Remaking the Maker Protocol: Follow-up
by Ross Ulbricht
I recently wrote this article about the Maker Protocol. The protocol is an Ethereum application that supports DAI, and DAI is a token that tracks the value of the US dollar. One of the hardships of prison is access to information. It can take weeks or months through the mail to research even a small topic or get a specific piece of data. Something that might take mere minutes with Internet access. So, I published that article without verifying some data, wanting to get it out while the mid-March crisis was still somewhat recent.
I had received values for the savings rate and stability fee, and they confirmed my hypothesis, but they were values from different days. I assumed the stability fee was less than the savings rate all the time because I didn’t realize how often and dramatically the rates were being changed. The best data I could come up with since then puts both rates around 8% pre-crisis, with the savings rate dropping to 0% post-crisis. I had recommended the savings rate be set to zero in the article, and so far, it has stayed there.
The fact that the stability fee is higher than the savings rate doesn’t change the points I raised in the article, it just means there is some other explanation for why people are putting ether into Maker vaults. The best explanation I have come across is that they are using it for financial leverage. They issue DAI backed by ether and then sell it for more ether. If the price of ether goes up, they make more than if they were just holding the original ether. But if the price goes down, they run into trouble because they have to try to recapitalize with a depreciating asset. As noted in the article, that’s what happened in mid-March when the price of ether suddenly fell by half.
As a prisoner, I am very fortunate to have people willing to do research and work with me through the mail. I am a rare exception. Most are very cut off from all but the most mainstream sources (CNN, Fox, NPR). Even so, it is a challenge to get all the details right on a topic like this. Thank you for pointing out the mistakes and bearing with me.