Maker DAO's $1bn Bet on Ethena, Aave Strikes Back

Summary

The discussion revolves around the recent developments in the crypto space, particularly focusing on Athena and its impact on the DeFi markets. Athena, a structured product that creates a delta neutral position by shorting Ethereum on centralized exchanges, has seen significant growth and is raising concerns due to its rapid expansion and potential systemic risks. The guests, Paper Imperium and Mark Zeller, share their insights on the governance and risk management within MakerDAO, emphasizing the need for a more cautious approach to scaling and the importance of thorough risk assessments and decentralized decision-making in the DeFi ecosystem.

Takeaways

• 📈 Athena, a structured product in the crypto market, has grown rapidly and is approaching billions of dollars in size, causing ripple effects across the wider DeFi markets.
• 🔍 Athena's growth has raised concerns about its potential systemic risks, especially since it hasn't been through a full market cycle yet.
• 💡 Maker, a major player in the DeFi space, has been involved in the rapid onboarding and scaling of Athena, which has led to debates about its governance and risk management.
• 🤔 There are concerns that Maker's governance process has become less decentralized and more concentrated, with a few key players having a significant influence on decisions.
• 🚧 The speed of Athena's growth and the lack of thorough risk assessments have been flagged as red flags by some members of the DeFi community.
• 💰 The pursuit of high yields by Maker through Athena has been seen as a shift from its traditional conservative approach, raising questions about its long-term strategy.
• 📉 The stability of Maker's DAI stablecoin and its supply have been affected by the changes in Maker's governance and asset allocation strategies.
• 🔄 The discussion around Athena and Maker's governance highlights the importance of balancing innovation with risk management in the DeFi space.
• 🗣️ Community participation in governance forums is crucial for addressing concerns and shaping the future of DeFi protocols like Maker and Athena.
• 🌐 The wider implications of Athena's growth and Maker's governance decisions underscore the interconnected nature of the DeFi ecosystem and the need for coordinated risk management.

Q & A

What is Athena and how does it relate to the recent controversies in the crypto market?

Athena is a structured product that takes in Ethereum and other assets, creating a one-to-one short on centralized exchanges to maintain a delta neutral position. It has been causing controversies due to its rapid growth and the systemic risks it may pose to the wider DeFi markets.

How does Athena's structured product work in terms of profit and loss?

Athena's structured product works by creating a delta neutral position, meaning that as the price of Ethereum goes up or down, the derivative trades on the back end keep the profit and loss flat. It is used to farm the funding rate, which is then passed back in the form of yield to USDE.

What is the significance of the 100 million DAI credit line that was implemented in the Maker protocol?

The 100 million DAI credit line was implemented to allow people to borrow DAI against USDE and staked USDE. It represents a significant move in Maker's governance and has been a point of discussion due to its rapid implementation and potential impact on the DeFi ecosystem.

What was the proposal made by Mark Zeller regarding the LTV of DAI?

Mark Zeller proposed to cut down the LTV (Loan to Value) of DAI to zero. This proposal is part of the ongoing discussions and governance actions within the Maker protocol to manage the risks associated with the rapid growth of Athena.

What are the concerns raised by the guests about the due diligence process for Athena?

The guests raised concerns that the due diligence process for Athena has been rushed and incomplete. They pointed out that there has not been a technical or legal risk assessment published, and that important questions about the rights of token holders and the potential risks to the system have not been adequately addressed.

How does the speed of the growth of the Athena credit line impact the safety module of Maker?

The rapid growth of the Athena credit line could potentially overwhelm the safety module of Maker, which currently has around $120 to $130 million in equity buffer capital. If the credit line grows too quickly, it could expose the system to risks that it is not prepared to handle.

What is the proposal to increase the maximum debt ceiling to?

There was a proposal to increase the maximum debt ceiling to 1 billion DAI, with an intention to ramp up to 600 million and then assess the situation from there.

What is the concern about the over-collateralized lending against DAI?

The concern is that the over-collateralized lending against DAI is complex and carries smart contract risks. If the value of USD or SSDE goes down faster than the possibility of liquidation, it could result in a debt that the system may not be prepared to handle.

What is the role of the direct deposit module in the Maker protocol?

The direct deposit module is a second-degree effect collateral where DAI is printed out of thin air and deposited into the vote. It is important to note that DAI cannot be accessed without depositing collateral, which in this case would be SSDE or USDE.

What is the significance of the Maker protocol's decision to hardcode the oracle to $1?

Hardcoding the oracle to $1 is a risk management decision made by Maker to ensure that the DAI stablecoin does not fall below this value. However, it also means that the protocol needs to underwrite against the issuer, which requires a deeper understanding of legal and financial facts about the issuer.

What are the implications of Maker's shift towards a more aggressive protocol in terms of yield chasing?

Maker's shift towards chasing yield changes its risk profile, potentially leading to more systemic risks and affecting downstream service providers. It also raises questions about the protocol's governance and decision-making processes.

Outlines

00:00

📰 Introduction to the Athena Controversy in Crypto

The discussion begins with an introduction to the ongoing controversy surrounding Athena, a structured product in the crypto space. Athena has been creating a significant impact on the decentralized finance (DeFi) markets, particularly due to its unique mechanism of creating a delta neutral position by taking in Ethereum and other L1s, then creating a one-to-one short on centralized exchanges. The segment also highlights the concerns around the rapid growth of Athena, which has surpassed a billion dollars and is approaching four to five billion dollars in a mature state. The guests, Paper Imperium and Mark Zeller, are introduced as key figures in the conversation, with Paper being a long-time supporter and closely associated with MakerDAO, and Mark providing insights from his perspective.

05:00

💡 Breakdown of Dy and Athena Integration

This segment delves into the specifics of the integration between Dy and Athena. It explains the proposal to put forward 100 million D across a portfolio of morpo vaults, allowing people to borrow die against usde and staked usde. The leverage ratios and current allocations are discussed, along with the quick implementation of this proposal. The conversation then shifts to concerns about the rushed nature of the process and the need for a thorough risk assessment, both technical and legal, before proceeding with such significant financial operations.

10:01

🤔 Concerns and Risks with Athena's Growth

The discussion continues with concerns about the rapid growth and potential risks associated with Athena. The speakers express worries about the lack of a safety module, the inexperience of the protocol in handling large-scale operations, and the potential for significant losses if the value of USD or S usde declines rapidly. The conversation also touches on the importance of understanding the rights of token holders in the event of any issues with Athena and the need for more transparency and governance in decision-making processes.

15:03

🚨 MakerDAO's Governance Speed and Decision-Making

This part of the conversation focuses on the speed at which MakerDAO has been making governance decisions, particularly in relation to the Athena proposal and the rapid increase in the stability interest rates on MakerDAO vaults. The speakers discuss the implications of these swift changes, the need for a thorough risk assessment, and the potential impact on the DeFi ecosystem. Concerns are raised about the lack of a technical assessment for Athena and the rush to implement changes without proper evaluation.

20:04

🌐 Centralization Concerns in MakerDAO's Governance

The conversation addresses concerns about centralization within MakerDAO's governance. The speakers discuss the influence of a single entity representing a large portion of the vote and the potential risks this poses to the decentralized nature of the protocol. The importance of a diverse and independent governance structure is emphasized, as well as the need for a more measured and inclusive approach to decision-making to ensure the long-term health and sustainability of the ecosystem.

25:05

📈 Reflections on MakerDAO's Risk Profile and Strategy

The speakers reflect on the changing risk profile of MakerDAO, moving from a conservative stance to a more aggressive pursuit of yield. They discuss the implications of this shift for the stability and predictability of the protocol, as well as the potential systemic risks associated with scaling up lending to billions of dollars. The conversation also touches on the importance of risk management and the need for MakerDAO to consider the long-term implications of its decisions, rather than focusing solely on short-term gains.

30:05

💥 Potential Systemic Risks with Athena

The discussion concludes with a focus on the potential systemic risks that could arise from the rapid growth of Athena. The speakers express concerns about the lack of market liquidity to handle large-scale events and the potential for systemic issues if Athena were to face challenges. They emphasize the importance of a measured and cautious approach to growth, particularly in terms of the credit line and the need for MakerDAO to work in alignment with other protocols in the ecosystem to ensure overall stability and safety.

35:07

🗣️ Call to Action for MakerDAO Governance

The final segment is a call to action for those involved in MakerDAO governance. It encourages participants to engage in the governance process, share their opinions, and contribute to the discussion on the MakerDAO forum. The importance of a decentralized and autonomous organization is highlighted, and the audience is urged to get active and participate in shaping the future of the protocol.

Keywords

💡Athena

Athena is a structured product mentioned in the video that takes in Ethereum and other LSTs, creating a one-to-one short on centralized exchanges to maintain a delta neutral position. It is used to farm the funding rate, which is then passed back as yield to USDE. The growth and potential risks associated with Athena are a central topic of the discussion.

💡DeFi (Decentralized Finance)

DeFi refers to financial services and systems built on blockchain technology, particularly those that are decentralized and often operate without traditional intermediaries like banks. The video's discussion revolves around the impact of Athena on the wider DeFi markets and the importance of risk management within this space.

💡Yield Farming

Yield farming is a strategy in DeFi where participants provide liquidity to platforms to earn rewards, often in the form of tokens or additional yield. The video discusses how Athena is used to farm funding rates and generate yield for its participants.

💡MakerDAO

MakerDAO is a decentralized autonomous organization (DAO) that manages the DAI stablecoin system. It is mentioned in the video as the entity responsible for the governance and decision-making processes related to Athena and its integration into the DeFi ecosystem.

💡Risk Management

Risk management refers to the process of identifying, assessing, and prioritizing risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events. In the context of the video, risk management is crucial as the participants discuss the potential systemic risks associated with the rapid growth of Athena and the need for a more cautious approach.

💡Liquidation

Liquidation in the context of DeFi refers to the process where collateral is sold off to pay back a loan when the borrower is unable to do so, often due to a drop in the value of their collateral. The video discusses the potential for liquidations and the importance of having a safety module to protect against them.

💡Collateral

Collateral is an asset or security that is pledged as a guarantee for the repayment of a loan or to secure an obligation. In the context of the video, collateral is discussed in relation to over-collateralized lending and the risks associated with the types of collateral used in DeFi platforms like MakerDAO.

💡Governance

Governance in the context of DeFi refers to the process by which decisions are made about the operation and development of the platform. It often involves community voting and proposal submission. The video discusses the governance process of MakerDAO and the concerns about its recent decisions.

💡Stablecoin

A stablecoin is a type of cryptocurrency designed to minimize price fluctuations by pegging its value to a reserve of assets, often a fiat currency like the US dollar. The video discusses DAI, a stablecoin managed by MakerDAO, and its role in the DeFi ecosystem, especially in relation to the Athena product.

💡Leverage

Leverage in finance refers to the use of borrowed funds to increase the potential return of an investment. In the context of the video, leverage is discussed in relation to the Athena product, which allows for the borrowing of DAI against collateral for the purpose of yield farming.

Highlights

Discussion on the controversial growth of Athena in the crypto market, a structured product that creates a delta neutral position by taking in Ethereum and other assets.

Athena's rapid growth, surpassing a billion dollars and approaching four to five billion, and its impact on the wider DeFi markets.

The proposal to increase the maximum debt ceiling of Athena to 1 billion dollars, with intentions to ramp up to 600 million.

Concerns about the speed of growth of the credit line and the potential systemic risks involved with Athena's integration.

The importance of risk assessment and due diligence in the governance process of decentralized finance platforms.

Maker's shift from a conservative approach to a more aggressive yield-chasing strategy, changing its risk profile.

The potential impact of Maker's decisions on downstream service providers and the DeFi ecosystem as a whole.

Concerns about the centralization of decision-making in Maker's governance, with a few key players holding significant influence.

The debate over the true meaning of decentralization in the context of Maker's governance and the need for a more distributed decision-making process.

The importance of having multiple risk assessments, including technical, legal, and financial, before onboarding new assets or products.

The potential risks of hardcoding oracle prices to $1 and the need for proper underwriting against the issuer.

The impact of Maker's actions on the broader stablecoin market and the need for responsible growth strategies.

The call for a slowdown in the growth of Athena's credit line to allow for proper risk management and assessment.

The comparison of Maker's current strategy to that of a hedge fund and the potential implications for the DeFi space.

The importance of community engagement and open discussion in the governance process to ensure the health and sustainability of DeFi protocols.

Transcripts

[Music]

hello and welcome to Leviathan news it's

April 2nd hope you guys all had a good

Easter we've been off for a couple of

days but we're back and we're ready to

talk about the most controversial thing

happening in crypto actually it's been

going on for a couple of weeks now but

that's Athena and the like yield black

hole that it's been causing and the

Rippling effects that it's having Across

The Wider defi markets uh for those of

you that don't know Athena is

essentially a structured product that

takes in ethereum and other lsts and

then creates a one toone short on

centralized exchanges thereby creating a

delta neutral position which means that

as the price of eth goes up or down uh

the uh derivative trades on the back end

essentially keep the p&l flat and it is

used to farm the funding rate which is

then passed back in the form of yield to

usde and then also their um Vault called

SSD uh which then has been providing

significant yields across the board at

very large sizes uh Athena has eclipsed

a billion dollars and is well on its way

towards pushing towards four to five

billion dollars in a more mature State

and that's all well and fine but the

Ripple effects that it's been having

across the entire industry have been a

bit broader and that's why we're here

today with our two guests we have paper

Imperium uh longtime at makerd Dow uh

supporter and uh working really closely

with him and then we also have Mark

Zeller as well too from a um so uh

before we get into the a announcement

that came today talking about these

Rippling effects that uh Athena's having

uh paper maybe you can help us break

down what

exactly this this whole integration of

Dy and Athena

is sure um so there's kind of two prongs

to it uh I'll start with the the one

that uh people are most familiar with

which is that uh I guess about two weeks

ago maybe less there was a proposal to

uh put forward 100 million D across a a

portfolio of of morpo vaults to allow

people to borrow die uh against uh usde

and staked

usde uh the the ltvs ran a large range

um at the higher end it was about 20 to1

leverage if you Max it out um but those

have very small allocations currently I

think 5 million uh for each the usde and

state

USD um this was uh already pretty a

pretty quick run from proposal to um

implementation um we can talk more about

that later because I think the

governance is a separate issue youall

are probably more interested in talking

about Athena um so that has been live

for I guess this is the fifth day uh

that that that maker credit line of 100

million die has been operating and

yesterday there was a proposal to

increase the maximum debt ceiling to 1

billion with an intention just to kind

of ramp up to 600 million and then see

from there um I uh I work at gfx labs

and we had some questions on the Forum

we think it's a little rushed but that's

that's kind of where we're at and then

we wake up today and uh you know

chainsaw has got to cut things down

so woke woke up to the news of of uh uh

Mr Zeller over here putting forth a

proposal to to cut down the LTV at die I

think to zero but I haven't checked the

Forum thread in the last few months so

just to be clear on the the die

implementation uh this was for over

collateralized lending against so this

is where it gets complex so yes this is

but there's also working its way through

governance right now a

proposal it's second degree effect

collateral so basically it's called a

direct deposit module because you print

the die out of Tiner and you deposit

that into the vote but what is true and

it's completely true and I want that to

be clear for the audience is that you

cannot access that dat without

depositing collateral which is in this

case the E table code but that's second

degree effect Coral the first degree

effect Coral is intin air in this

case well it would technically be

whatever the deposit token is from the

morova but yeah it's yeah I mean it's

the same as um you know the d3m when it

used to run into a and compound it's

basically accepting the receipt token of

the protocol it deposits into as being

good for

$1 um

I mean so I mean it you know people talk

about how tokens and treasuries that

aren't circulated shouldn't count I mean

it's uncirculated until it's borrowed

it's just the fact that it has kind of a

holding pen before it gets borrowed so I

wouldn't really focus too much on the

thin air with the caveat that there's

always smart contract risk because the

die is in there so that you know they're

there should be a smart contract risk

assessment for Moro my understanding is

it's quite simple but

that probably need needs to be done and

published so the the D is essentially

being it doesn't so the die is being

created and then it goes into these

vaults and it doesn't inter circulation

until somebody posts the collateral

token in this case it would be ssde or

or usde to borrow against it that's

right um I mean in some ways that's not

materially different from from some

other arrangements maker has I mean

there's often a little lag between the

the minting of the Dy and the securing

of the collateral you know like U like

this the same thing with t- bills

because there's tradire settlement like

you have to uh you know move it off to

to to bank deposits but then it's back

once it's there

so I I guess you could make an argument

that it would be unbacked if it was

stolen from the Morpho Vault before it

was loaned out but once it's loaned out

it's no longer back

that is true but the thing is that if

the the value of USD or S usde goes down

faster than the possibility of

liquidation you will end up with that

Dept and it's a fact that Mor blue has

no safety module no experience in

liquidation like the the world protocol

is less than six months old and no

experience of that scale basically the

whole TBL of that protocol was

less than 200 million before you started

doing this on theod so it's

basically testing prod and we seen what

tested prod done last cycle so so I've

got good news and bad news the good news

is the liquidations probably don't

matter

um oh yeah because it's harded at $1 so

there's no yeah so it's hard Cod

yeah orles um what the um so the

only way you would get liquidated as if

your interest rate accured to the point

that you crossed the liquidation

threshold so unless you started right at

the line I would not anticipate that

really happening some cre line 20x

leverage like 94% LTV uh I think they

are smaller but it's still to the tune

of 10 million and more uh for last time

I check and the thing is that you know

it works it's it's all this is a carry

trade on the fing rate so if you have

the market that is flat or going to shet

for a few weeks you will have a rate

that goes down and the thing is that

what everything everyone is watching is

that does the natural e yield still

higher than the DSR yield that's the

important point because if the natural e

yield goes below the natural DSR yield

you basically because you have a

negative premium on 20x Leverage and the

thing is that if you want to deliv a 100

million die position with the PSM that's

easy peasy you can do that overnight and

nobody cares about that but if you want

to Del leverage a 600 million die

position that's where uh things start to

get ugly and if it's one billion it's

even worse and yeah everybody knows that

yeah so I I will agree I made similar

points on the Forum that diligence has

is incomplete for something of this size

um there there's not been a technical or

legal risk assessment published I don't

know if one's been done and hasn't been

published um a lot of this process has

been I will admit rushed and um has you

know it's hard yeah I'm kind of in the

uncomfortable position of having to

defend it here um but yeah I I want to

point out like we probably on the same

boat here with paper Imperium uh not

exactly uh because obviously we

different perspective of things but I

don't want to put you on the bad spot

you know how much I respect you man yeah

I mean I think I think my position is

that Athena I'm still I think the

diligence is incomplete there's some

outstanding questions I think it's

probably what I would consider like a

legitimate Pro uh product with a

legitimate use but that it it you know

much like you wouldn't tell someone to

use like a triple inverse ETF and just

buy and hold it um you know I think

people should like probably be very

aware of of all it it's a very complex

thing right like let's just start at the

bottom right like what what kind of

types of staked eth does it take right

um like the some of these are exotic to

maker like math and and wrapped uh Beth

like these are not things that we're

familiar with have ever looked at but

like these make up a non-negligible

amount of like Athena's you know assets

so you know you know there are lots of

ways that you could imagine that Athena

through no fault of their own could

become impaired um and because of that

it's important to figure out what your

rights would be as a token holder which

you know these are questions that I

think have only begun to be asked and

need to be worked through before yeah

going to like 600 million or a billion

um there's also right now at maker a

proposal it's a few weeks behind uh this

one that would be to directly purchase

usde I don't know at what scale that's

imagined um obviously I'm not really

thrilled about that one partly because

of some fee structuring but um I think I

think everyone just needs to pause

because I think it's hard you know this

need we need to like everyone just needs

a stop look and listen period here I

think it'd be really helpful if maker

would do that here because it would let

everybody do it instead of having to

react to maker um part of the problem

with Athena is that so many people

Athena's so big right and it was so well

organized and how they fundraised like

the trouble is everyone and the brother

has either given Athena money or taken

money from Athena so it's very difficult

to get to know like who we should turn

to for opinions I mean let's let's just

look at your own risk assessors right

you have chaos Labs that's supposed to

in reaction to your proposal do a a risk

assessment chaos Labs was partnered with

them like last like fall to help design

the mechanism like what are they going

to say right I mean like you know you

know you mean will not be critic of it I

don't know but like

they they quite to be to to be

independent on this and even though I

think like this proposal is a perfect

opportunity in on because we have an

empty lock right now for a cir service

provider and three company fighting for

it so my expectation is that they will

use this proposal as a Showcase in their

Cur proposal to to get on board it as a

reservice provider so we will probably

this week end up with four very detailed

uh risk assessments analysis in the

Forum and that's the great thing about a

is that we are still a Dow so

people discuss I do a proposal and

there's literally very few chance that

the proposal will pass as it is because

people discuss F consensus and then we

go to a vote very often we have

conservative and aggressive option and

then it's a snapshot vote and directly

AIP on chain I'm very sad that we reach

a point from an exp perspective at meod

where there's no execution anymore you

have one guy that post something and

then you have a VC pet or whatever

governance pet that say yes to

everything and I think there's added

value in actual governance and decision

I have no interest to be a dictator in

AR I'm very welcoming to uh other kind

of uh uh and opposition and other kinds

of uh governance decision and I think

the it's good to have debate I hope we

will reach that point back into the

meadow governance because uh that's how

it should work it's decentralized

autonomous

organization can we talk about this for

a minute uh paper just the speed at

which maker has been making decisions

lately so the last time we had you on

the show I believe it was 3 to four

weeks ago we were speaking about the uh

rapid change in the uh stability

U stability interest rates on the the

makerd vaults in addition to the uh

increased DSR that was pushed up to 15

at the time it's currently sitting at

133% uh and and that was pushed through

within a couple of days and now we have

this Athena proposal also coming through

which is rapidly pushing the uh the

amount that can go into into Moro from

100 million all the way up to a billion

uh probably going to settle around 600

million at this point and from what I

can tell this is the the fastest that

any product has been on boarded if you

look at other assets like steth uh it

took six months for them to scale up to

a billion dollars so what does it say

about maker in just the the speed at

which they're uh changing uh their their

governance and also the the speed at

which they're onboarding a a brand new

product which is four months old uh into

a a new lending facility which is three

months old uh and uh just what that says

for for governance overall at maker so I

I I want to start by really

distinguishing between like the the like

emergency rate changes a few weeks ago

and then this because that was in

reaction to um like the the peg

stability module was like literally

within 26 minutes of running out um at

at one point um so that that was like an

emergent not it was an urgent situation

that needed to be dealt with and so I

think you can forgive people for

overshooting on rates and St so the

details for that we talked about that

already for this so I think yeah some

some things have broken down I think

part of it is that maker has been in the

business of offboarding collaterals ever

since endgame to push them out to spark

so so this is actually the first time

there's really been one that's own

boarded under the new governance regime

that was installed last you know March

2023 uh with with runes ingame so um it

could be simply that people that used to

do this aren't around but there used to

always be a technical assessment like

the the engineers would do a smart

contract assessment of all the relevant

you know token and and other smart

contracts um so I would would have

expected one for Moro and one for uh you

know Athena and Athena's staking

contract and you know all of those um

usually those don't find serious issues

if they do you hit the pause

button um there's been an analysis

posted by block analytica on like the

kind of like the financial aspects of

Athena but there's not been a legal

analysis yet and with a real world

Assets in the past that we would have

someone come in usually and and offer a

legal assessment because that's you know

these are kind of all different risk

areas and no one's mandate covers all of

them and nobody can be good at

everything so I would have normally

expected anything to do with Athena to

be accompanied by like three risk

assessments a technical one a legal one

and then like the financial one because

it touches defi so um we've only got one

of those is is the problem um I think

also it's hard not to feel like this

wasn't really like I don't actually feel

like this was rushed um I feel like it's

just that everyone was cut out of the

loop and it was decided

unilaterally um I mean there were people

on Twitter that were teasing these

vaults um like back my job is to to

monitor what you you guys are doing and

it literally happen in two weeks and a

half like go to from zero to 600 million

in two weeks

yeah do sense I guess where I'm going

with this is that the governance process

definitely rushed but there were clearly

people who were behind closed doors

making the

decisions in private because like these

Vault defining what AD should be

here uh I mean I think it's hard to call

I mean maker is not at its strongest in

governance right now the process is

clearly broken down like we're missing

assessments I I have you need an my

friend yeah yeah well I mean we need

people to come vote is I mean it's if

only one person shows up to vote then

then there's only one person voting and

you you know at some level you can't

blame like you know Rune has like the

like overwhelming I haven't looked

lately but usually upper 90% of the

maker that's voting um are his delegates

and you know you can't really blame him

for V voting and his bag I often

disagree with him in this case though

it's clear that just everything was

already tied up in a bow deals were made

um I mean there were like I say there

were pictures of of the dashboard of

these Morpho vaults being teased on

Twitter back in like the middle of March

um before they even came to the

governance Forum so it was clear this

was a done deal was going to get rammed

through um you that decision the

decision had already been made um we may

or may not be seeing a similar one with

a a proposal to directly purchase usde

um I think that remains to be seen but

it's again one of these where you can

ask questions on the Forum but there's

you know like only eight delegates and

like six or seven of them maybe all

eight are runes so like what are they

going to do like vote no get D delegated

I don't want to blame someone for I

think that's the what you're pointing

out is uh uh it's actually quite

concerning not because of mead but

because I have the feeling like cave is

the only in this world that uh

managed to grow outside the influence of

the initial team and the initial Thunder

Stan has like zero implication on the

aid for the past two years uh sometime

they they go to the for and say hey we

we don't have A3 do you want to finance

that and usually that's a good idea or

or we done the ghost table kinds do you

want to to on board that but the dayto

day we don't have like this presence

like how can you be decentralized if one

guy represent 90% of your vote and the

guy doesn't doesn't want to let the the

Dow mature and become

independent it's actually like a a big

debate are we doing defi for what's our

vision of Defi and oh we want this thing

to be organized because what's the point

of having a d like a company will be

more efficient just put a rune as a CEO

and he takes the decision then that's

it yeah I mean he wouldn't have to

listen to me I guess um I mean the

problem is not really having a whale

it's have is not the problem is not

whales it's having only one whale right

I mean what you need are diver my point

is not against run I think Rune is like

done a lot for our ecosystem my point is

that if you only have one guy you don't

have the GU race so you don't have this

safeguarding things that you have that

you to rely on the fact that your

dictator is

benevolent because if it's not well you

fact and that's the main point and

that's why we are doing theorized Dow is

that on the a if I do something and

people don't like it people say no to me

and there's nothing I can do about that

because my votes are one less than one3

of the Corum in the AO and you have no

one in all governance that is more than

two-thirds of the a Corum so no one can

unily decide this thing so it's really

important was was the Forum the chat is

saying with asbo delegate should be able

to vote against the interest of their

delegator without the faar of un

delegation and I think that's the main

point like if you don't have

independence why why having like uh

voters delegates at all because at the

end of the day just V by

proy yeah I mean I think I have mixed

feelings about this because I sit at a

lot of different protocols as a delegate

or doing other governance work and I

think you know I think delegates should

they do have a maybe not a duty but I I

think that they should look out for and

monitor the interests of their

delegators if they know to the extent

that they know who those people are you

they're like a

constituency that said I think that

there are some mitigations you can put

in place that preserve or at least

increase Independence some of those

would be like terms right like uh

someone delegates to you they can't

undelegated in the middle of a vote

which we've seen before at maker um or

that someone um like one of the things

we do over an interest protocol is that

it's like a matching program so like the

whales will match you know if you manage

to get like one governance token

delegated to you they'll match you with

like three more so it's

proportionately the same as like

whatever you got organically and I think

there are other creative ideas people

could come up with that kind of go in

between because I I don't think that if

a delegate's just out there like you

know basically vandalizing governance

with your with your um with your votes I

I don't think you have like I don't

think it's bad to pull the votes if

someone's not voting the way you want

but I do think it's in poor taste to

like have it just always be looming over

someone and I I think it's s such a hard

problem the song but I kind of agree

with you I guess so with maker pushing

this I I guess short-termism if you want

to call it it uh in its in its

governance essentially chasing after

high

yields uh you know going where

the the puck is right now rather than

thinking about like what's Athena going

to be in in six months or a year like

once rates normalize a bit more uh you

know rates have been pretty exceptional

for the past three to four months

because of this runup in the addition of

the Bitcoin ETF it's really skewed

things uh towards uh positive Athena

growth because people have been paying a

lot for long leverage but that could

unwind pretty quick you know we could

see renormalization of rates back to the

the 5% range or or lower and so when

you're making these decisions especially

to scale up lending into the billions

you know those those don't get changed

relatively quick and so it affects

Downstream service providers like a uh

who who have to take a a little bit

longer view on

this yeah I mean I I don't think that

this is a prudent decision at least at

this Speed without collecting more

information first um just because it's

at the scale that could you know one

shot Mak or if it like zeroed out for

some terrible reason um I mean I have a

hard time thinking how it could go to

zero but like you could still Maker's

got about 120 to $130 million in equity

like buffer Capital it's like Maker's

Capital so you know when you start to

hit areas the question is that in what

scenarios would you eat through that

right and then then you start

potentially inflicting losses on die

holders um if things continue to go

poorly um I don't think stable coins

should be really necessarily in the

business of chasing yield um I think you

know spreading around lots of little uh

you know credit lines is fine um not

really thrilled with 100 million but

like again that's smaller than maker

Capital buffer so I I don't see a way

that Athena could go straight to zero um

so you know even 100 million it's hard

to what is concerning is not the the

ability to do a direct deposit modu I

think it's a great idea it's a great way

to maximize uh the the revenue of a

protocol the the only issue we have

we have at a uh is the speed of the the

the growth of this credit line uh it

basically happen overnight and from our

perspective it it create DS about the

predictability of the meod protocol

because the relationship we created with

the cre the meod protocol for the past

four years or even five years if you

look at the history of a and the

ancestor of a which is at L uh we have a

positive some relationship with the Mead

because Mead is the decentralized table

coin and we are that's compatible with

ouros and that's something that we want

to push uh and also we had this

expectation for the past year that Mead

was a conservative protocol in terms of

risk management and basically in the

very short term for the past quarter

that assumption is not quite true

anymore and the thing is that with 100

million uh die credit line into uh etina

that's completely fine that's basically

maximizing the yield they will make 40

million a year for that K does for that

and everybody wins and why not but when

that 100 million becomes overnight 600

million we uh like everybody saying uh

on the Forum we should grow that to 1

billion doar and maybe five billion the

fundamental and the intrisic risk

profile of the asset changing over

that's why we need to react because at

the end of the day like people try to on

social media to create uh to to say it's

a war between me and and AI That's not

very well knowing the history between

and of synergy between me and a and the

fact that a right now is making $15

million net profit from D into as a

collateral and as an asset borrowed into

the other protocol so we have a vested

interest as a protocol and Naz into the

the success of Meer which is a k nav and

die as a stable kind which is one of the

money maker in a the all reaction is

pure risk management because the profile

change overnight and that's important

for me to point out yeah I think paper

that was something that you and I

discussed the last time that you were on

was that for the longest time Maker's

been just boring it's been extremely

conservative extremely just you know uh

just boring at the end of the day like

the the how they've segregated their

their capital and where they've um grown

through it's always been in in providing

their like the lowest risk across defi

right like they they are considered to

be uh the the Bedrock of defi interest

rates and so this the shift into a more

aggressive um uh protocol in chasing

yield does change the risk structure of

of maker as a

whole yeah I mean it if if if maker goes

through with it

um yeah I agree it's a significant

change in the risk profile um I think

again I I think I tend to be more

concerned about the fact that some of

the the parameters and some of the risk

management choices that are being made

again don't make a whole lot of sense to

me like hard coding the oracles to$

one um yeah for those who like context

comp tried to do that uh that was not so

great I think recently uh it's radian

Capital that tried to do that with usdc

uh so it happened at least three or four

times over the the past years and during

the last cycle where uh we had very

clear uh example that AR coding the the

price of a stable going to $1 is not a

great idea

so and that's why it's a bit concerning

to us even if in that context is not

completely Reckless but here so I mean I

think the problem here is that by

choosing so if you use a price Oracle

that's like and and you can underwrite

almost any asset based on the secondary

Market liquidity that you can dump into

for liquidations right so um I think the

problem here was people were very

gung-ho about this collateral and they

saw that you can't safely liquidate more

than you know I don't know $10 million

or something like that making up picking

a number out at TH air but it's not like

on the order of scale to even a 100

million um probably uh for for a credit

line so if you want to go beyond that

like I I understand that that's why they

made the choice to hardcode the Oracle

to $1 because there's no way to safely

liquidate but the trouble is then you

need to underwrite against the issuer

which is much harder right because you

need to you know learn all kinds of

legal facts about them and financial

facts and you know like are these

reserves bankruptcy remote are they

going to be proof of reserves like is

there a legal obligation to redeem usde

if so for what do you get to pick or do

they get to pick because there's lots of

different underlying stuff that can be

repaid in kind um you know there's just

all these extra hundreds of extra

details that could still be perfectly

fine it's just so much more work and

this is the work that has not been done

yeah but that's all work has a

protocol that's that's literally what we

do yeah yeah um yeah I don't I don't

know like I'm Pro maker I still got my

maker tokens I don't really agree with

with the the current governance proposal

but go

ahead I just want to comment that uh

this ped for at least like I don't know

half a year or even like nine months or

so ever since maker got more serious

about

W um I don't really perceive it as very

decentralized uh on many aspects like

like I'm finding it difficult to

understand like what's really

decentralized about the maker when I

really try to think

about I mean I think decentralization is

one of those like suitcase words that

everybody packs whatever meaning they

want into it um do you mean it's

decentralized and that it's technically

decentralized then like you know an AWS

important to point out is that

concentrated decision making doesn't

equal

the centralized protocol I have the

feeling and I think it's backed by the

fact that Mead is a decentralized

protocol and the die is a decentralized

table coin everything up on chain

everything is permissionless and that

does not change what is subject to

debate here to me is that is the

decision making thisiz or not I have the

feeling that for the past quarter to six

months it's less and less decentralized

and more and more concentrated but I

will not say publicly that beod is not a

decentralized protocol anymore because

that would not be factual to

be yeah I would agree with that uh one

thing I do want to pull up is just the

the the sizing of the pools I mean if we

take a look at the the curve pools right

now uh there's probably hundred million

do worth of USD liquidity uh across the

board if we're looking specifically at

us or at the state USD

liquidity uh there's only about 37

million uh right now and so it's just

it's surprising to me that with the

current um liquidity that you can find

on curve and other places that the scale

of of this growth in maker would be

allowed to to to grow so much un

feathered and I think that's that's kind

of what ties in because if there needs

to be liquidations if there needs to be

other things that that that come as a

result of um having uh USD or SSD

onboarded into maker um it's it's really

questionable whether the the market

dynamics in the in the dexes would be

able to to handle any sort of major

event well well Maker's betting that if

it gets stuck with collateral it can

redeem

it just directly through

Athena

um so I I maybe um arrangers are also

available to be I'm not sure if you need

to be listed to redeem at a certain size

so I because I think for retail and

someone can correct me if I'm wrong but

I think like if you're just a retail

schlub on the UI um I think you're

actually going through the curve pool um

but I might be wrong on that don't quote

me but you know there is like an actual

Redemption process where you show up

like as a kyc company and say here's our

tokens give us the whatever um so I

suspect maker would probably go that

route yeah just like it does with usdc

or other things when it needs money

right yeah Mark like I I hope that that

a is able to exert some sort of

influence here um especially with you

know it's a it's a

clear showing of

sentiment uh for third

party protocols that are that are using

die uh in in showing that that the these

moves that they've been making have been

aggressive and that may not be warranted

or or wanted by by Downstream providers

uh who are then using those assets

specifically die and and the risks that

are being on board in um is there

anything that could be like learned from

this on on moving forward that you know

we have these segregations of these Dows

uh but sometimes the the these these

Dows don't really U act in alignment

with each other um you know what be done

here I think what is important to point

out this situation is that even if what

we did today seems aggressive uh to me

it's was important to draw a line in the

sand and say okay guys this is not okay

we think that's reckless and it will be

better for everyone involved to back

turn a little bit uh slow down and maybe

find a pathware where everybody wins

again and that's pretty important

because if we want it to go nuclear on

this we will have a discuss with the

guardian and just freeze die overnight

and make a a governance decision with uh

the D asset Frozen on every Market that

will have been like quite TR stronger

but the thing is that I do believe that

the risk for die of a deeg right now is

not uh big enough to to to put that what

I'm concerned is the speed of growth of

this credit line and what

if we do nothing could have pick on in

the next few weeks or in the next few

months because the thing is that if uh

the people in charge and uh the people

that has the decision making in make are

saying okay with 100 million die we are

making four $60 million net profit so we

just do $600 million because we going to

make like hundreds of million dollars

make profit so why not just mean 10

billion dies and just do it because it's

the bull market we probably going to get

away with it for a few weeks or a few

months and let's see what happened next

and the thing is that our safety module

is not big enough to to under a dial

failure like there's half a billion

dollar in the a safety module it's not s

for the die risk because it was sized

for the die risk of three months ago or

three weeks ago when uh the the credit

line was 100 million and that's why it's

quite important to send the signal to

the our governance saying well if you

want to go down that path that's going

to be without us uh we work together for

the past four years but if you go reass

uh we're not going to work together

anymore and that's how it's going to be

obviously in our opinion or at least at

the ACI opinion no burn uh no Bridge has

been burned at all so we be more than

happy to roll back or even consel the

proposal if the speed of growth of the

credit line is lower not even uh a

question of SL of size to me the most

important is how predictable this credit

line are and how we can assess the die

risk and as long as it stay in

reasonable uh frame and range it's

completely fine we are not anti

competition we are not anti maker uh we

uh work with meod for the past year and

we hope we can work with uh make dou for

the next few years so I wanted to bring

up your uh proposal you know in The

Proposal you talked about angle and

their agus or AG Euro which is now euroa

which was Meed into uler a week before

their hack uh and also the J Euro

menting and demidas uh leading into the

uh asset long-term dpeg um can you can

you talk about those two events and yeah

so basically uh H is quite a funny one

so so they had like the equivalent of

the DM obviously the scale was much

smaller we are talking like few million

dollars here not uh I think like the

size of angle was $30 million which is

not zero but something that is

manageable by the uh safety module and

at the end of the day we did not have

enough liquidation to Warrant like P dep

like Liquidation in a work for that site

uh but still uh it's quite funny because

their credit line was automated and at

some point like for as long as the

credit line existed a was the largest

source of yeld so their money where

deposited in Na and for some kind of

Market reason one week before the ACT uh

the EUR EUR Le yield uh increase of 1%

there's been like 1% premium uh in oer

then in a and they lost everything that

way uh it it's a story that ended in a

good way because at the end of the day

Oiler found uh recoup the The Bunny and

the haer send the bunny back but Ang

could have died just because they wanted

to make like 1% more than what they used

to make in a that's so it's quite

important to to monitor this kind of

action uh because uh Jarvis was not so

lucky and when they deposited 30% of

their so basically what maker is doing

right now like 20 to 30% of their supply

uh into a protocol call me Midas and

when Midas got got wrecked well the the

asset is not permanently dep I think

it's still 10% not 15% below Peg as we

are speaking today so it's not nothing

in terms of

risk let me ask you mark what would it

take to get you to pull this like what

would like what would be the remedy if

you could wave like ask something from

maker like what would be the specific

terms to like like pull the proposal

slow it down do XY Z slow down yeah do

that on six months do that on six months

so we can adapt and uh adapt the risk

parameter on a and make sure the a user

stay safe instead of doing that in six

weeks do it in six months I don't think

that's right uh just don't be Reckless

at the end of the day we are nothing

against the concept of the DM we think

it's a smart way to do money but I think

we can make money responsibly and make

money in a way that don't put the Wall E

system and Industry at risk just do it

in six months instead of six weeks I

don't think that's a crazy ask well I

mean I think six weeks would probably be

the thing you could ask for because

we're at six days

um yeah

yeah crazy yeah the money is on the

table and everyone everyone wants it now

no like

a I really think the whole thing with

Athena got everyone kind of

crazy it has yeah yeah but the thing is

that you cannot mean something that is

larger than the PSM like come on it's

basic so if you manage to grow both at

the same time over the the span of the

few weeks that's completely fine and you

end up with the same Revenue but

overnight is crazy just crazy I don't

know in which language to say that I can

say it in

French uh so one last question that I

want to pose to you uh paper before we

wrap is uh there's been some calls now

saying that maker is is no longer just a

a stable coin issuer it's it's now a

hedge fund with its decision to grow to

the size of of a billion into Athena how

would you answer that ah it's such a

joke there's no hedging involved so I

mean so first hedge fund is one of those

suitcase words where people have

different ideas of what it means um if

you want to think about it in terms of

an active actively managed asset

allocation you know I would say this is

not new at all um you know you can

approve or disapprove of the the asset

uh or structure um or terms but like

this is not like a new thing maker has

been doing you know did some small

experiments with real world assets back

in like 21 22 um and then in you know 22

23 you ramped up these very large scale

exposures to t- bills through various

entities

um I yeah I would say maker doesn't have

like a real great track record at

picking winners

um there's a couple tiny ones that have

defaulted you know not Material at all

um I would say there's also quite a few

examples of like where the opportunity

cost is is like I think palpable right

where if you're lending at say you know

below t- bill rates on things that have

credit risk um that's not a situation

you really I think like I can say like

more bluntly the new paper is like the

the management was terrible like at some

point it was 85% of all D collateral

that was of Shane and all of that making

3.5 to 5% while right before uh a bull

market so it like the timing was bad the

uh sizing was bad and the risk

management was bad and I think what we

are leaving right now on Meadow is a

overr reaction on the other side of the

pulum so it been bols deep into real

world assets and then massively

underperforming the the current market

and now we are going Bal deep into risk

in order to overperform the current

market that's not risk management

friends that's not how it

works yeah I mean I think the motivation

is probably similar to what you either

what you said or close cousin of it um I

think I think Maker's bigger problem is

that it's been very hard to grow die

Supply but I think that's like kind of a

like a much bigger question because I

think a lot of these problems kind of

work themselves out if you get your

stable coin Supply growing

again yeah and so like looking at the

diet total Supply uh if we're looking

past or over the past uh two years just

going to pull it maker bur here uh

there's been pretty significant outflows

so back in 2022 in April around this

time the die Supply was at about close

to10 billion was it9 a half billion doar

uh it's now contracted down to uh lows

of uh $4 billion and it's currently

sitting at $4.9 billion so uh there's

been a clear shift away from from d uh

the supplies dropped in in half over a

two-year period and it really hasn't

been able to uh to to capture uh market

share uh over these two years even as as

tether has maintained its its market

share and uh usdc has started to see U

growth within its Supply as well

too

and so if if if die Supply was going up

if we were looking at

a die being 30% off the lows we probably

wouldn't be having this discussion but

uh you know I think people are looking

for ways to to jump start this to get

this back up into the five to seven

billion dollar range again and maybe

that's done through this this Athena

proposal uh as as people use maker to

chase yields and get leverage um but

we'll see I think the I think is clear

that you guys both agree on on the speed

paper you did say this um yeah yeah I I

I don't think it's it's not the way I

would do governance but there are people

I respect on the other side that would

disagree with

me well we'll leave it at that um I want

to thank you both for being here today h

it was really enjoyable to to hear more

about this governance proposal that's

going through both maker and a at the

moment um you know I I hope that we do

see a bit of a Slowdown in this because

it it has drastic effects across the

industry and with maker being one of the

largest defi

incumbents um you know it's it's hard to

say what the Ripple effects might be if

there's any issues with Athena we we we

haven't seen it go through a cycle yet

we don't know what sort of systemic

risks there are um you know maker was

able to navigate 2022 all the blowups

svb shut down and and and make it out

alive

but uh with the sizing of Athena into a

billion dollars and potentially more

it's unclear what sort of systemic risks

there might be in the future that we

just haven't seen

yet completely agree with that I think

it's important to like the Slowdown is

by Design on the a so we have framework

that impose minimum discussion time

because uh there's a lot of emotion but

when you are a d and you do risk

management emotions should not be uh the

main concern so uh at the minimum this

discussion will take two weeks because

uh the current sizing of the position is

not a threat to the a protocol and the

safety module can absolve that so unless

they they decide tomorrow because it can

go fast as we as we discuss uh to

increase the the position side to one

billion or two billion overnight there's

no reason to uh use the AVU guardian and

make thing faster and uh everybody can

discuss the a forum is open to everybody

as long as the Rules of Engagement are

respected and people are respectful to

each other uh you you your opinion will

be valued so feel free to participate

it's a decentralized autonomous

organization a DA and that's how it

should work feel free to share your

opinion in the a

for well thank you Mark thank you paper

and defi adviser for being here today um

really enjoy this uh I hope people get

out and get active on the governance

boards uh I I see that uh there's not

been a ton of comments yet on the maker

stuff and uh I see about 10 comments on

the the a discussion so far so hopefully

we get a lot more input here going

forward and uh we see a a good

resolution of this um thank you

everybody for listening at home uh make

sure to come to Leviathan newws on

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tomorrow thanks