Maker Foundation’s risk team proposes strategies to mitigate MCD migration risks

  • 05 November 2019, Tuesday, 13:00

With the Maker protocol scheduled to upgrade to the new Multi-Collateral Dai (MCD), the Maker Foundation’s interim risk team has published a proposal on the Maker forum about conservative migration strategies that could be designed to mitigate overall risk during the process.

The proposal mentions that the present iteration, Single-Collateral Dai (SCD), will live parallel to MCD indefinitely, and during this time, the community will be tasked with managing two ecosystems. There will also be a special migration contract included in the Maker Protocol, due to the potential for destabilization of both the SCD and MCD versions of Dai.

“The functionality of the migration contract is contingent upon governance approving Sai as a collateral type in MCD.”

The proposal also mentioned a straightforward method of incentivizing Dai holders to migrate to the new protocol by introducing DSR (Dai Savings Rate), a new governance tool for ensuring Dai stability.

“A DSR of 2% is likely to be competitive with the broader DeFi ecosystem, which currently offers a ~6% (and dropping) savings rate on Sai. After adjusting for the added counterparty risk present in other platforms, a 2% DSR should incentivize a moderate amount of Sai holders to begin the migration. This parameter can be adjusted through governance as needed.”

Potential risks that could occur during the migration process were also listed in the proposal. These included an unprecedented pace of migration and low Dai liquidity in the open marketplace or migration contract.

To mitigate these risks, the proposal stated that governance must monitor the pace of migration and adjust the risk parameters based on it. Also, should the Dai liquidity situation arise, the community must be ready to trigger an emergency shutdown.