How does decentralized MakerDAO make an "interest rate adjustment" decision?

The whole mechanism can be divided into three steps: community discussion, public opinion voting and execution voting. In the execution of the voting, the initial number of votes for maintaining the stable rate is the number of votes for the previous round of voting. The user can take his MKR to reduce the corresponding number of votes. At the same time, the user can also add this option. The option to win in the poll is to have an initial vote count of 0 in the execution of the vote, and the user who supports the option will vote again.

About a month ago, the carbon chain value launched an article that explained the MakerDAO mechanism and ecosystem in detail, "I understand the article : DeFi Crown MakerDAO . " In that article, we clarified a logic: when the market picks up, Ethereum prices rise, people will tend to add leverage, mortgage Ethereum to generate Dai. In this case, the total amount of Dai in the market will be more and more, and in the case of constant demand, Dai will have a discount relative to the dollar it anchors. In order to maintain the stability of the Dai price, Maker will increase the stable currency rate and increase the cost of people to obtain Dai, thus inhibiting the increase in Dai supply.

Since February of this year, due to the market's enthusiasm, Dai's stable currency rate has increased by 8 times, from 0.5% to 19.5%. Since the market has recently entered an adjustment period, the price of Dai against the US dollar has stabilized. Yesterday MakerDAO announced that it will cut the stable currency rate by 2%.

So, as a decentralized organization, how does the Maker system make a decision to raise the stable currency rate, lower the stable currency rate, and maintain the stable currency rate for the market situation? If we see the result of raising the stable currency rate in the "public opinion decision" round, can we think that the final system will raise the stable currency rate? (On this, Coindesk even suffered from reports.) Who decides whether to change the stable currency rate?

In order to understand this problem, the carbon chain value and Pan Chao, the head of MakerDAO's China region, had an in-depth exchange. Through this essay, we will clearly explain the MakerDAO voting process and the mechanism for stabilizing rates.

The whole mechanism can be divided into three steps: community discussion, public opinion voting and execution voting:

01 Community Discussion

Maker's purpose is to set a stable rate, which is used to adjust the exchange rate between the stable currency Dai and the US dollar. It can be simply understood as changing the supply and demand of Dai by adjusting the stable rate, thus affecting its value in the market.

In general, increasing the stable rate can reduce the supply of Dai, thereby increasing the price of Dai against the US dollar; lowering the stable rate can increase the supply of Dai, thereby reducing the price of Dai against the US dollar.

Dai's goal is to achieve a 1:1 link to the dollar. When the price deviates from $1 for a long time, the community will discuss and decide whether to vote to change the stable rate. At present, the stable rate is low, and there are a total of 9 files. The gear range is 1%, and the 9 files are: -4%, -3%, -2%, -1%, unchanged, +1%, +2%. , +3%, +4%. The previous gear range was 0.5%, but after several rounds of voting, the 0.5% interval was too small to effectively adjust the value of Dai, so the current gear was formed.

When the community decides to adjust the stable rate, the plan is submitted to the development team, and the development team releases the voting interface.

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02 Polls

The public vote is for a total of three days. All MKR holders can participate, and MKR can only vote one vote.

There may be two outcomes for this round of voting:

1. The number of votes in the unchanged gear is the highest, then the Dai rate adjustment mechanism ends. There are two options for the number of votes in this gear, to retrieve your wallet or to accumulate the voting pool of the same gear.

2. In addition to the constant stalls, the number of stalls is the highest, then enter the next step "execute voting."

Please note: If the result of the poll of the public opinion is to increase the stable rate, this cannot be considered as the final result. Earlier media reports had seen "MakerDAO increase the stable rate" several times but the actual voting is still going on. This happens because MakerDAO has two rounds of voting. The final result requires "execution voting" to determine.

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03 Execution vote

There is no time limit for the process of voting. There are only two options: one is the option to win in the poll, and the other is the option to maintain a stable rate. The stable rate will only change if the option to receive an option in the poll of the poll exceeds the option of maintaining the vote in the round of voting.

In the execution of the voting, the initial number of votes for maintaining the stable rate is the number of votes for the previous round of voting. The user can take his MKR to reduce the corresponding number of votes. At the same time, the user can also add this option. The option to win in the poll is to have an initial vote count of 0 in the execution of the vote, and the user who supports the option will vote again.

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Please note: Since there is no time limit for "execution voting", in theory we cannot determine exactly when MakerDAO will change its stable rate. MakerDAO does not have a mechanism like the US Federal Reserve or the People's Bank of China, with a fixed date every month or quarter to announce interest rate changes or unchanged.

04 One question: Will MKR holders raise the stable currency rate for personal gain?

From the flow of the above mechanism, it can be seen that the holders of MKR have great rights to the overall design and the establishment of stable rates, and the MKR holders are the biggest beneficiaries of the increase in stability fees. (Under normal circumstances, the stability fee is paid by MKR. This part of MKR will be destroyed by the system, which will reduce the supply of MKR and increase the price of the currency.) So is there a possibility that the holder of MKR exists? Raise the stable rate in the short term to increase the value of MKR?

In this regard, Pan Chao, head of MakerDAO China, said: “The value of MKR can only be improved if the system is maintained at a high stable rate for a long time. Improving the stable rate in the short term cannot lead to short-term profit for MKR. Regardless of Dai’s The market price, the cost of artificially maintaining a high stable rate for a long time will be much higher than the profit of MKR. This mechanism also avoids the situation where the voting is too centralized and the big households do whatever they want."

Author: hydrogen 3, carbon-14