There were always bound to be challenges running a new kind of business that relies on democratic decision-making. Companies, after all, tend to run optimally when they have clear, hierarchical control from a senior management team and chief executive.
Now MakerDAO, one of DeFi’s oldest and most prestigious lending protocols, is searching for a way to balance business efficiency with the egalitarian ethos of decentralized autonomous organizations.
Complicated and Fraught
Its effort may very well show the way for the rest of the DAO community. If the actions this week are any guide, it’s going to be a complicated and fraught process.
“The status quo is not working,” tweeted Sam MacPherson, the author of a proposal that would have formed a “Growth Task Force” at MakerDAO and a member of the Protocol Engineering Core Unit. “The DAO is not currently set up to make high level decisions which is leading to decision paralysis or less informed parties making sub optimal calls.”
On June 27, MakerDAO’s membership considered three proposals that would have restructured its management approach in profound ways, possibly leading to the set up of a quasi-board of directors. In votes that amassed record turnout, the DAO’s members rejected all three propositions, which would have formed a trio of working groups with seven-figure budgets.
Even so, the very fact they were brought to the floor for a vote marks a pivotal moment in the evolution of DAOs. GFX Labs, which develops protocols as well as authoring governance proposals across DeFi, said the proposal to set up a “core unit” to oversee the onboarding of collateral assets and manage the organization’s growth was groundbreaking.
“The most controversial governance vote of MakerDAO… perhaps of all DAOs, just finished,” GFX Labs tweeted.
The governance drama comes at a time when the entire DeFi community is undergoing a period of soul searching during the worst bear market since 2018. With the failure of Terra in May, stress is coursing through the DeFi lending space and rocking major players. On June 29, a court directed Three Arrows Capital, the $10B hedge fund, to go into liquidation.
Amid the volatility, MakerDAO has held steady. DAI, Maker’s flagship stablecoin and the onetime target of Terra’s co-founder Do Kwon, has stuck fast to its U.S. dollar peg even as other stablecoins wobble.
Maker has completed deals permitting real world assets to be collateralized, a bold push into the nexus between DeFi and traditional business and finance. And its token, MKR, has declined 36% in the last 30 days — dismaying, to be sure — but that’s better than Ether’s 47% plunge.
Most importantly, MakerDAO has been entirely decentralized since July 2021.
Therein lies the problem: How can DAOs preserve decentralization and generate the kind of growth they need to truly reshape finance? It’s a question that has clearly been weighing on the mind of Rune Christensen, MakerDAO’s co-founder.
“The governance processes and political dynamic fundamentally aren’t compatible with the reality of effectively processing complicated real-world financial deals,” Christensen wrote in a major post on May 30.
Christensen, who has emerged as an influential truth-teller in the DAO community, decried MakerDAO’s financial losses and apathy in the ranks of its membership.
Well, members aren’t indifferent anymore.
The three proposals floated this week would have reshaped MakerDAO.
The first, dubbed LOVE-001, proposed creating a new Core Unit. Its mission was to “enforce MakerDAO’s role as the central pillar of the DeFi monetary ecosystem by supporting the onboarding of tens of billions [of dollars] worth of complex assets and ensuring the alignment of those activities with a sustainable and decentralised risk framework,” according to the proposal’s forum post.
It was a wordy proposal, but one feature stood out: the Core Unit would “periodically audit the activity of other Core Units.”
Oversight Core Unit
Indeed, LOVE-001 calls itself an “oversight Core Unit” and a diagram in the proposal positions the Core Unit as having a special position as the second opinion on analysis of new collateral types. More than 60% of 293, 911 MKR votes went against LOVE-001.
Hasu, a DeFi researcher who voted “yes” on LOVE-001 and the other proposals, said that he’s pushing for a board-of-directors style DAO for Maker on Twitter.
The second proposal, nicknamed Makershire Hathaway, would experiment with earning yield with $10M of the protocol’s $5.4B in stablecoins, according to the explanatory document. Makershire Hathaway got a thumbs down from 65.8% of the 207,087 MKR tokens that voted.
The third, MIP75c3-SP1, would essentially establish a discretionary fund under the control of what the proposal calls a “Growth Task Force.” It would be made of nine members from a handful of Core Units.
‘As Fast as Possible’
The Growth Task Force proposal lost by the highest margin of the three in question, with 76.3% of 230,000 MKR tokens voting against it.
As its name suggests, the Task Force’s primary goal would be to grow Maker “as fast as possible,” according to the proposal’s mandate. “The initiative would start with a $1M budget for conference sponsorships, a DAO-wide offsite, and to hire a lawyer to review possible capital raise structures.”
Record turnout, and efforts to scale the DAO show that the majority of Maker’s constituents think it’s a crucial time for what is arguably DeFi’s most advanced and decentralized governance system.
“The voting blocs are not exactly the same but the theme is the same: give this group the authority to make autonomous decisions, yes or no, with a sizable budget attached,” Wouter Kampmann, the co-founder of the Sustainable Ecosystem Scaling (SES) Maker Core Unit, told The Defiant. Core Units are essentially a department within Maker.
Votes happen by way of the MKR token and users can either vote themselves or delegate their MKR to someone. For example, Rune Christensen, Maker’s co-founder, delegated his 78,626 MKR to 10 different voting delegates. Christensen appears to have made some last minute changes in his delegations, like delegating 3,000 MKR to researcher Chris Blec on June 27.
At the highest level, the question appears to be whether the DAO should centralize in order to increase efficiency or slow down and try to develop more efficient governance processes.
To this end, the SES Core Unit is working to develop a dashboard to more clearly communicate what initiatives each Core Unit is tasked with, their respective budgets, and other pertinent information.
Not in Theory
While the votes did not result in immediate change to MakerDAO’s governance, they did galvanize the members in a fundamental way. As this storied organization wrestles with the challenges of the DAO structure and mission, all eyes in the community will be watching closely to see what comes next.
“The vote that concluded yesterday has rallied enough MKR to show beyond a doubt that Maker is no longer controlled by any one party. Not in theory, and not in practice,” Kampmann said. “This is in line with the history of gradual decentralization of the project.”