DeFI: Ethereum's currency Lego

Share: Pan Chao

Finishing: Uncle Red Army (Boundless Community)

As the almost largest DeFi application in Ethereum, MakerDAO can't be circumvented anyway. This time, we invited Pan Chao, the head of MakerDAO China, to share the development history of MakerDAO's DeFi, the current MakerDAO problems, and DAO governance and other perspectives bring you a full share of dry goods.


MakerDao meaning

MakerDAO, DAO = Decentralized Autonomous Organization, Maker = market maker.

I hope that today I can help you understand what DeFi is in some easy-to-understand language, and why the Ethereum blockchain can support DeFi.


What is DeFi, it is more like a currency Lego

Literally speaking, DeFi's full name is Decentralized Finance , which is decentralized finance. Decentralized finance is a very broad concept. In a broad sense, any activity related to blockchain assets can be included. Go to the scope of decentralized finance. But if we want to give DeFi a narrow concept of decentralized finance, I think DeFi is a decentralized open source financial agreement and a financial product that does not require access.

This is a long passage, but there are a few key words here. The first one is decentralized hosting , which means that the books behind it are decentralized; the second word is an open source agreement . This is better understood, that is to say, the code of this set of protocols is publicly visible; the third word is that there is no need to enter , this is for the user, all users can go to the product without threshold. There is no need to carry out KYC, and there is no need to submit relevant information. Even a dozen or so English letters can be used to open an Ethereum wallet for transfer, transaction, mortgage and various financial activities.

With these features, we can try to abstract a concept that sounds more complicated like DeFi into a realistic and understandable reality. I like to call DeFi a currency.


The reason why DeFi is called the currency Lego is because of this open source protocol, it can be arbitrarily combined, anyone can combine these different modules and splicing into a new DeFi product in the original ecology.

Ethereum itself provides an infrastructure that allows developers to combine and create these decentralized financial products.


From the origin of cryptocurrency, why is there no DeFi product in the blockchain before Ethereum?

Then we may want to ask why the Ethereum blockchain can support these DeFI applications. And in some other blockchains, it didn't appear. We saw so many DeFi products, let us pull back the time back to ten years ago, which is the first blockchain product that can be said to be a landing. It is actually Bitcoin, but why are we not seeing the emergence of DeFi on the Bitcoin network?


We know Bitcoin, which he came out on January 3, 2009. Then at the end of 2008, Nakamoto published a white paper on Bitcoin. I believe many people have read the Bitcoin white paper. Even if you haven't read the full text, you may have seen the bitcoin summary. Or at least you remember the title of this paper, Bitcoin – a peer-to-peer electronic cash system. Nakamoto's vision is to use Bitcoin as a point-to-point electronic cash. It does not need to rely on traditional financial institutions to transfer value through a distributed, decentralized, peer-to-peer network.


When we go to see bitcoin, we have to consider the historical background of its emergence. Bitcoin was proposed at the end of 2008, when the world was in the worst financial crisis in the past six or seven decades, and this financial crisis occurred. The reasons for this are largely due to the expansion of some bad credit rating agencies and bank liabilities . Satoshi Nakamoto hopes to replace the existing monetary system with a new monetary system such as Bitcoin.

Satoshi Nakamoto hopes to create an independent monetary system in a new world. In such a monetary system, there will be no moral hazard and manipulation of large companies and large institutions. It will be accounted for by the mines for the nodes. While maintaining the security of the books, Bitcoin is a reward for these bookkeepers.



Bitcoin is successful from a security perspective, but not successful from a currency perspective

So far, this system has been running for nearly a decade, and we can say that bitcoin is relatively successful from the perspective of system security. But if we use a currency standard to measure bitcoin, it is clear that bitcoin is still unqualified. Obviously we can see the high price volatility of bitcoin and have not made bitcoin our daily trading medium. Value storage and pricing units .

Of course, this is related to the economic design of Bitcoin itself and its underlying architecture. From an economic point of view, Bitcoin is a currency issuance mechanism that mimics gold, and the fixed amount will cause a deflation spiral . Everyone is more willing to store this currency than to circulate it. This is more likely to cause speculation in the currency.

At the same time, in order to ensure the security and simplicity of such a system, the Bitcoin protocol is relatively closed. It is not a Turing-complete language . In other words, it is difficult for you to loop through the Bitcoin network.

This makes it difficult to support some complex financial logic. So there is no way to derive an endogenous currency and payment system, which is why we see bitcoin more like an electronic gold, rather than some characteristics of the transaction medium, leading to bitcoin networks, or bitcoin The world is more like an island of assets. On this isolated island, it is difficult for you to create a financial product and financial agreement, just like the decentralized finance we see now.


We can only see the high volatility brought by speculation as the price of a roller coaster. So how do you bring stability to the Bitcoin protocol, or how to have a relatively stable trading medium in the Bitcoin network to perform currency functions?


Due to the closed nature of the Bitcoin network itself, it is difficult to create a set of native stable coins on the Bitcoin network.

So you need to use some external currency and then clone it on the Bitcoin network. A good example is USDT, which is the shadow of the US dollar. It can be said to be a cloned dollar issued according to the US dollar asset 1:1. Coincidentally, the network that USDT originally supported, the OMNI network, is also a Bitcoin protocol.

But with the emergence of the two types of USDT and Bitcoin, it is still not enough, because they are still growing in two separate spaces, we need a transfer station, so that the two can be traded, then this transfer station is It is the centralized exchange we see.

Some people refer to a centralized exchange as CEFI. This is also the centralization of finance relative to DeFi. In fact, centralized finance is finance itself. You need to rely on a third-party custodian to conduct transactions on its own undisclosed books. Users often need to submit KYC information. Ability to register an account.

Through such a centralized transit station, USDT gives Bitcoin and Bitcoin assets traders and holders a stable pricing unit and a safe haven when the price of Bitcoin fluctuates, but brings these benefits. At the same time, Bitcoin also lost his own pricing unit .



Ethereum solves the decentralization and can build applications on the original network.

Then we can think about whether it is possible to retain such a decentralized asset itself, and at the same time, a stable currency is born on the network behind this set of centralized assets, and its price is stable with the legal currency, but He does not need to resort to a third-party hosting agency and traditional gateway.

Then this requires the network itself to need a native asset token and to support complex financial logic.

The emergence of the etheric imitation in 2015 can be said to solve such a problem. When Ethereum was first published, its vision was actually a global computer . The biggest advantage over Bitcoin is that it changes from recording a distributed ledger to being able to execute distributed code . This means it can support more complex computing and financial logic .

At the same time, the development environment of Ethereum is also more open, it can support Turing's complete language .

Ethereum inherited the bitcoin currency issuance mechanism, which is the workload proof mechanism, through the miners to maintain the security of the network, and the completion of the Ethereum token as a reward. But unlike Bitcoin, you can build the application you want on the Ethereum native network.


MakerDAO Central Bank on the Ethereum Network

Then MakerDAO is a set of currency applications and currency systems built on the Ethereum network. Then in this set of currency applications and the monetary system, a decentralized stable currency such as Dai was created, which is the base currency used in all current DeFi projects.


So let's take a look at how a decentralized endogenous stable currency like MakerDao and Dai is implemented. I just mentioned Ethereum, an underlying asset of the Ethereum network, you can Ethereum is imagined as the gold of the Ethereum network , or oil . And Dai, that is, the use of these gold as a reserve, the banknotes issued in such a strict gold standard system.

What I just mentioned is the strict gold standard, which means that every Dai that is released has a full amount behind it. Or in the case of MakerDao, the excess Ethereum is mortgaged.

For example, you can deposit $150 worth of Ethereum to generate 100 Dais. The cost generated by each Dai is one dollar.

Unlike the USDT mechanism, USDT needs to rely on the traditional custodian to store the user's dollar assets. Dai, it does not need to rely on a escrow agency such as a third party, everyone can issue Dai as long as you With Ethereum assets, you can interact with smart contracts and automatically generate such a decentralized stable currency based on unchanging established rules.

In addition, the Maker protocol itself is also open, it is also a component of the currency Lego, you can build and build some other currency agreements and derivatives based on the Maker agreement.



Building LEGO bricks above the Ethereum and Maker agreements

Let's take a look at this currency Lego diagram. At the bottom of this picture is the underlying agreement of Ethereum. I often compare the Ethereum agreement to the Economist World Treasury . The Ministry of Finance issued a national debt in a small world small country. This national debt is the Ethereum. It is an underlying asset of the Ethereum network. On the basis of such a set of underlying agreements, we have Maker It acts as a base currency issuer and acts as a central bank . It used a treasury bond such as Ethereum as a reserve, and then issued a stable currency such as Dai in an over-collateralized manner.

Based on the Maker agreement, you can also build a commercial bank, a private lending institution, and a payment infrastructure. A good example is Compound, which is implemented through an automatically matched pool of funds. The function of commercial banks on Ethereum.


We know that in the MakerDAO agreement, the assets it accepts are currently only Ethereum, and Ethereum is the highest asset in the network. But there are some other assets in the Ethereum agreement. For example, some projects have issued ERC20 tokens. Then these tokens may not be used to generate the M0 currency in this network, which is Dai. But it can borrow the already issued Dai from the level of commercial banks.

Compound has played such a set of functions, in its system to accept some of the other ERC20 assets in addition to Ethereum, providing users with a place to borrow .


MakerDAO and Compound are safe enough

And the advantage of the Dao protocol is that you can go with it. At the same time, because it is over-collateralized, and all assets are locked in smart contracts. Therefore, Compound itself does not have the risk of running, and from the perspective of the fluctuation of the asset itself, the economic risk brought by it is relatively small due to the excess mortgage mechanism. In this way, in fact, Maker and in the Maker ecosystem, a strong function of these lending agreements is that it connects the global interest rate market , it can absorb local deposits from various countries, and it can Go to users around the world to make loans .

An example, for example, users in the United States can deposit the stable currency assets in his hands into the agreement, while Chinese users can mortgage their ERC20 assets in the system and lend stable coins stored by US users. . This allows some negative interest rate countries to enjoy an interest rate higher than their local market.


MakerDao and Compound can be said to be the decentralization agreement of Ethereum, a representative base of facilities and products in this currency. So on the basis of these, in fact, you can also build some other currency Lego. For example, Ethereum itself is still a world of WEB3.0, and needs to communicate with some of the world of WEB2.0. In other words, you need some Ethereum wallets as such a connection, and these wallets can add these protocols to their browsers without friction .

Ethereum is implemented as a connection between WEB3.0 and WEB2.0. In addition, you can also build a decentralized exchange in such a system of decentralized finance. The so-called decentralized exchange means that all its integrations and clear settlements are in Ethereum. On what was done. In addition, you can also create some leveraged trading products and asset management tools.

Because traditional exchanges and leveraged transactions are different, financial agreements on decentralized networks can be opened to each other, meaning that their liquidity can be shared .


Currency bridging between different blockchains

Let's take a look at the last picture, which illustrates a currency connection between different blockchains. In other words, for different blockchains, what form can you create to create a stable currency in this system, as well as the monetary system derived.


We can look at the top left first. It is a bitcoin network. Bitcoin I just mentioned that his more features are a digital gold , but such a digital gold is a bit like an island of assets , it needs some external connections so that it can communicate with other blockchains.

In the current world of Bitcoin, the most connected way to the outside world is to implement Bitcoin as the most important attribute of an asset, that is, a transaction, through a centralized exchange and USDT.

Then let's take a moment to take a look at USDT. I mentioned 1 point before. The USDT is a shadow dollar. It is called the shadow dollar because it is a clone of the dollar. That is to say, through a custodian 1:1 to issue a dollar token. But it is unregulated, so the market that USDT is targeting is relatively gray.

Similar to it but with regulatory differences is the cloned US dollar represented by USDC PAX, which is a regulated stable currency, while USDC is a stable currency regulated by the US financial sector, while USDC trades it. The scene is also a number of compliant exchanges.

There is a very interesting place about USDT here. We know that USDT's earliest network to be distributed is on OMNI's network , but OMNI's network is like a bitcoin network. It is a relatively closed network, and the transfer fee is also The higher the speed and the slower the confirmation rate, we know that USDT has now released a very large proportion on the Ethereum network, and gradually migrated on the Ethereum network. In addition, USDT has also distributed a portion of other networks, such as the TRON network, to meet certain needs of specific blockchains.

We see a shadow dollar like the USDT, which is also looking to create some connections with some other blockchain networks.

Now let's take a good look at the Ethereum network. On the Ethereum network, I just mentioned that there is a USDT that has been bridged, but the Ethereum network is more special, or the most independent is its native The stable currency , which is the Dai I just introduced.

For a stable currency on the Ethereum network like Dai, it can not only be transferred to the Ethereum network itself, but it can also be bridged to some other blockchain. And in these other blockchains, it does not have some assets with high liquidity that are sufficiently centralized. Therefore, it cannot be used to generate such stable coins through the mechanism of mortgage distribution. If it doesn't want to resort to some third-party custodians in the world of legal currency, it can also go to the Ethereum network as a set of decentralized financial backbones on the backbone of the currency, through a relatively decentralized approach to liquidity Grafted with stability while maintaining a relatively centralized feature. In addition, for a main chain such as the Ethereum network that undertakes the financial assets of the blockchain, it can not only be connected horizontally to other blockchain networks, but also can be extended longitudinally .

So what is a vertical stretch? What is reflected in the Ethereum network is the many Layer 2 network solutions we have seen. We know that the Layer 2 network is faster than the main chain, and it is suitable for some small payment scenarios . We know the consensus on the workload of the Ethereum's main network, and its focus is on safety, which means it is very suitable for some large transactions, but for some micropayments, it does not have the same security requirements. High, more focused is the speed of its trading. Then for these transactions, it can come to the Ethereum's second-tier network, such as through POA and some more localized consensus to complete the settlement.

For example, on the Ethereum network there is a side chain called POA. So compared to the Ethereum main chain, under the consensus of the POA, its speed is faster, and its TPS is higher, then it is more suitable for some payment scenarios. Then there is a clone of Dai on this side chain, except for horizontal clones, which is a vertical clone. On the X-band of the side chain of Ethereum, it is mapped by Dai-one on the main chain. Such a Dai, which not only inherits the stability of Dai on the main chain, but also it can Pay on such a fast channel to meet these speed-conscious applications.




Question: MakerDao has recently become two news, one is to upgrade to multi-asset mortgage Dai, namely MCD, and the other is to increase the debt ceiling to 120 million US dollars. There are two questions here. 1. What do you need to do to do MCD upgrades as a normal user holding DAI? What applications do you need to work with to upgrade? 2. What is the decision on Dai’s debt increase? Will there be unlimited improvements in the future? Is there a potential risk?

Pan Chao :

First of all, let me introduce you to the multi-mortgage Dai, multi-mortgage Dai as its name suggests, it will introduce some assets other than the Ethereum assets, because this involves the upgrade of the entire underlying protocol of MakerDAO, so for the user, He needs to upgrade Dai in his hand.

Because in the new Maker agreement, there will be a new Dai. And the new Dai is still produced by Ethereum or other assets that the customer first mortgaged. After the launch of the new version, these Dais running in the market will be renamed Sai. However, for the user, this upgrade process will be very simple, MakerDAO will provide a set of upgraded pages. Essentially, you only need to push Dai in your hand through a button to achieve a one-click upgrade, which does a trade on a smart contract behind it.

Regarding the increase in Dai's debt ceiling, first we will not increase Dai's debt ceiling without limit, and it will have different debt ceilings for different asset types. For example, in the next version, ETH's debt ceiling, plus the single-backed Dai version, is $150 million, but for some assets with slightly less liquidity and some smaller assets, we give Only a few million dollars. This is also based on the liquidity of each asset and the risk of price fluctuations.


Dazhi: Has the chain of assets under the chain been decentralized?

Pan Chao :

In fact, when it comes to some of the assets we are talking about, that is, its roots are in the traditional financial institutions that are hosted, then bringing these assets to the chain will inevitably require some offline information. , and some relatively centralized institutions for credit endorsement.

There will always be a point of trust. For example, even some relatively decentralized assets, if its main trading scenario is on a traditional centralized trading platform, then its price requires some oracles. Transmitting to the chain is nothing more than saying that we need to make these oracles sufficiently distributed, enough to de-center the quotation marks.

On the one hand, to prevent the occurrence of some single point of failure, on the other hand, to prevent some single institutions from doing evil in the process of transmitting information from the chain to the chain.


Wang Junwei: Is the maker a central bank or a bank? The maker needs a qualified debtor, but the central bank itself is the debtor, so the maker can be copied on the Ethereum. For example, can there be a lot of makers who do not charge the stability fee? Is there a lot of duplicate maker1, maker2?

Pan Chao :

This is a very good question, because the Maker protocol itself is open source, so in theory, there is almost no cost to copy a set of Maker protocols. However, we have seen that there are no copies of Maker in the Ethereum. There are actually many reasons for this. The main reason is that because money is a very strong commodity, and it also represents all the debt relations in the past, then you want to abandon these network effects, other past Debt relations Rebuilding a Maker system is still very difficult.

OK, I am better able to understand such a question. Is it a question that MakerDao, which does not issue coins, will be able to obtain money more easily than the existing MakerDAO system, and capture network value more easily. Users are more likely to become mainstream.

Then my judgment is not. This involves the function of a token such as MKR. In fact, one of the big features of the MKR token is the insurance function. Because if the entire system is insolvent, MKR will issue additional shares. To make up for this part of the bad guys, so MKR's holder or Maker, he is actually the last guarantor of this system, the last debtor.

This is also responsible for the governance of the Maker system, which is responsible for managing the risk of such a system while at the same time obtaining the return on these benefits. At the same time, the system is carried out in the form of an insurance. A non-currency MakerDAO will be missing this responsibility and incentives.

Uncle of the Red Army: "Dazhi: Pan Shuai, is there any decentralization in the chain of assets?" The last time the civil road also mentioned that Ethereum needs big development, it is the entry of assets under the chain. Really prosperous, do you agree with this view? Similar recent applications such as imbtc to introduce BTC to Ethereum have also been seen.

Pan Chao :

I have always agreed and supported such a point of view. The first thing to do is to bring an asset such as Bitcoin to the Ethereum in a relatively centralized way. Then we Gradually carry out a trusteeship in a distributed, mutually balanced manner. Now the biggest problem with decentralized finance is not its speed, not its gradual performance, but on the asset side, we need some more assets. Put it on a blockchain like Ethereum.

So look at it, in addition to Ethereum Bitcoin, it is rare to find some highly liquid decentralized assets, so we need some traditional assets to bring to the chain. But this process is not a simple matter, because you need to convince some traditional institutions, they are willing to do such a credit guarantee, put the assets on the chain, and now have seen some banks recognize the Taifang I will do some bond attempts on Ethereum, then these bonds will be a very good collateral, so I am more positive and optimistic on this point, for example, Santander Bank of Spain and Industrial Bank of France have already Made some attempts.


Uncle Red Army: Doesmakerdao have a competitor now? Who is likely to become a maker of competitors?

Pan Chao :

At present, if we only look at the ETA, in fact, MakerDAO has no competitors on the Ethereum network. If we look at this currency Lego, you see different participants, in fact, he performs different functions. It is distributed in a different class, but the class does not mean the level of his status. He only said that the debts he issued were responsible for what he assumed for the Ethereum world. At the moment, there are no similar projects to compete with MakerDAO on Ethereum.

If in a broad sense, let's see if there are some MakerDAO competitors on other blockchains. So in fact we have seen some projects, he wants to copy a mechanism of MakerDAO, in other blockchains, for example on EOS. We have seen a mechanism for completely copying Maker, and we can also see that on Cosmos, there are also some projects that can be said to be similar to Maker and want to implement some methods, but in fact they will face some common problems. .

Then, in this blockchain, he does not have a native high-value asset, such as the EOS chain. Although EOS is already a relatively high-value token, the network is not sufficiently decentralized, and price fluctuations are relatively large. So it's hard to go through a collateral endogenous mechanism to generate a stable currency like Dai, which is as stable as Day. For cosmos, he is currently not even a native asset on his side.

The problem they want to solve is how to make the chain of Cosmos a transit point for all assets. The challenge is very big now. Because the security of your main chain is at least not less than the security of Ethereum Bitcoin, assets in other blockchains will be willing to go to Cosmos. Then you will have a set of things similar to MakerDao in Cosmos, a set of derived mechanisms to generate stable coins.

Simply put, the currency war between the two countries is not just at the central bank level, or monetary policy is only a small part, more is to see how much productivity you have in these two worlds, your macro environment How, and these are determined by the ecology of the blockchain itself and the security of the main chain.


Question: When I shared the last time, I mentioned the past history of makerdao and bitshare. If you revisit the past, what do you think the lessons and experiences learned by makerdao are?

Pan Chao :

Bitshare is also a bit stock. It is actually a prototype of MakerDAO. The mortgage wit in the MakerDAO system, its most simplified version is derived from the mortgage wit on the bit stock, and many of the early developers who did not see him are also The developer from the core of the bit stock. But these developers have moved their bit shares to Ethereum.

This also explains from the side, it is not a problem between the two mechanisms, more is the blockchain it is attached to, its performance, security and its scalability, from this perspective Bit stocks are much worse than Ethereum.

Then I saw that BitShares does not have some derivative assets. There are not many projects that are willing to issue on Bitcoin, its assets are good, or we say that corporate bonds are good. Therefore, the stable currency on the bit stock has become the only application scenario on the bit stock, that is, the bit stock itself is only used to generate stable coins. Unlike Ethereum, which has some other uses, it may be an endogenous gasoline (Gas) developed by Dapp.

If an asset like you is only bound to your stable currency, it is easy to form a positive feedback mechanism, which will cause your risk to focus on both your mortgage assets and the stable currency. Between fluctuations.

Therefore, both in terms of its market value and the stability of its stable currency, it is weaker than several levels of stable coins in Ethereum. The main reason is also the ecological difference of the blockchain to which it is attached. Of course, there are some improvements in the mechanism of MakerDAO for bit stocks. For example, the MakerDAO I just mentioned introduces MKR as an insurance mechanism. In addition, MakerDAO has made some adjustments on the liquidation mechanism, making some assets more gradual in the event of large fluctuations.


Question: As a more successful decentralized autonomous organization, does MakerDao have any special feelings about the sustainable governance of decentralized applications? Or are there any suggestions?

Pan Chao :

I think the first governance must be a very long process. In fact, this question also contains some answers, that is, a sustainable one. In other words, you need a kind of evolutionary governance. Not all decisions must be placed on the chain, but only those consensus decisions that need to be global are more suitable for the chain.

The reason why these decisions are placed on the chain is that they are actually giving feedback to the market. In this way, you can continue to try and try and find a most effective point, but it is not the global point. It is the best point. In many cases, some localized points, such as local optimum, may be better. For example, it involves the internal operations of some companies, and may involve expenses, and even some things that are more localized. These are not suitable for making global decisions on the chain.

In addition, there are some other suggestions for governance. In fact, some of the design of the token is involved. It is necessary to separate the product of a project from its equity, or governance. You need a dual currency mechanism. Currency mechanism. Otherwise, it will cause a lot of confusion. Many people think that I can perform a lot of functions and functions, but in the actual process, you will find that there will be many conflicts, people have investment needs, use needs, and Some of the functions of governance, in many cases they are conflicting and cannot be mixed up.


Question: Someone said that if the little brother who bought pizza with bitcoin in the past was to use DAI to buy it, it would be a completely different situation. Then this situation actually means the situation of future currency price appreciation, then there is a problem in the bear market. Where is the value of the time? Or how does the bear market affect makerdao?

Pan Chao : This is a good question. MakerDAO only attracted the most attention of everyone in the first eight years and nine years. On the contrary, in the most bull market, everyone did not pay attention to MakerDAO. Of course, from the more general concept, in the bull market, everyone may pursue high returns, and will not pay attention to some projects that actually make products and make products. But from another perspective, in the bear market, people have a big demand, that is, the demand for liquidity. For example, in the bear market, many people have Ethereum in their hands.

However, the price of Ethereum is falling, or a relatively large decline in a short period of time, but these people are not willing to sell Ethereum, and he also has demand for liquidity. At this time, mortgage lending is a natural birth. To meet the needs of this part of the cut. Then when I saw the bear market, many people were reluctant to sell Ethereum. When they needed liquidity, they mortgaged their ETH in the MakerDAO system and then generated Dai. This is a very large application.

In addition, for Maker or any blockchain project side, the bear market is actually a time to do something to speed things up and speed up the development process. As long as your project or company has enough funds to support your next operations, you have a good financing plan, continuous product launch, then the bear market is not as long as we might imagine. One test is more of an opportunity to stand out.


Question: The DAI obtained after mortgage ETH can continue to purchase ETH, and then mortgage and then buy, then there is a risk of subprime mortgage crisis onmakerdao?

Pan Chao :

This is a good question, and it involves a mortgage mechanism, or an over-collateralization mechanism. In the case of an over-collateralization mechanism, you can repeat the mortgage. But there are limits, such as a mortgage rate of 150, you can add up to three times the leverage. But at the same time, there is enough assets behind each Dai to guarantee. If your ETH is at risk, this part of ETH will automatically get the auction on the market, others will change Dai to take your ETH.

In other words, there is a full ETH on the side of every Dai release, so there is no insolvency, so of course there may be some traders who may not have the funds, or its The risk exposure is too high, he has no way to return his Dai, then at this time his Ethereum will be auctioned on the open market to those who have funds on hand, although the trader bears the loss and pays for his risk. The loss, but the design of the entire mechanism with over-collateralization and auction mechanism can ensure that the entire system always has enough assets to settle his debt, so there will be no subprime crisis.


Question: Makerdao's governance needs to hold MKR tokens. What is the cost of voting now for voters? What is your enthusiasm?

Blockpunk: Supplement, I saw the report a few days ago, there was an interest rate adjustment, more than 90% of the votes came from a mkr holder

Pan Chao :

This question is about MakerDao's governance vote. MakerDao's governance vote is simply a MKR vote. You can say that the cost of a voter is MKR. So now we have observed a phenomenon, the overall voter turnout rate is not high, we can see that each experience may have about 10% of such participation.

Ok, there is a number here, there is an interest rate adjustment, and more than 90% of the votes come from an MKR holder. Of course, we need to point out that more than 90% of the votes refer to more than 90% of all voting votes in this time, that is, if you remember correctly, it is about 90% of 3%. That is about 3% of the total. So it's not that a person owns 90% of MKR.

So one of the issues we want to discuss here is actually that the voting participation is not high, or that in a certain vote, it is not a bad thing to have a unilateral voter to influence the voting. Of course, in general, in general We may all hope that the higher the turnout rate, the better, the better the participation, but not in all cases, he uses it. First of all, we have to understand that we do not want voters to have no cost. This can actually be seen in all voting mechanisms, including those in the US elections. When you vote without cost, you can't get an optimal result.

For example, when the Brexit was released, everyone voted because it was a referendum. For voters, the vote itself has almost no cost. He may only need to go to the polling station to vote, so we see that many people are completely emotionally voting.

The results we hope to get, one is feedback from the market, and the other is the result of the hope that the vote is scientifically accurate and in line with the interests of all participants in the system. We want to vote for the person himself must have a cost, and he is also professional. So for some votes, it’s not surprising to see that the voting participation is not so high. On the one hand, because this vote may not be so important, he is only a relatively daily vote, such as the adjustment of interest rates, Dai is in me. At that time, the interest rate adjustment will not affect that much, or such a vote is very very professional. So only some very professional people, she is interested or capable of having the will to vote.

Of course, to form the most accurate and economical voting mechanism, what is needed is a very very long process, and we know that Maker is only a project that has been running for two years, and the distribution of MKR needs to gradually Decentralized, in this process, we also hope that more professionals and people who are bound to the Maker system will participate in the system. This is also the wonder of a Maker MKR design.

Only professional people, or those responsible for this system, will stay in this system for a long time, because if you are not well managed, MKR will issue additional ones. So your ticket holder has the incentive to maintain the security of such a system, and can also give an opportunity to re-shuffle the system when trying to add new people.

Therefore, the low overall voting rate we are seeing is not a bad thing in itself. As long as the person involved is professional and his interests are highly tied to the system and the results are effective, he is not necessarily It is the most accurate, but its results are valid, then we can say that such a governance mechanism can be run.

Of course, it must be said that Maker's current governance is just a primary stage. It is just a prototype of a fully autonomous organization of Dao in our ideals. But I can see that Maker has been constantly developing in a good direction. This is actually a very gratifying thing. We have the opportunity to re-implement, and ADao has not been able to achieve a decentralized autonomous organization.


Uncle Red Army: MRK is to be destroyed, but in certain circumstances, it will be issued, then MKR itself is not a deflation type of tokens?

Pan Chao :

In the long run, MKR is deflated.

Dai is flexible, it is adjusted according to the needs of the market through the power of the market. But Dai is not an algorithmic stable currency, it is created and contracted autonomously by some flexible and reactive market participants. Of course, this makes sense. MKR is an asset, so the deflationary attributes make it more and more valuable, and Dai is a currency that requires flexibility.


Question: Is there any recommendation for other DAOs that you think are doing well now?

Pan Chao : Actually, I don’t have much research and attention on DAO. But there are some big and big projects on the market right now. For example, it is called Moloch DAO, of course, there is a long history, Aragon. I also provided DAO's governance suite tool. I think Aragon is doing a good job from the perspective of governance tools. But from the executive level or a practical point of view, we have not seen a set of attempts to see similar success in other areas besides the MakerDAO in the currency field, more A set of agreements, everyone decides how to spend the money, who should give us some donations and funding.

I think the main point is. A Dao still needs to rely on a set of economic systems. The people in this economic machine have his rights. We are now a word of fire, with its own stake in it. This way you can make some behaviors that we call accountable, or have some responsibility, and I don't see them at the moment. In addition to this decentralized financial body, there are some other application scenarios in Ethereum. So it is not difficult to explain that we have not seen a Dao governance approach around these economic facilities and participants in economic activities.

In a broad sense, not seeing a complete Dao is related to the lack of infrastructure in the blockchain. We don't have an identity system. At the same time, we also lack some methods and technologies that are seamlessly connected with the real world. For example, LT technology is still immature. At present, these smart contracts cannot be said to be intelligent. It does not have its own judgment and own consciousness. So, only after we have these components in the blockchain infrastructure, can we see a more complete, automated, less human-involved Dao. Such a scene implementation may be just an imaginary or conceptual one.


Last question: As the person in charge of MakerDao China, what is your daily life? As I see many projects, I hope to find project ambassadors. Many people think that MakerDao is doing a good job in this area. If some blockchain projects are looking for ambassadors, what kind of advice do you personally have?

Pan Chao :

This question is a very complicated question, or to answer this question, you may need another set of sharing. I can simply talk about it. For me, I actually joined Maker earlier. It was a very early employee of Maker, which was in 17 years. Then my daily life is also related to Maker or my work life, basically related to Maker. Because I am also very passionate about this, my major is related to money banking. I think this may be driving me, or having a spontaneous idea to promote him and his vision of technology itself.

For some blockchain projects that want to find a person in charge of China, I think it is simple to say a few suggestions. First, you must first find a Chinese to do your Chinese market. Second, you If you need a founding team, you must first come to China to learn about the Chinese market and eliminate some prejudice against the Chinese market so that you can find a more suitable person. Third, if you see it in the Chinese market, After some results, you need to give the Chinese team a very high enough autonomy. Let this Chinese team do some more localization.

For the interaction between the two, communication will be a very critical issue. For the person in charge of China, you need to have some positive communication with the foreign team, which means that your language level first. To be good, this language level is not limited to English itself, but you need to understand the language of the developer. You have to understand the language of the product. You have to understand the language and the language of BD, because your role is not only It's just the market and the community. In fact, you are covering some of the business in China.

In such a process of communication and feedback, the result orientation is very important, and some results and data are needed. To explain why China is worth investing in more resources and some specialities in the Chinese market.

But this does not mean that you can say that all the rules of our Chinese market in China are different, and all of you have to follow China. I think there are still a lot of universal logic and business rules. But you need to use some results and data to prove him, or to convince him. In addition, I think that in a broad sense, if you want to enter China in a foreign project, you need to find a product that you think is reliable. In addition, you have to find the right partner and the right ecology.

In addition, for the Chinese market, or for those foreign projects that want to enter China, one thing to keep in mind is that the importance of the brand cannot be underestimated. You need to have a good brand. Good products, good products are the capital of your brand, and you have to maintain a spirit of open source. In addition, you can't be cold. You need to be grounded. You need to have the patience to communicate with domestic projects, communicate, and educate. You also need to be grateful to give back some cooperation in China. Partners, some help for foreign projects, or a natural initiative.

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