# Introduction

MakerDAO is a leading decentralized autonomous organization (DAO) in the  DeFi (Decentralized Finance) space, offering decentralized financial services through its stablecoin, [DAI](https://en.wikipedia.org/wiki/Dai_\(cryptocurrency\)).&#x20;

In MakerDAO, decision-making is delegated to its community of **MKR governance token** holders, who vote on proposals to shape the organization's future.&#x20;

This case study examines the challenges and opportunities that arise from decentralized decision-making in the context of MakerDAO.

{% hint style="info" %}
This case study is part of the Innovation and Strategy in Fintech module taught by [Prof. Ying-Ying Hsieh](https://www.imperial.ac.uk/people/y.hsieh) for the Finance & Accounting program at Imperial College Business School.&#x20;
{% endhint %}

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Background

### DAI Stablecoin

<figure><img src="/files/Lp7KmOZ6cAIbhVC48clf" alt=""><figcaption></figcaption></figure>

MakerDAO was established in 2014 with the aim of creating a stable cryptocurrency that would not suffer from the price volatility seen in other cryptocurrencies. In 2017, MakerDAO launched DAI. DAI is a stablecoin pegged to the US dollar at a one-to-one ratio. The name is based on the Chinese character 貸, which can be translated as "to lend or to provide capital for a loan".

DAI is created through a collateralized debt position (CDP) system, where users lock up collateral (e.g., ETH) to generate DAI. In other words, MakerDAO takes collateral and issues DAI.&#x20;

Further, it does not rely on intermediaries or centralized authorities to operate or verify transactions. Thus, it offers transparent and trustless lending and borrowing.

### MKR Governance Token

<figure><img src="/files/IO9gLU3oveV8jrNffoOV" alt=""><figcaption></figcaption></figure>

What sets MakerDAO apart from traditional FinTech and many other DeFi projects is its governance.

MakerDAO's governance structure is based on a token voting system. Specifically, MakerDAO issues MKR governance tokens that provide holders with rights to access, control, and ownership.

MKR token holders can vote on proposals and changes to the system. This voting process is transparent and auditable, with all votes recorded on the blockchain. Token holders also share the profits and losses of the collective governance.

### Overview of Collective Governance Process in MakerDAO

<figure><img src="/files/fB0VPelMUJKN9DYdVXxw" alt=""><figcaption></figcaption></figure>

In MakerDAO, community participation is encouraged through forum, chat room, and other channels.

* Typically, stakeholders gather on the community forum to discuss and form proposals.
* Next, proposals are submitted to the community.
* This is accompanied by an evaluation process by other community members and dedicated Core Units or teams, which consist of paid contributors. This allows for a diverse range of voices to be heard and ensures that the system is responsive to the needs of its users.
* Once a proposal is ready, it will be scheduled for a vote during one of MakerDAO's governance cycles.
* If the wider community accepts a proposal, then it will be implemented as smart contracts or changes to source codes of the protocol.
* On the other hand, if a proposal is rejected, the authors of the proposal can try to resolve differences of opinions through further discussion to improve their proposal.

MakerDAO's governance process is designed to be transparent and inclusive, allowing anyone with MKR tokens to have a say in the organization's future. However, this decentralized approach also presents unique challenges in terms of risk assessment, decision-making, and coordination.

{% hint style="info" %}
Read more in [Additional Information on MakerDAO](/further-reading-and-resources/additional-information-on-makerdao)
{% endhint %}

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)\
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Case Questions

1. How does the decentralized decision-making process in MakerDAO differ from traditional decision-making processes in financial institutions?
2. What are the advantages and disadvantages of decentralized decision-making in the context of MakerDAO?
3. How can MakerDAO ensure that its decision-making process remains fair, transparent, and resistant to manipulation?
4. How should stakeholders in MakerDAO assess and mitigate governance and financial risks in decentralized decision-making processes?

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Simulation Exercise: Collective Governance Process in MakerDAO

**Overview of Simulation Exercise**

{% @mermaid/diagram content="graph TB
A\[Preparation: Group picks a stakeholder role]
B\[Exercise 1: Group researches their role]
C\[Exercise 2: Group investigates RWA collaterals in MakerDAO]
D\[Exercise 3: Group evaluates hypothetical RWA proposal and conducts risk analysis]
E\[Exercise 4: Group votes and predicts voting outcome]
A --> B
B --> C
C --> D
D --> E

```
style A fill:#f9d,stroke:#333,stroke-width:2px
style B fill:#fd9,stroke:#333,stroke-width:2px
style C fill:#9df,stroke:#333,stroke-width:2px
style D fill:#9fd,stroke:#333,stroke-width:2px
style E fill:#df9,stroke:#333,stroke-width:2px
```

" %}

Each exercise takes around 20 minutes to complete. Below are links to the four exercises in this simulation.&#x20;

* [Exercise 1: Understand and Choose Stakeholder Roles in MakerDAO](/title/exercise-overview/exercise-1)&#x20;
* [Exercise 2: Understand RWA in MakerDAO](/title/exercise-overview/exercise-2)
* [Exercise 3: Analyze Hypothetical Proposal to Onboard Additional RWA](/title/exercise-overview/exercise-3)
* [Exercise 4: Predict Voting Outcomes in Collective Governance (if time allows)](/title/exercise-overview/exercise-4)

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)\
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Exercise 1: Understand and Choose Stakeholder Roles in MakerDAO

## Objective

Choosing and understanding your role in collective decision-making in MakerDAO.

## Steps

1. Each group identifies  **2-3 preferred stakeholder roles** in MakerDAO.
   1. Submit your group's preferences via [Group's Role Assignment](/title/exercise-overview/exercise-1/groups-role-assignment#survey-for-groups-role-preferences)
   2. The results are posted in [Group's Role Assignment](/title/exercise-overview/exercise-1/groups-role-assignment#groups-assigned-roles).&#x20;
   3. Your group will assume the same role throughout the exercises.&#x20;
2. Familiarize with assigned roles using available data from:&#x20;
   * [Maker Governance Portal](https://vote.makerdao.com/)
     * [Polls (i.e., proposals)](https://vote.makerdao.com/polling)
     * [Delegates](https://vote.makerdao.com/delegates)
   * [Community forum posts](https://forum.makerdao.com/)
   * [Governance dashboard ](https://governance-metrics-dashboard.vercel.app/)
   * Other relevant data sources

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)\
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Overview of Stakeholders in MakerDAO

## Diverse Stakeholders

In the MakerDAO community, diverse stakeholders participate in collective governance by **introducing, deliberating, and voting on proposals**. Some notable stakeholders are:

* Traditional VCs (e.g., a16z)
* Crypto VCs
* Whales (e.g., Rune Christensen, co-founder of MakerDAO)
* Recognized (Constitutional) Delegates&#x20;
* Shadow Delegates
* External Parties
* Core Units

## Role-Playing Stakeholders

The resources below to help you get a quick understanding of the various stakeholders that you will be role-playing. Once your group has been assigned a role, feel free to use additional resources (e.g., community forum posts, tweets, and blog posts) to further enhance your understanding of the assigned role.&#x20;

<table data-card-size="large" data-view="cards"><thead><tr><th>Stakeholder Group</th><th>Representative Individuals and Entities</th><th>Quick Description</th><th>Useful Links</th></tr></thead><tbody><tr><td><strong>Traditional VCs</strong></td><td><a href="https://a16zcrypto.com/">a16z crypto</a></td><td>a16z crypto is a venture capital fund that invests in crypto and web3 startups. It is part of a16z (Andreessen Horowitz), a private American venture capital firm founded in 2009 by Marc Andreessen and Ben Horowitz. </td><td><ul><li><a href="https://medium.com/@MakerDAO/a16z-crypto-purchases-6-of-mkr-backing-stablecoin-vanguard-makerdao-ff410a692393">a16z crypto purchases 6% of MKR, backing Stablecoin Vanguard MakerDAO</a></li><li><a href="https://vote.makerdao.com/address/0x05e793ce0c6027323ac150f6d45c2344d28b6019#account-details">a16z account details</a> (MKR delegated, Voting History) </li></ul></td></tr><tr><td><strong>Crypto VCs</strong></td><td><a href="https://parafi.com/">ParaFi Capital</a></td><td>"ParaFi is a leading crypto-native investment and technology firm founded in 2018, focused on token, venture, and quantitative strategies." Wallet address: 0x4655b7ad0B5f5BaCB9cF960bbFFcEB3f0e51F363 (<a href="https://etherscan.io/address/0x4655b7ad0b5f5bacb9cf960bbffceb3f0e51f363">via Etherscan</a>)</td><td><ul><li><a href="https://vote.makerdao.com/address/0x4655b7ad0b5f5bacb9cf960bbffceb3f0e51f363#account-details">ParaFi account details</a>(MKR delegated, Voting History)</li></ul></td></tr><tr><td><strong>Whales</strong></td><td><a href="https://twitter.com/runekek?lang=en">Rune Christensen </a></td><td>Co-founder of MakerDAO. Wallet address is 0xf65475e74C1Ed6d004d5240b06E3088724dFDA5d (<a href="https://etherscan.io/address/0xf65475e74c1ed6d004d5240b06e3088724dfda5d#analytics">via Etherscan</a>)</td><td><ul><li><a href="https://vote.makerdao.com/address/0xf65475e74c1ed6d004d5240b06e3088724dfda5d#account-details">MKR tokens delegated by Rune</a></li></ul></td></tr><tr><td><strong>Recognized (Constitutional) Delegates</strong></td><td><ul><li><a href="https://vote.makerdao.com/address/0x0f4be9f208c552a6b04d9a1222f385785f95beaa#delegate-credentials">Flip Flop Flap Delegate LLC</a></li><li><a href="https://vote.makerdao.com/address/0x869147940842bb1aa4c40e60c5e583f4911f2e02#delegate-credentials">GFX Labs</a></li><li><a href="https://vote.makerdao.com/address/0xb4b82978fce6d26a22dea7e653bb9ce8e14f8056#delegate-credentials">coldiron.eth</a></li><li><a href="https://vote.makerdao.com/address/0xce25a4b126e2d661b8bfb01086695f378c1bcf0a#delegate-credentials">mhonkasalo &#x26; teemulau</a></li><li><a href="https://vote.makerdao.com/address/0x92e1ca8b69a44bb17afa92838da68fc41f12250a#delegate-credentials">Feedback Loops LLC</a></li></ul></td><td><p><a data-footnote-ref href="#user-content-fn-1">Recognized Delegates</a></p><ol><li>"must meet requirements for consistent participation in votes, and communication with the community"</li><li>"are compensated in DAI and are featured more prominently on voting frontends"</li><li>"act as a bridge between vote outcomes and other actors by actively and transparently communicating with the MakerDAO community." </li></ol></td><td><ul><li><a href="https://forum.makerdao.com/t/delegation-resources/13249">Delegation Resources</a></li><li><a href="https://forum.makerdao.com/t/delegates-main-index-dmi/10035">Delegate’s Main Index</a></li><li><a href="https://governance-metrics-dashboard.vercel.app/">Governance Stats</a></li><li><p><a href="https://governance-metrics-dashboard.vercel.app/delegates">Delegates Metrics</a> (participation, comments, etc.)</p><ul><li>Example: <a href="https://governance-metrics-dashboard.vercel.app/delegates/0x869147940842bb1aa4c40e60c5e583f4911f2e02">comments by GFX Labs</a></li></ul></li></ul><p></p></td></tr><tr><td><strong>Shadow Delegates</strong></td><td><ul><li><a href="https://vote.makerdao.com/address/0x088e83e4a9da7439aae0c56f3a9654865fb9698f#metrics">0x088E83E4A9dA7439AaE0c56f3A9654865fB9698F</a> (with Rune as the sole delegator)</li><li><a href="https://vote.makerdao.com/address/0xac3ee65f66bedb594a1edd874bfd88ff49fd13d2#metrics">0xAc3Ee65f66BEdB594A1EDD874bFd88ff49fd13d2</a> (with Rune as the sole delegator)</li></ul></td><td>"<a data-footnote-ref href="#user-content-fn-2">Shadow Delegates are permissionless, with no requirements or responsibilities beyond those they have agreed on directly with holders who delegate to them.</a>"</td><td><ul><li><a href="https://vote.makerdao.com/address/0x088e83e4a9da7439aae0c56f3a9654865fb9698f#voting-history">Voting History of Shadow Delegate 0x088E83E4A9dA7439AaE0c56f3A9654865fB9698F</a></li><li><a href="https://vote.makerdao.com/address/0xac3ee65f66bedb594a1edd874bfd88ff49fd13d2#voting-history\">Voting History of Shadow Delegate 0xAc3Ee65f66BEdB594A1EDD874bFd88ff49fd13d2</a></li></ul></td></tr></tbody></table>

{% hint style="info" %}
Interested in other stakeholder roles (e.g., Core Units, external parties)? Happy to chat during breaks and after class.
{% endhint %}

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).

[^1]: <https://manual.makerdao.com/delegation/overview/what-is-delegation#recognized-delegates>

[^2]: <https://manual.makerdao.com/delegation/overview/what-is-delegation#shadow-delegates>


# Group's Role Assignment

## Survey for Group's Role Preferences

Submit your group's role preferences [via this Microsoft Forms link ](https://forms.office.com/e/4q0YdD36dz)(Imperial login required).

## Groups' Assigned Roles

| Group Name | Stakholder Group | Stakeholder Name   |
| ---------- | ---------------- | ------------------ |
| Group 1    | Crypto VC        | ParaFi Capital     |
| Group 2    | Delegate         | Flip Flop Flap     |
| Group 3    | Traditional VC   | a16z crypto        |
| Group 4    | Co-founder       | Rune Christensen   |
| Group 5    | Delegate         | Feedback Loops LLC |

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Deep Dive into Assigned Roles in MakerDAO

## Recent Changes to MakerDAO Governance

Due to recent upgrades (i.e., Endgame plan) to MakerDAO's governance, delegates have received new addresses for their roles in the new governance system. As a result, for these delegates, **both old and new addresses need to be used to understand their voting behavior and their voting power.**&#x20;

Furthermore, delegates, grouped as five types of CVCs (Constitutional Voter Committees) are now **broadly classified into three categories (see below for details).**

<table data-card-size="large" data-view="cards"><thead><tr><th>Category</th><th>Example CVC</th><th>Core Value &#x26; Goal</th></tr></thead><tbody><tr><td>Hawkish</td><td><strong>KISS CVC</strong></td><td><p></p><ol><li>DAI, the decentralised stablecoin, is the product of MakerDAO and its main focus. It <em><strong>must</strong></em> remain stable, decentralised, open to everybody and uncensorable.</li><li>People with stake in the game are DAI holders and MKR holders. DAI holders rely on the key characteristics of DAI listed above. MKR holders have invested their own money in the project and <em><strong>must</strong></em> to be rewarded. The reward is, of course, primarily financial (value appreciation of MKR) but can also come in other forms: sense of stability and trust in the protocol, ‘status’ (if MakerDAO becomes trendy), sense of fulfillment if MakerDAO contributes to some good causes, etc.</li></ol></td></tr><tr><td>Hawkish</td><td><strong>Resiliency CVC</strong></td><td><p></p><ol><li>Resilient- MakerDAO ought to endure the test of time.</li><li>Privacy focused- MakerDAO ought to support both contributors' and DAI users' privacy.</li><li>Hawkish- For MakerDAO to improve DAI's resilience, the Surplus Buffer should be expanded and borrowers thoroughly screened.</li></ol></td></tr><tr><td>Dovish</td><td><strong>Growth CVC</strong></td><td><p></p><ol><li><strong>Anon / Time zone friendly.</strong> We will have a public CVC text place (whether that’s forum or email or others that are compliant) where CDs or others who want to share their suggestions and voice their opinions can send in to count as participation.</li><li><strong>Can be critical but be respectful.</strong> Just because we are in a CVC doesn’t mean Growth CVC should not tolerate any criticism. However, as a governance participant in Maker, all should be respected and foul plays (like explicit insults) won’t be received well.</li><li><strong>A Safe Harbor.</strong> While the banning rule from CVC to CD is not yet crystal clear, we will not ban CDs unless they acted in an unconstitutional way deemed by both CVC and facilitators. In addition, any CDs that were banned by other CVCs for “preference” rather than breaking the constitution will have a chance in Growth CVC.</li></ol></td></tr><tr><td>Neutral</td><td><strong>Regenerative Finance CVC</strong></td><td>Our priority is to advance the role of DAI as an “Unbiased World Currency” that supports “The Regeneration” as may be interpreted through the 8 Principles of a Regenerative Economy published by the Capital Institute (available for reference at <a href="https://capitalinstitute.org/8-principles-regenerative-economy/">capitalinstitute.org</a>).</td></tr><tr><td>Neutral</td><td><strong>Composable CVC</strong></td><td><p></p><ol><li><strong>Credible Neutrality.</strong> Though the jokecouncil will instill a number of members to steward the CVC, our intent is to leverage the jokerace contests to surface feedback from all $JOKE holders and implement a practice of on-chain participation that extends beyond us. It is most important to us that the platforms provide a case study for fair, bottoms up participation.</li><li><strong>Low Ego, High Experimentation</strong> As a governance participant in Maker, all should be respected and the jokecouncil CVC will prioritize learning and iterating over getting things right the first time</li><li><strong>Anon / Time zone friendly.</strong> We will have a public CVC text place and frequently utilize the public, on-chain joke contests to surface ideas publicly and inform sync conversations within the designated meeting times.</li></ol></td></tr></tbody></table>

{% hint style="warning" %}
An important factor is consider is that **Hawkish CVCs** aim to depeg DAI from USD through the Endgame Plan.&#x20;
{% endhint %}

## Helpful Links for Understanding Assigned Roles

| Stakeholder Name            | Profiles on Governance Portal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Notes                                                                                                                                                                                                                                      |
| --------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| Feedback Loop LLC           | <ul><li><p><a href="https://vote.makerdao.com/address/0x92e1ca8b69a44bb17afa92838da68fc41f12250a#delegate-credentials">Old address</a> </p><ul><li>1,000 delegated (> 90%) MKR from a16z (as of 2023-05-08)</li></ul></li><li><a href="https://vote.makerdao.com/address/0x04fa224217a37e216698edcb404380b52e4f7454#delegate-credentials">New address</a> – Growth CVC</li><li><p><a href="https://vote.makerdao.com/address/0xc678783729724364bddcf76950d53503b0abca11#delegate-credentials">New address</a> –Composable CVC</p><ul><li><a href="https://vote.makerdao.com/address/0xc678783729724364bddcf76950d53503b0abca11#metrics">5,000 delegated MKR from Rune</a> (as of 2023-05-08)</li></ul></li></ul> | <ul><li>Dovish (Growth CVC) & Neutral (Composable CVC)</li><li><a href="http://mcdgov.info/address/0x92e1ca8b69a44bb17afa92838da68fc41f12250a">Profile on MCD Governance Tracker</a></li></ul><p></p>                                      |
| a16z                        | <ul><li><a href="https://vote.makerdao.com/address/0x05e793ce0c6027323ac150f6d45c2344d28b6019#account-details">Address</a></li></ul>                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | <ul><li>Not specified. Likely Dovish.</li></ul>                                                                                                                                                                                            |
| ParaFi Capital              | <ul><li><a href="https://vote.makerdao.com/address/0x4655b7ad0b5f5bacb9cf960bbffceb3f0e51f363#account-details">Old address</a></li><li><a href="https://vote.makerdao.com/address/0x9292af24fb9d03b51725c13b13f744d017575dd7#delegate-credentials">New address</a> – Growth CVC</li></ul>                                                                                                                                                                                                                                                                                                                                                                                                                        | <ul><li>Dovish</li></ul>                                                                                                                                                                                                                   |
| Flip Flop Flap (3fdelegate) | <ul><li><a href="https://vote.makerdao.com/address/0x0f4be9f208c552a6b04d9a1222f385785f95beaa#metrics">Old address</a></li><li><a href="https://vote.makerdao.com/address/0xc63e4ee8d204292a95ee7bdfc71f184fb866360c#delegate-credentials">New address</a> – KISS CVC</li></ul>                                                                                                                                                                                                                                                                                                                                                                                                                                  | <ul><li>Hawkish</li></ul>                                                                                                                                                                                                                  |
| Rune Christensen            | <ul><li><a href="https://vote.makerdao.com/address/0xf65475e74c1ed6d004d5240b06e3088724dfda5d#account-details">Address</a></li></ul>                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | <ul><li>Hawkish & Neutral (based on delegates receiving delegated MKR tokens from Rune)</li><li><a href="https://decrypt.co/113118/makerdao-splits-endgame-proposal">Overview of delegates under Rune's economic influence. </a></li></ul> |


# Exercise 2: Understand RWA in MakerDAO

## Objective&#x20;

Developing skills and knowledge to assess risks for making informed decisions.

## Steps

1. Understand what [<mark style="color:red;">RWA (Real-World Asset)</mark>](/title/exercise-overview/exercise-2/rwa-real-world-asset-in-makerdao), how do they work in MakerDAO?
2. How would an increase in RWA affect MakerDAO from your stakeholder's perspective?&#x20;
3. Groups identify potential risks and benefits (e.g., governance, financial, regulatory) that are **important to their roles**.&#x20;
4. Groups are free to choose the format of risk assessments (quantitative, qualitative, or both).
5. As a class, groups discuss their risk assessments.

{% hint style="info" %}
This exercise emulates the MakerDAO community's use of "Signaling" as a pre-voting stage to "greenlight" proposals, encouraging diverse opinions to emerge and enabling proposal refinement.
{% endhint %}

{% hint style="info" %}
Consider using [Additional Information on MakerDAO](/further-reading-and-resources/additional-information-on-makerdao) and access [Data on MakerDAO](/further-reading-and-resources/learning-resources).
{% endhint %}

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)\
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# RWA (Real-World Asset) in MakerDAO

### Financials of MakerDAO

With different types of vaults, MakerDAO enables DAI to serve various roles, from lending and borrowing in money markets to liquidity pools in asset trading to tokenizing assets outside the realm of cryptocurrencies, including consumer loans and US treasury bills.

As of 18 April 2023, MakerDAO has around 4.9 billions US dollars in assets and generates annual lending revenues of 40 million US dollars. The table below provides a snapshot of the various collateral types of MakerDAO.

| **Collateral Type** | **Total Value Locked (TVL) (Millions)** | **Annualized Stability Fee (Millions)** |
| ------------------- | --------------------------------------- | --------------------------------------- |
| Liquidity Pools     | 190.17                                  | 0.11                                    |
| Others              | 64.86                                   | 0.99                                    |
| Stablecoins         | 3,129.78                                | 4.27                                    |
| ETH                 | 876.65                                  | 10.34                                   |
| RWA                 | 709.27                                  | 24.30                                   |
| **Total**           | **$4,970.74**                           | **$40.01**                              |

{% hint style="info" %}

* Data retrieved from Dune Analytics on **2023-04-18**.
* **TVL** represents the total value of collateralized debts.
* **Stability fee** represents annualized lending revenues.
  {% endhint %}

### **RWA** (Real-World Assets) as Collaterals in MakerDAO

A notable development is the large share of revenues generated by RWA or real-world assets. RWA generates the largest portion of revenue despite being ranked the third in terms of total asset (as of April 18 2023) value among different collaterals in MakerDAO.

Real-world assets (RWA) help MakerDAO achieve positive returns in high-interest rate environments and volatile markets.

By taking on RWA as collateral and issuing DAI, MakerDAO indirectly helps tokenize these assets. Among the various collateral types are bank loans, real estate, trade finance, US treasuries and bonds, and revenue-based finance. Among these, 100 millions US dollars of credit has been granted to Huntingdon Valley Bank in Pennsylvania and 500 millions US dollars of credit has been granted to Monetalis, which purchased US treasury bills through Sygnum bank in Switzerland.

<figure><img src="/files/4LG6R5wrrPOhPYJ4ABAC" alt=""><figcaption><p><a href="https://forum.makerdao.com/t/real-world-asset-report-2023-02/20295">Real-World Asset Report – 2023-02</a></p></figcaption></figure>

{% hint style="info" %}

* "**DAI Debt Ceiling**" indicates the size of the vault or the amount of DAI that can be drawn by the corresponding transaction partners.&#x20;
* These vaults generate profits and losses (PnL/P\&L) as "**stability fees**" in DAI stablecoins that accrue to the treasury wallet.&#x20;
  {% endhint %}

### More on RWA&#x20;

* [Real-World Asset Report – 2023-01](https://mips.makerdao.com/mips/details/MIP105#sentence-summary)
* Future framework for RWA → [MIP105: The Real-World Asset Collateral Scope Framework](https://mips.makerdao.com/mips/details/MIP105#sentence-summary)
  * "All rules for Real-World Asset Collateral for the DAO are contained in this framework, including the procedures of the Real-World Asset Collateral Scope Framework Advisory Council."
  * [Forum discussion](https://forum.makerdao.com/t/mip105-the-real-world-asset-collateral-scope-framework/19688)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Exercise 3: Analyze Hypothetical Proposal to Onboard Additional RWA

## Objective&#x20;

Evaluate the impact of different decisions on financial and governance risks.&#x20;

## Steps

1. Delve into the [Hypothetical Proposal](/title/exercise-overview/exercise-3/hypothetical-proposal) by investigating [RWA (Real-World Asset) in MakerDAO](/title/exercise-overview/exercise-2/rwa-real-world-asset-in-makerdao) and [Similar Proposals from the Past](/title/exercise-overview/exercise-3/similar-proposals-from-the-past)
2. After completing the scenarios, each group shares their findings and discusses the implications of each scenario within the current MakerDAO context (e.g., Endgame plan).

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)\
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Hypothetical Proposal

**One sentence summary**: Increase the [MIP65 (RWA007-A)](/title/exercise-overview/exercise-3/similar-proposals-from-the-past/mip65-rwa007-a-monetalis-clydesdale) Debt Ceiling by 500 million DAI from 1.25 billion DAI to **1.75 billion DAI**.

This hypothetical proposal aims to help MakerDAO utilize more of the idle capital in its treasury by purchasing US Treasury Bills through Monetalis Clydesdale.&#x20;

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Similar Proposals from the Past

This proposal is similar to [Poll 980](https://vote.makerdao.com/polling/QmNTSr9j#vote-breakdown) that was passed on MAR 13 2023 to "increase the MIP65 (RWA007-A) Debt Ceiling by 750 million DAI from 500 million DAI to **1.25 billion DAI**" ([see poll detail](https://vote.makerdao.com/polling/QmNTSr9j#poll-detail)).&#x20;

These two discussion threads can be good starting points to understand the views of different stakeholders:

* [Increase the MIP65 (RWA007-A) Debt Ceiling – March 13, 2023](https://vote.makerdao.com/polling/QmNTSr9j#poll-detail)
* [Proposal to increase Debt ceiling for MIP65 by 750M to 1250M](https://forum.makerdao.com/t/proposal-to-increase-debt-ceiling-for-mip65-by-750m-to-1250m/20060/2)


# MIP65 (RWA007-A): Monetalis Clydesdale

{% embed url="<https://forum.makerdao.com/t/monetalis-evolution/14811>" %}
On Monetalis' Strategy and Proposals
{% endembed %}

* Monetalis Clydesdale is one of the three components of Monetalis.
  * It ["focuses on TradFi institutions and partnerships herewith and traditional credit/bonds – serving needs of protocols for liquidity, duration and yield." ](https://forum.makerdao.com/t/monetalis-evolution/14811#quick-recap-of-the-3-components-9)
  * It was proposed in [MIP65](https://forum.makerdao.com/t/mip65-monetalis-clydesdale-liquid-bond-strategy-execution/13148), which was [ratified in Poll 793 on May 9, 2022](https://vote.makerdao.com/polling/QmXHM6us#vote-breakdown)

{% tabs %}
{% tab title="Summary as of March 31, 2023" %}
[Google Sheet – MIP65: Monetalis Clydesdale Summary ](https://docs.google.com/spreadsheets/d/1e2yqI3XOnw9UgC7I2gVHqgnX33U8qULh3mCDqsbT7x8/edit?usp=sharing)

{% embed url="<https://docs.google.com/spreadsheets/d/1e2yqI3XOnw9UgC7I2gVHqgnX33U8qULh3mCDqsbT7x8/edit?usp=sharing>" %}

{% endtab %}

{% tab title="Forum Discussions" %}
{% embed url="<https://forum.makerdao.com/tag/monetalis>" %}
{% endtab %}

{% tab title="Original Application" %}

{% embed url="<https://docs.google.com/document/d/1UT7CanAXfYbzglGZ9HBJLyr3xtp8aXxGPCs9Ph1V70w/edit?usp=sharing>" %}
[Monetalis MIP6 APPLICATION](https://docs.google.com/document/d/1UT7CanAXfYbzglGZ9HBJLyr3xtp8aXxGPCs9Ph1V70w/edit?usp=sharing)
{% endembed %}
{% endtab %}
{% endtabs %}

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Exercise 4: Predict Voting Outcomes in Collective Governance (if time allows)

## Objective

Predict the voting outcome of a hypothetical proposal by analyzing voting power and voting history among token holders.

## Steps

1. Groups analyze the dataset and predict the voting outcome of the proposal based on the information provided.
   * Consider factors such as voting power distribution, historical voting patterns, and potential alliances or factions within MakerDAO, utilizing [Data on MakerDAO](/further-reading-and-resources/learning-resources)
2. Each group discusses and makes a collective decision on whether to accept or reject the proposal.
   * <mark style="color:red;">Groups have opportunities to</mark> <mark style="color:red;"></mark><mark style="color:red;">**delegate their tokens to other groups**</mark> <mark style="color:red;"></mark><mark style="color:red;">OR</mark> <mark style="color:red;"></mark><mark style="color:red;">**take away delegated tokens**</mark> <mark style="color:red;"></mark><mark style="color:red;">before voting takes place.</mark>&#x20;
3. As a class,  groups cast their votes and briefly present their rationale.

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Conclusion

As the fintech industry continues to evolve, organizations like MakerDAO are redefining the way financial services are provided and governed. The case study highlights the unique challenges that decentralized decision-making presents in terms of risk assessment, coordination, and decision-making. By understanding and addressing these challenges, MakerDAO and other DAOs can continue to innovate and shape the future of the fintech industry.

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Basic Concepts about DeFi DAOs

To understand DeFi DAOs, one would need to have a basic understanding of the following concepts:

<table data-card-size="large" data-column-title-hidden data-view="cards"><thead><tr><th>Term</th><th>Description</th><th>Examples</th></tr></thead><tbody><tr><td><strong>DeFi (Decentralized Finance)</strong></td><td>DeFi refers to a financial system built on blockchain technology that is decentralized, transparent, and accessible to anyone with an internet connection.</td><td></td></tr><tr><td><strong>DAOs</strong></td><td>DAOs (Decentralized Autonomous Organizations) are organizations that are governed by their members, who vote on proposals and make decisions collectively, through smart contracts on public and secure blockchains. </td><td></td></tr><tr><td><strong>Governance Tokens</strong></td><td>Governance tokens are tokens that give holders the right to vote on proposals and decisions within a DAO.</td><td></td></tr><tr><td><strong>Voting</strong></td><td>Members of a DAO vote on proposals using their governance tokens. The outcome of the vote determines whether the proposal is accepted or rejected.</td><td></td></tr><tr><td><strong>Quorum</strong></td><td>A quorum is the minimum number of votes required for a proposal to be considered valid. This is set by the DAO's governance rules.</td><td></td></tr><tr><td><strong>Tokenomics</strong></td><td>Tokenomics refers to the economic system of a token. This includes factors such as the supply, demand, distribution, and usage of the token within the ecosystem. Understanding tokenomics is important for understanding how governance tokens work within a DAO.</td><td></td></tr><tr><td><strong>Smart Contracts</strong></td><td>Smart contracts are self-executing contracts, with the terms of the agreement between transaction partners directly written into lines of code. They automate and execute the rules of a DAO.</td><td></td></tr><tr><td><strong>Risk Management</strong></td><td>Members need to assess the risks associated with proposals and make informed decisions to minimize the risk of loss. </td><td><ul><li><a href="https://twitter.com/MakerDAO">@MakerDAO</a> – <a href="https://twitter.com/MakerDAO/status/1634251563760754700">How does MakerDAO's risk team evaluate and mitigate the economic risks of Maker Protocol's operations?</a></li></ul></td></tr></tbody></table>

**Some additional key terms to consider**:&#x20;

* Stablecoins
* Money markets
* AMM
* Liquidity pools
* Real-world assets
* Yield farming
* …

[![Creative Commons Licence](https://i.creativecommons.org/l/by-nc/4.0/88x31.png)](http://creativecommons.org/licenses/by-nc/4.0/)

© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Additional Information on MakerDAO

### Operation

* [MakerDAO Operational Manual](https://manual.makerdao.com/)
* [Decentralized Money Markets and MakerDAO](https://academy.moralis.io/blog/decentralized-money-markets-and-makerdao)

### Governance

* [Key votes](https://awesome.makerdao.com/#key-votes)
* [Important Forum Threads](https://awesome.makerdao.com/#important-forum-threads) (old)
* [Maker Improvement Proposals](https://mips.makerdao.com/mips/details/MIP0#paragraph-summary) (MIPs) (i.e., code of conduct and rules of the game)
* [Participation in Maker governance](https://forum.makerdao.com/t/participation-in-maker-governance/968)
* Vote Delegation
  * [Forum thread on vote delegation](https://forum.makerdao.com/t/vote-delegation-is-not-something-we-should-be-striving-for/336)
  * [MIP61: Recognized Delegate Compensation](https://mips.makerdao.com/mips/details/MIP61#paragraph-summary)
  * [Recognized Delegate Compensation – January 2023](https://forum.makerdao.com/t/recognized-delegate-compensation-january-2023/19634)

{% @figma/embed fileId="m4vAo1gVD9NtwJHz7VbwmS" nodeId="0:1" url="<https://www.figma.com/file/m4vAo1gVD9NtwJHz7VbwmS/MakerDAO%E2%80%99s-Path-to-Full-Decentralization?node-id=0%3A1&t=aTOJe5FUmBVRSkUF-1>" %}

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Data on MakerDAO

Available data sources to support learning

### Data Sources

<table data-view="cards"><thead><tr><th>Source</th><th>Description</th><th>Links</th><th>Screenshot</th></tr></thead><tbody><tr><td><strong>MakerDAO Governance Tracker</strong></td><td><ul><li><strong>CSV exports</strong> available on the tracker's website</li><li>Comprehensive API endpoints </li></ul></td><td><ul><li><a href="https://tracker-gov.makerdao.network/">Web version</a></li><li><a href="https://data-api.makerdao.network/docs#/">API doc </a></li></ul></td><td><img src="/files/azeOYOMHul8C2f6ZqbAA" alt=""></td></tr><tr><td><strong>Maker Burn</strong></td><td>Rundown of collaterals and other financial information (e.g., expenses, treasury) via a nice web interface</td><td><ul><li><a href="https://makerburn.com/#/rundown">Web version</a></li></ul></td><td><img src="/files/KF4OFVjhO1RLU4PzCPPx" alt=""></td></tr><tr><td><strong>Maker Governance Portal</strong></td><td><ul><li>Website with <strong>great UI to explore</strong> information on proposals and delegates</li><li>Limited API endpoints covering key governance metrics </li></ul></td><td><ul><li><p><a href="https://vote.makerdao.com/">Web version</a> </p><ul><li><a href="https://vote.makerdao.com/polling">Polls (i.e., proposals)</a></li><li><a href="https://vote.makerdao.com/delegates">Delegates</a></li></ul></li><li><a href="https://vote.makerdao.com/api-docs">API doc</a></li></ul></td><td><img src="/files/dKFKthmedHY2H7W4Pyik" alt=""></td></tr><tr><td><strong>Dune Analytics</strong></td><td><ul><li>Crowdsourced, customizable dashboards that retrieve and visualize data on blockchains.</li><li>Provides powerful analysis with <strong>simple SQL queries</strong></li></ul></td><td><ul><li><a href="https://dune.com/SebVentures/maker---accounting_1">MakerDAO - Dashboard</a> by @SebVentures</li></ul></td><td><img src="/files/WWvivbfKveUxPIvuR3pG" alt=""></td></tr><tr><td><strong>Crypto Data Aggregators</strong></td><td><p>Data aggregators can provide data on: </p><ul><li>distribution of tokens</li><li>transaction fees on the Ethereum blockchain</li><li><strong>costs of borrowing governance tokens</strong></li></ul></td><td><ul><li><p><a href="https://www.coingecko.com/">CoinGecko</a></p><ul><li><a href="https://www.coingecko.com/en/coins/maker/tokenomics">Tokenomics of MKR</a></li><li><a href="https://www.coingecko.com/en/api/documentation">API Doc</a></li></ul></li><li><p><a href="https://etherscan.io/">Etherscan</a></p><ul><li><a href="https://etherscan.io/charts">Ethereum Charts &#x26; Statistics</a></li><li><a href="https://docs.etherscan.io/">API Doc</a></li></ul></li></ul></td><td><img src="/files/cl5hn5LWTAdA4w7vd63y" alt=""></td></tr></tbody></table>

### API and Scripts&#x20;

#### API Tool

* [RapidAPI](https://paw.cloud/) - Mac
  * Returns data in JSON format
* RStudio - Mac and Windows&#x20;
  * Require transforming of openapi.json files into R scripts, can be quickly done via ChatGPT (sample script available below)
  * Easier manipulation of return data (e.g., parse json data into table formats)
  * openapi.json files are available to download via API webpages and the Open API json files tab below

{% hint style="info" %}
First, try out the API endpoints using web interface or API tools such as RapidAPI.

Then, write R scripts to access specific API endpoints, retrieve data of interest, and parse them into table formats (e.g., csv, xlxs).
{% endhint %}

#### Scripts

{% tabs %}
{% tab title="Open API json files" %}

### MCD Governance Tracker

{% file src="/files/uHHHVIqu5M1n4iWcBenC" %}
More information available at <https://data-api.makerdao.network/docs>
{% endfile %}

### Maker Governance Portal

{% file src="/files/8q0i430445uun2QJD8h9" %}
More information available at <https://vote.makerdao.com/api-docs>
{% endfile %}
{% endtab %}

{% tab title="Example R script: API for Maker Governance Portal" %}

### API for Maker Governance Portal (transformed by ChatGPT)&#x20;

* Note: This script is based on V1, while the V2 has been implemented at <https://vote.makerdao.com/api-docs>.&#x20;

{% embed url="<https://gist.github.com/linxule/53caa096237c1bb3fe8ab9b733e5bacf>" %}
{% endtab %}
{% endtabs %}

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Understand Voting Power in DAOs

## How to calculate voting power?

It is important to discern tokens that are **(1)** **available, (2) economically-viable and (3)used** for voting. We will delve deeper into this topic in person.&#x20;

## More Resources

* [DAOgov - Resources for DAO & Crypto Governance Research](https://linxule.com/daogov/resource_list/)

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© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a [Creative Commons Attribution-NonCommercial 4.0 International License](http://creativecommons.org/licenses/by-nc/4.0/).


# Ask a Question

[Submit your question by email via this link.](mailto:xule.lin@imperial.ac.uk?subject=Innovation%20and%20Strategy%20in%20FinTech%20-%20Question%20on%20Case) Furthermore, check the frequently asked questions below.

## FAQs&#x20;

| Question | Answer |
| -------- | ------ |
|          |        |
|          |        |
|          |        |


