‘Completely pointless’ Maker Foundation to dissolve

MakerDAO founder Rune Christensen unveiled proposals yesterday that will effectively cause what he believes has become a “completely pointless” Maker Foundation to dissolve over the next few years.

Speaking at the MakerDAO governance and risk meeting on April 2, Christensen outlined the foundation’s vision for accelerating the process of making the decentralized autonomous organization live up to its name.

It is time, he said, because it is becoming clear that the MakerDAO community can largely handle everything on its own—making the foundation increasingly irrelevant.

“We need a new generation of core governance contributors, of technical contributors, of people being more active and more empowered with the tools available for them to deal with this new world of self-sustaining DAO,” he said.

Christensen stressed that the MakerDAO Foundation has a “finite runway” and will inevitably run out of capital, meaning these preparations need to be made in advance.

“Of course, the foundation is not dissolving any time soon—there’s several years where the foundation will be operating at full steam,” Christensen said. “From there, this process of dissolution will begin. It’s important that the community begins to prepare taking over full responsibility of the system.”

A vicious cycle

The meeting began with a particularly insightful contribution from MakerDAO’s head of community development, Richard Brown.

He warned that the MakerDAO ecosystem and the governance community was going through a cycle of “urgency, apathy, distraction, and denial”—and expressed hope that Christensen’s approach would help break this pattern of behavior.

Here’s an abridged version of what Brown said: “Something happens and then we need to furiously address that issue and it’s all hands on deck. Once the disaster has passed and the urgency is over, as an ecosystem and as a community we breathe a sigh of relief, and seven days later we come back to the table and start with the next thing.

“Frequently, we miss these dangling threads that we have lying around. Something bad just happened, we got through that thing and now we’re not talking about it anymore. That’s kind of weird. An apathy phase can kick in—thank god it’s over, let’s move on.

“Then we start hitting the distraction phase every once in a while. We find a new emergency comes along, or a new shiny object, or a new important initiative happens. We try to get through that and we lose track of these initiatives we had in the past.

“We’ve hit this stage where things are just falling off the radar now. The question is how do we handle this world that we live in that’s far more complex than the one we lived in six or 12 or 18 months ago? How do we move forward in a way that’s rational and maintains momentum?”

Three pillars of self-sustainability

According to Christensen, there are three core principles to achieving successful, long-term governance in which the community “is ready to run all aspects of the protocol, cover all risks, take advantage of all opportunities, manage every single dynamic of the protocol and the project for the long run with no gaps.”

Rather than introducing new and radical proposals, Christensen said the measures he was outlining were designed to be a continuation and formalization of what has organically emerged in the MakerDAO community. 

The first pillar he proposed calls for the further development of elected paid contributors and domain teams—staff—adding “the crucial element of compensation via the protocol,” Christensen said. EPCs would handle things like maintaining security and protocol development. The EPCs would also include domain teams with responsibility for critical processes and risk management.  

The second pillar, Christensen explained, will inject more transparency into Maker Improvement Proposals, allowing anyone to suggest changes. Like Bitcoin’s BIPs, MakerDAO’s MIPs are the mechanism under which the system’s governance is created and revised. The goal, said Christensen, is to create a formalized process and structure under which upgrades will be proposed, debated, and voted on.

These two pillars have separately been described as the “preferred mechanisms for improving both Maker Governance and the Maker Protocol.”

The third pillar is the creation of vote delegates, people who interact directly with the community and are held accountable for how they vote using MKR tokens delegated to them by holders who choose not to vote themselves.

Christensen added: “The foundation believes that vote delegation is incredibly important to overhaul the way voting currently works—moving it away from mainly being dominated by whales.”

On April 3, the Maker Foundation published its vision for the MIP framework. Next week, the first 13 Maker Improvement Proposals will be released.

A drama a day at MakerDAO

A fair part of the reason for Christensen’s belief that it is time to begin dissolving the centralizing MakerDAO Foundation is the series of crises that the decentralized lending platform has been able to weather in recent months.

On March 12, a “brutal storm of realities” led to bad debt worth more than $5 million being created when ether fell by 30% in a 24-hour period, leaving loans under-collateralized. Those competing in debt auctions to buy the collateral being sold off were able to submit bids of practically nothing in exchange for bundles of ETH—and at one point, MakerDAO was considering an emergency shutdown.

Days later, MakerDAO announced plans to allow Circle’s centralized USD Coin (USDC) stablecoin to be used as collateral for loans. This was a significant departure from the Maker Foundation’s previous stance that its DAI stablecoin used to give borrowers their loans would only ever be backed by decentralized assets.

An unprecedented auction to cover the bad debt caused by “Black Thursday” followed on March 25. More than 5 million of MakerDAO’s MKR, the governance token that provides voting power, was minted and sold off—with bidders who took part in later lots getting substantially more crypto for their money. Long term, there are concerns that this auction could have an inflationary effect on MKR’s price going forward.