you know scale successful uh Innovations and creative products that actually end up working um to continue to grow the makeer ecosystem there's also something in there about uh the mkr token and like value cruel redesign can you speak to

that a little bit Yeah I think uh you know maker is basically kind of underwriting the subd Dows it's extending you know essentially like a line of credit through through di minting um and the subd would basically have to follow certain rules um outlined in the the stability scope which is one of the five kind of SC core scopes of the endgame plan um and so uh I think maker kind of M maker kind of like is giving away some value quote unquote because um you know you're emitting the vast majority of these new new tokens to the the community right so um that value though is kind of staying

in the ecosystem because the subd Dows um are incentivized to own mkr uh LPS um like mkr paired with the subdab token uh called Elixir um and so there's going to be by back pressure um from the subow MK pair into subd Dows um and that'll lead to more I think value curing back to mkr um but again like a lot of the kind of value flows are I think still being finalized um but I would definitely encourage anyone that owns mkr to kind of understand how the toomics work and if they have feedback you know get engaged in the community because everyone in the community is trying to work towards making this more you know

sustainable and scalable um obviously there's some you know risk we don't want it be to be like too boom bust we want it to be you know booming and sustainable uh growth so um yeah hoping that a lot we wanted to bring a lot more visibility to kind of what's going on with maker in this report to kind of lower the barrier to entry uh to participating in the endgame which is I think race uh temporarily the barrier to entry and maker you know Dows are already super complex places to operate and and you know one of kind of our Missions at Stakehouse is to uh Pioneer open and transparent finance a big part of that is the transparency visibility into what's going off these big Dows and

protocols and you lowering the be entry to participation if we want Dows to actually be successful long term like we need more Broad and diverse opinions and engagement in the Dows yeah I kind of want to zoom in on the whole subow structure because or actually this goes out to Hu um I know you've been quite vocal about um the structure maybe having some inefficiencies or other problems would you like mind kind of assuming you on that then yeah sure so I I've been a vocal critic of the endg game plan I would say and but I want to carat that by saying that I'm uh I've been an mkr holder for a long time and I'm I'm still

a significant uh holder and so I'm I'm overall like very bullish on on the project and its potential uh it's just that I don't agree um with everything that that kind of happens and so um so the I mean Mark was basically giving I think a very good uh representation of what are really the uh the positives of the endg game plan so um creating kind of a narrow Dow uh at the core um that's easier kind of to oversee and easier to manage and and easier to secure I think that's very positive and pushing uh Innovation to to the edges um

so that's that's the part that I I really strongly agree with I would say um I think the the downsides of the plan and how it was executed is basically four different things so I think one um it actually has been creating more complexity uh rather rather than simplify and so this might be a temporary thing right but as of today I think you know end game is extremely difficult to to understand and uh I think it just ends up increasing uh kind of the complexity of the project and you know increase the risk surface number two uh as a result of this huge overhaul I it really like slows down um the protocol in many ways right there

there's there's many things that could have been built that that haven't been built because maker is so inwardly focused on governance instead of outwardly focused on its users and so that's going back to the point that I was making earlier that for two years mea hasn't really been focused on die holders at all so they turned on the DSR great okay but that's like a oneline change you know um there's there's a million things that that could be done to make die more liquid more accepted make it more useful for example as like a payments vehicle or savings vehicle or make it easier to buy for different like groups of of users Etc all of these things that could have been done that haven't been because now we are focused on the end game and

St um so that's I think the like the opportunity cost of it and um number three is I would say the way that that it was done because kind of the end game I mean maker is uh is a very vibrant uh Community it's it's probably like after um in terms of on the application layer I would say it's the app that has kind of the most diverse and most decentralized and most Vibrant Community of people who really strongly care about the project and kind of want to work at it right and um the way that the kind of the end game was executed kind of politically the way that it was isoled on um not necessarily like to anyone's fault but it was very uh controversial I

would say and it ended up pushing out a lot of community members and basically fracturing uh the community um and then the final one is like I'm not a big fan of actually um creating like all of these uh subd Dows and like subow tokens to me it seems like it uh creates a lot of unnecessary risk for a project that that's operating like on on people's savings and so I think when you want to be like the most decentralized and conservative stable coin then one of the last things that you should do is like launch like a ton of speculative tokens for people to gamble on so um I know that I'm uh I have a very kind uh unusual opinion about that but yeah

that's why I think roughly speaking why why I'm on the most skeptical side Vance do you have anything to add on the end game any opinions no I mean frankly like we we kind of got in after we we bought our maker uh after kind of all the political imaginations happened um and yeah I can't I can't speak to any of that I do think like process of elimination how do you grow die uh you know there's not infinite ways uh and tokens and and subd Dows that are successful are basically in my mind kind of like the only way to increase die liquidity or at least you know like real liquidity for die to fund either crypto

loans or rwas um and like I think the the endgame plan is pretty coherent and it's just like a summation of lessons from prior Cycles it's like redenomination will get more people more excited about you know maker which will cause it to go up and you know the inflationary rewards are worth more okay check you know it probably needs a new brand maker and die doesn't make a ton of sense and nobody wants to hold a stable coin that doesn't have USD in the name all right that makes sense too it's like subd Dows you know like giving away tokens as I said it's like the best way to grow this ecosystem and um I think also in the same way that you see people like gravitate towards like things like

reaking you know projects that want to be abss naturally um there's also that plus like a real economic use case for being a subow you get to request infinite amounts of die obviously um it needs to maintain the peg you know and whatever that looks like be it a PSM or AMO future um needs to conform to that and then I think there's also kind of like you know things about the PSM versus an Amo that are going to be included in the endgame I don't know what the the timing or you know frankly like final decision on that has been but um I think it's better to have it be a soft Peg stable coin so I think there's a lot there um I also think like the AI focus is obviously going to be very zeitgeisty if if maker becomes this like AI chain um and

launching its own L1 like a lot of the things that made coins popular Rune is kind of internalized and put down on paper and I totally you know understand people being either you know really Pro runes leadership in guidance or like frankly very anti- runes leadership in guidance my perspective is like let Rune cook um like we didn't buy maker to like come in there and make all these political decisions and you know all that stuff like the founder is the founder is the founder and he's like kind of the only person that can re accelerate the trajectory of die and obviously there's good and bad with that but we're here for the ride and I agree with the general plan as it stands um I don't think there's like too many other

alternative plans that you could go after yeah I mean when you say like let him cook I mean I agree with that I think that uh this is one reason why uh I mean I had my own kind of proposal for what maker should do but when I saw that I mean for me it was more important that kind of maker as one C in Direction rather than you know that I'm right or that like My Views are basically the ones that you know end up uh you know defining makea direction right and so um yeah I I think this is like the if you had asked me like two years ago okay what's like the biggest uh the biggest problem in mea it's a lack of vision right and it's a lack of direction that that kind of comes from that vision and

so of course I would have preferred a different Vision you know I was like but the fact that it has a vision and the vision as you say is like it is pretty coherent I would say um like internally uh that's good right and that's that's like a big reason why in spite of disagreeing with the vision I'm like I'm still I'm still bullish on maker and like I'm still you know willing to uh to invest in it and so on and and I've I've read some of your posts from back in the day like it does seem like there was some shared vision of some of some sort at some point um and you know turning off like core contributors is not what you want um the same time that's kind of like

life in the NFL you know it's like strong will founder has a vision like it is what it is and um kind of any way you slice it behind eth and Bitcoin uh and maybe Unis swap now like maker has the most amount of fees and it has a path to you know triple quadruple maybe even 10x them if if these if these subd Dows really do well and I think a lot of it is like how do you get the market to interpret this more favorably um because you know the bigger the coin is the better the chance you have the more inflationary rewards the more the subs are worth like it has this whole like circular reflexive thing going um and I think if run does what he says he's going to do it's going to work

uh that that's my sense at least um and yeah I mean it'll be interesting to see over the years how these subd Dows do CU these are only the first five you know there's supposed to be a lot more like imagine you know maker incubates like a DA layer you know these things like worth like 20 billion now it's like okay cool we'll give those tokens away to to die farmers and you know maybe an L2 and maybe all like there's all these things that you can do if it's under the banner of maker um to incentivize die Supply and I don't think it's worth going after usdc headon and being like we are a you know regulated you know blah blah blah whatever stable coin like I think of kind of maker is kind of this cross between like this gigantic AI driven hedge fund in in the future in the

fullness of time um and a stable coin and I think that's okay like the the worst thing you can do is try to create like a usdc clone like a pack stable coin it gets like you know $50 million dollar in inflow like that's just like not interesting like let's let's try to do something different that that's my perspective and endgame whatever you think of it is extraordinarily uh either different or strange or like very compelling um but I think it's I think it's like pretty cool so you know we're we're bullish whatever happened to the idea of like forking the svm and using that for for the end game like is that still on the table I'm I'm not completely caught up so just curious there CH changes like daily you know dep depends on who you ask but I think it's

like maker having its own chain is in the future probably like a couple years away if it's SPM or if it's you know something else based we'll see um yeah okay so it seems that there's or you believe that there's like a lot of the let's say maybe I need to um say before I say anything else that not Financial advice and don't trust me but like so maybe you're saying that in the future like more of the valuation will drive from like this flywheel type of action instead of um like currently where revenue and profits are super high uh because like the yeah the revenue isn't that cyclical right

now and then rwf have been a big driver so do you think that will flip where like now I guess maker is seen as one of these dyo coins from D5 1.0 and then the market will at some point realize that okay now this thing is getting interesting and we should just like buy the token I mean you know like the flywheel and then The Branding are the two things um Celestia has like $75 a day in uh in da fees and it's valued at 20 billion maker has you know 120 million of earnings per year and it's valued at two billion so it's just about changing the Market's perception of that and you know Maker's too expensive and the name is weird so

we need to change that and so like I think you can think of it as where are the fundament going you know that's going to be driven by endgame and then what is the multiple expansion going to be driven by it's probably like the redenomination and branding and these are not things that are native to crypto you know Tesla has done so many stock splits uh companies have changed their name and rebranded many times uh I think this is like a well-worn Playbook frankly yeah I think kind of what's unique to this transition to the endgame plan is that you kind of have like this you know spin-off or divesture of you know these piece P of maker and they're kind of like focused on very specific uh verticals you know the money markets

with spark and the rwa side with these other two uh new rwa Focus subd so if you want to kind of uh participate in those communities it's much easier to do so and kind of find find where you're going to go um you know on the flip side like yeah you need to own like di mkr to participate and that new value creation I think that's something that a lot of people haven't really uh understood yet so far one of the things we've kind of tried to do in this report is kind of lay out like the tokenomics they stand today in the in the maker Atlas so for subd Dows you know you start with 4.6 billion token Supply 600 million is for the workforce team the rest of the 4

billion is completely um emitted through the the Farms so 70% of that 4 billion is going to Thai Farmers 30% to mkr Farmers that's admitted over 10 years um heavily front-end weighted so a billion the first two years um a billion each year for the first two years then goes down by half uh every two years until the last four years which is the same uh emission rate I think a lot of people don't really haven't really done the math on kind of um how that'll impact the maker ecosystem um frankly like Mass was like really one of the few people that actually like mentioned that to me as you know uh like I spent a ton of time on maker and I don't think anyone that everyone that owns maker obviously has

the time to do that but you know especially if you're you know looking at allocating capital in the space you need to understand like what's going on with these Dows um I it's easy to kind of focus on like the new hot things and the the super high value valuations of stuff like Celestia but there's a ton of interesting things going on in like D5 1.0 uh tokens that I think people need to pay attention to um and and that's kind of one of the the things that we want to do with this report is kind of show some of the exciting things provide some more visibility hopefully make it a little more digestible than the you know peer documentation that exists in the maker governance FS um so hopefully uh yeah this was a step in the right direction one one thing that I just

think about as an investor um like the redenomination the lock staking the start of the makeer inflationary rewards probably sometime this summer like I think that's like a major Catalyst for people to wake up and realize this but the other one is the spark air drop that's happening in May and I think they're airdropping 2% of their supply uh at some point in May um and it's highly possible that the spark token fdv is worth roughly the same amount as maker when it comes out and like you know you think about it and it's like okay well they're going to give all these tokens to maker holders so like you should probably just add that expected value into your maker valuation whatever you think it's worth um but I think all of this starts relatively soon

and it's been a plan that's been two years in the making probably it's going to take long than people think but it's going to start being hard to ignore in the same sense that if you're holding a TIA and you get Dimension air drops like you're just baking that into the cake of what you think it's it's worth yeah I think that makes a lot of sense but I I do agree with hu in terms of like needing to actually ignite like organic demand for the stable coin like do you guys think maybe it's important for D to expand natively like on l2s or like what is the path forward for igniting that organic demand as opposed to just medium to maybe slightly longer

term given the inflation schedule but you know when you throw tokens in the mix it's ultimately not people who are there to stay yeah so I'd say that you know the organic demand is the literally the greatest challenge for anyone operating a stable coin and you've seen tons of new stable coins over the past you know year or two um many backed by you know Blue Chip protocols or or teams that have completely failed to gain any traction um you know D is kind of like an incumbent early mover has somewhat of a structural advantage over those and there's no like easy answer to generating organic demand it can come in like a ton of different ways um you know one thing that I maker is trying to do

is um to um you know was was with the turning on of the DSR so when the DSR is you know above zero and actually at a relatively you know attractive rate now people want to kind of integrate that into the you know defi Lego stack so yeah some people don't lock die in DSR directly but if you want to you know earn a stread even above the DSR you can put that in a lending protocol a money market protocol and earn even higher than the DSR um we want um you know die to be broadly integrated everywhere and that includes you know l2s um so um you know the big idea is that basically you know heavily incentivize integrating the

DSR uh everywhere um as much as possible this is kind of like a broad um strategy to accomplish that yeah I would agree I mean the the biggest low fruit for sure is like replacing Dy with s die so I mean this is the one thing where us where die would be actually differentiated from uh uh from usdc and USD because those are not I mean those you can get a yield on those that's comparable but um you can't get it on chain you know while while holding holding the asset in in a liquid way so I think this is this is one thing then obviously I mean how how how come you know you you can't easily Bridge die

between different chains you know why is that not possible why is it not possible for me to Mint uh die from collateral on other chains you know why is why is it possible to borrow it into existence from any chain why why isn't there like uh like a zero fee way of of teleporting like die like transferring die like a paypall like solution to like pay people with die at like no fee because it's like recorded in like make us interal lger Etc right there's like a million things you can do why is die why aren't there any pairs like denominated against D in defi or in in Ci or whatever right it's like why is there so few things that I can do with it and this is really like speaks to what I meant earlier

which is um the demand side for die is the much more challenging one and it needs a lot of active uh attention and investment uh in a very intelligent way in order to to grow this because yes you can kind of do this inorganic growth initiatives like you can you know try to create kind of reasons uh you know for people to hold die to farm something but every Farm eventually runs out of out of incentives and this is not something that you can keep going forever right um and so when you like take the five to 10 year look on maker then you realize you know the the inorganic things yes they can it can kind of be like you know

raising yourself up on your own boot like on your own bootstraps because uh like Network like money is a network effect and with network effect like the network is the value right and so maybe when when there's more Supply it automatically is more useful to people I think that's possible but there's also all of these other features you know really where D has the ability to differentiate and and like make a more useful Network that people can like use in different ways and I think this is where I would like to see uh much more focus in like the next one or two years instead of kind of this inward Focus hey like let's change the way that like our teams are and this is like this is I mean it's like almost this uh in a

startup where like the startup wastes you know all of its time uh like rewriting basically like their software STi for two years right and it like it doesn't matter right it doesn't end up matter because there's like another startup that like grows 10 times quicker at the time because they're focused on users and creating value and uh and I mean maybe they are like a like a like a a worse software stack but it doesn't end up mattering because they grow to a size where all of a sudden like the team that was so inwardly focused can longer catch up and I think that is the number one risk for maker it's like none of the other things it's like maker just being kind of too slow to uh to focus on users and like grow to a size where kind of its Network effect can kind of carry

itself um yeah I I would I would uh I agree with some of that disagree with some of that I I do think like I I think of it in terms of Milestones like I would argue the reason tether is so dominant is because tether is so dominant um it just has a natural Network effect of money and you know the more of it there is the more dominant you can be and you know the more dominant that can Propel you to potentially become and um I think Step One is like let's get to like 15 to 20 billion at di yeah and I think if these subd Dows do really really well um we can get there and like you can you can like imagine it you can kind of see it it's like you know there's 15 billion to die they're earning 6% on it that's 900

million of Revenue that's 600 million of earnings they're buying back the token it's going really well the subd Dows are worth a lot and you know obviously we're going to need to figure out what happens after the subow missions have after that that first couple of years um but like you know you in in life you kind of just you knock out problems as they come um and you know maybe die Supply crashes from you know 15 billion to 10 billion but like you have the chance to be more dominant at that scale than you do at five and yeah I mean it's it's so hard to tell why like I think about usdc going forward and like I kind of think they're in trouble um tether I think is a solid number one um but I think the

race for number two is much more interesting yeah I mean tether you will never like replicate tether because it's just like tether is like alltime like top 10 it's like so insane I mean the way that I mean but this speaks to like what D has to be doing against usdc right like the because tether like tether is what D should have B in many ways it's like this coin that basically created this huge Network effect inside China and basically was like this trade to circumvent Capital controls right and so in many ways it's the decentralized stable coin and it like wins in a way that a decentralized stable coin should win against the centralized stable coin like D should go where usdc can't and

Teta is doing that right now and like it's not clear to me that there's room like long term for another decentralized stable coin like not the way that it's like work working right now right and this is this is I think the big like d is in the middle like Stuck in the Middle right now between like usdc and like the highly I mean usdc endg game is to become like the US uh cbdc right um it's like it's it's it's just to Pivot into like a government coin and usdt end game is basically to be this decentralized stable coin that's like ungovernable right and what's the room for die you know between like this very centralized and this very decentralized and I think this is I see the end game and I see hey it's like a better Vision than it was two

years ago but still it's it's not clear to me that it's like a long-term defensible competitive position I I think they've got they've got like some tools in in their backpack whatever you want to call it they got the subd Dows they got the lending facility I think they've got the continued growth of crypto derivatives as something that like look if if funding rates are spiking and maker can just allocate die to something like an Athena where they don't sell the die it's just like kind of like this natural back stop like there's a few different Alleyways for them or few different pockets of growth for them to pursue um and I kind of think like usdc is just going to get picked apart by like the andos of the world and the tethers of

the world and like I would say they're more in the middle versus something like d which is pretty small has all these kind of like weird levers that it can pull and it has like a lot of potential to grow I think like usdc they they've had some inflows recently but like they're kind of still in trouble in my mind uh and the difference between usdc and D is that when interest rates go to zero usdc has no Revenue D has you know all the crypto loans that they can provision so it'll be interesting to see what happens but I don't necessarily disagree with you I think the prognosis is positive for maker just because they have these these tools in their pocket I think that's actually not true I mean die so usdc benefits the exact same way

from Lever from like demand to borrow against crypto it's just that like in maker it happens kind of in a more direct way because people can can directly deposit in the maker protocol and borrow like Dy to existence from that and for usdc that's just one interim step through kind of an Arbitrage trade because when when like the demand to borrow usdc from a against crypto for example goes up then that again puts like pressure to Min more usdc and usdc can basically charge money on kind of let's say you know uh the of that or something you know it's I I think it's it usdc still benefits it's like um but I agree I mean d basically has to find a way to to differentiate

and like to to have some kind of unique strategy and to me would make a lot of sense that it has to do something with with defi um and maybe like the rules tighten around defi I'm not even sure that that's bad for D just maybe because it like raises the hurdles for usdc more than it does for d i kind of don't believe it the way that kind of the the regulation is trending in in Europe and the us so I I think it's more probably going to be like pretty good for defi but um yeah definitely needs to uh find some things that you can do with die that that that are more difficult to do with with usdc all right I know we're up on time on the calendar so I do want to round

this out but does anyone have any closing thoughts any any bold predictions for maker da throughout the the course of rest this year that they want to share I'll leave the predictions to Vance dude I think my compliance officer would kill me if I started throwing out predictions so I'm going to probably sit this one out but yeah I mean like we're we're positive on on maker and die and um I think you know whenever endgame launches it's going to be kind of the first time that we can really even tell what what's going on but uh From the Rough schematics I think it's going to be very positive yeah I mean I'm uh you wouldn't believe it probably when you just hear me you talk about maker for an hour but um I'm very positive

about maker compared to like most other things in crypto um the the reason I'm critical is because I'm afraid that maker is uh kind of squandering some of its like enormous potential because decentralized decoin that is still the number one killer use case in crypto like in spite of a lot of other things that you're seeing this is like um Bitcoin and ether they are trying to be money but like do you know what is already like the the the kind of biggest adoption money in the world that's the US dollar and Bitcoin will never break that like that's never going to happen and neither is ether so the demand for usdc for for USD will always Eclipse uh kind of the demand for these more

volatile uh cryptocurrencies that are really like more kind of the gold I think of the digital Aid rather than kind of the money that people use to save and transact and so um and with the the world kind of becoming less uh you know globalist in a sense and like more kind of separating into like smaller smaller Pockets um that maybe don't have the the kind of cooporation of kind of the the P sigon area area that we are kind of coming from um the ability to have this shared uh you know medium of Exchange I think it's still enormous right so the the potential for a decentralized stable coin is enormous that's why I'm I mean I

would rather own like you know 1% of tether than virtually any anything else right and I think uh die like nobody can nobody can get like a piece of of tether but like you can get a piece of maker and I think that's that is still uh is still the bull case that like d can somehow manage to um basically become um you know the T that 2.0 leave leave it there yeah that was that was a good mic drop all right guys thanks so much for coming on I'll be sure to drop links to uh your socials in the show notes and Mark I will definitely drop the link to the steakhous report which everyone should read it like we said in the beginning it is super comprehensive unfortunately we weren't able to really

pick it apart super deeply on this podcast as was originally intended but hopefully you have a better idea of the endgame now and that will assist in your reading but fans howu Mark thanks for coming on we'll see you next time appreciate it thanks guys thank thank you bye hey everyone thanks for watching today's zerox research episode I wanted to take a second and remind you about an upcoming 2024 digital assets Summit in London this March seats are limited so hit the link in the description and use the promo code 0x10 to save 10% on tickets see you in [Music] London