MakerDAO

MakerDAO

MakerDAO

Project Description

What are the purposes, goals, or scope of the project? If there are metrics to measure success, what are they?

MakerDAO has been the first Decentralized Finance (DeFi) project and remains one of the largest projects in that space. MakerDAO governs the Maker Protocol, which is the basis for Dai, the largest decentralized stablecoin and one of the largest stablecoins globally.

What, if any, are the coordinating entities, and what are their functions? (For example, a foundation, software development corporation, DAO, etc.)

The early Maker Protocol technology was developed by decentralized groups of developers and contributors. In 2018 the Maker Foundation was established in order to coordinate development efforts. Since the beginning of 2021 the Maker Foundation is in dissolution and does not perform any special role in the ecosystem. MakerDAO is fully decentralized, with MKR token holders being responsible for all decision-making.

The governance framework around MakerDAO has been one of the first, most developed and standard-setting for the entire industry. At the moment (September 2021), 11 Core Units have been approved and funded by the governance to provide services to MakerDAO. Core Units remain autonomous and independent,

How are participants and users of the project identified? (For example, by public/private cryptographic keypair, wallet number, government ID, etc.) Are there restrictions on who can participate? If so, how are they implemented?

Anyone can generate, hold, or trade Dai. Anyone can also use the Maker Protocol or hold MKR and participate in governance. Anyone can propose a Core Unit and if approved, provide a service to the protocol. In all these aspects it is entirely permissionless. MakerDAO runs on the Ethereum blockchain.

Stakeholder Groups

Does the project’s software code delineate groups with particular functions? (For example, those who can propose changes, arbitrate disputes, or vote tokens on behalf of others.)

The ultimate control over the Maker Protocol can be exercised by MKR token holders only. Any other powers may derive from the overall competence of MKR governance.

Are there other important groups either constituted informally, specified through contractual arrangements, or based on geography/choice of law?

The ultimate control over the Maker Protocol can be exercised by MKR token holders only. Any other powers may derive from the overall competence of MKR governance.

  1. Are there other important groups either constituted informally, specified through contractual arrangements, or based on geography/choice of law?

    If so, please describe in detail. (For example, their powers, how participants gain access, how the groups interact with the network and each other, and whether there are mechanisms to add, change, or exclude groups.)

The following groups are relevant in that context:

  • Delegates

MakerDAO has two varieties of delegates.

Recognised Delegates are whitelisted, and must meet certain requirements in exchange for more visibility and prestige.

Shadow Delegates are permissionless, with no requirements or responsibilities beyond that which they have agreed directly with those who delegate to them.

  • Core Units

A Core Unit is a structure that has a budget attached to it, managed by one or more Facilitators, that coordinate and pay contributors working to achieve a long-term goal within MakerDAO. Core Units are proposed by community members and voted on by Maker Governance. Each Core Unit may have a budget. The Facilitators of a Core Unit may have additional permissions over the Maker Protocol or Governance Processes depending on their Core Unit's nature.

  • Community

Community members (including MKR holders), holding discussions among others on Maker Forum and Governance & Risk Calls.

  • Dai Foundation

Dai Foundation is an independent non-profit legal entity for safeguarding the Maker community’s intellectual property (IP).

Goals and Implementation

What behaviors does the project seek to encourage, or discourage? How are such behaviors incentivized?

Sourcecred incentivizes participation in the public forum.

MKR retention benefits for permanent Core Unit members incentivize long term commitment to the project.

(For operational projects): How well are the incentives and governance mechanisms functioning in practice? Are there metrics to measure the effectiveness of governance?

MakerDAO remains the most advanced Decentralized Autonomous Organization, responsible for governing a complex financial network with a decentralized stablecoin.

Are there systems to pay for infrastructure, protocol upgrades, development work, network enhancements and/or other work deemed to be in the interest of the network? If so, how do they operate?

Any expenses required for maintenance and functioning of the Maker Protocol are paid out using the Protocol’s own revenues.

 

Governance Powers

What makes a governance decision associated with this project legitimate or illegitimate?

MKR token holders remain ultimately responsible for MakerDAO governance, and their collective on-chain decisions are considered legitimate and binding. The decision is legitimate if it  follows the process prescribed by the  MIP framework (MIP 0 , MIP51), so ultimately it is a legitimacy by process. The MIP framework determines the rules for off chain and on chain governance.

(On chain ) voting takes two forms:

  • Governance Polls provide resolution on a matter or collection of matters. An example would be the inclusion of new oracles or a new risk team. Governance polls do not execute on chain changes, but may contain instructions for executing a change of state in the system. An example: Budgets for Core Units are ratified with a governance poll, which authorizes a member of the Governance Core unit to execute it (manually) with an executive vote, effectively transferring the funds to a multisig controlled by the respective Core Unit..
  • Executive Votes change the state of the system. An example would be to vote in risk parameters for a newly accepted collateral type or transfer of funds from the protocols’ treasury.
Who has power to introduce governance proposals, and how does that process operate?

Everyone has the power to introduce new governance proposals. Proposals can be discussed informally (off chain) in the public forum and more formally by publishing  a Declaration of Intent (MIP 13), which is then voted on chain. Informal polls in this off chain process are also possible.

Who has policy-setting (“legislative") power to decide on proposals, and how does that process operate?

The Maker Improvement Proposals (MIPs) framework contains a set of rules that regulates the behaviour of participants in the Maker ecosystem. There are procedural rules (i.e. collateral onboarding framework (MIP 6) and substantial rules (i.e. Core Unit framework MIP 39), There are rules that implement onchain changes (i.e. diverse new features for the protocol), others off chain ( Committees, Incorporation real world entities like RWA Foundation in MIP 58, etc.) others describe processes for taking funds from treasury (Core Unit Budget MIP 40 or Special Purpose Fund MIP 55). All MIPs have to be voted in the regular governance cycle, so ultimately MKR holders decide which proposals are approved and which ones are rejected..

Who has implementation (“executive”) power to execute proposals once decided upon, and how does that process operate?

Governance Core Unit (GovAlpha) implements executive spells, for which they can transfer funds from treasury or implement on chain state changes to the protocol.

Regarding budgets, Core Units perform executive functions and execute budgets approved through the governance procedures described above. Core Units perform permanent functions for the Maker ecosystem. Budget execution is public, see an example of the SES budget reporting in Github

Temporary projects can be executed by grantees, which in  turn can evolve or be incubated into permanent Core Units. SES Core Unit runs the incubation program at Maker DAO. Real World entities can also execute a function for Maker DAO (i.e. managing real world tangible or intangible assets).

Who has interpretive (“judicial”) power to resolve disputes over application of a policy to a specific instance, and how does that process operate? What can the interpretive power be used to mandate?

Maker Improvement Protocol 52 outlines a process by which any community member or stakeholder can elevate the resolution of a dispute directly to MKR holders (link).

Governance Core Unit is mandated to manage and facilitate governance process, moderate discussion and in some cases interpret the spirit of rule sets following the principles of neutrality and efficiency.

Governance Procedure

Governance Procedure

Are there systems for non-binding signals or binding votes on governance decisions? If so, please describe them in detail.

See https://forum.makerdao.com/t/makerdao-standard-governance-processes/4298 .

Signal requests and polls

Signal Requests are the shortest and most powerful of the MakerDAO governance processes. A signal request can be created by any member of the community. Signals are primarily used to change existing parameters within the MakerDAO smart contract system.

The signaling process can also be used to gather consensus on governance direction when that direction does not require work to implement, for example signaling on how domain teams should prioritise collateral assets.

Votes in the signalling process are first taken off-chain on the forums, if the off-chain vote is successful, on-chain polls are also conducted using the weekly cycle. If the on-chain poll ends with a majority for change, the change will be included in the weekly executive vote.

Declaration of Intent (MIP 13)

The Declaration of Intent process was created to serve as an in between point between the signaling process and the full MIPs process. It is ideally suited for members of the community to propose courses of action or intentions that could be adopted by Maker Governance as a whole.

Because this is a sub-process of the full MIPs process, a concrete proposal is saved and will exist on the MIPs github for future reference. This makes this process better for more longer-term goals, aims or intentions, especially when these involve work that must be completed.

Votes in the Declaration of Intent process are first taken on-chain as part of the monthly cycle after a feedback period that takes place on the forum. If the on-chain polls that are part of the monthly cycle end successfully, the intention will be considered ratified after the monthly executive vote passes.

Maker Improvement Proposals (MIPs) (MIP 0, MIP 3)

​​The full MIPs process should be used when defining more permanent inclusions either into the MakerDAO smart contracts (a technical MIP) or more permanent inclusions into the structure of MakerDAO or the way in which it is governed.

The MIPs process has the longest lead time, and MIPs tend to attract more focused attention and scrutiny than signals or declarations of intent. They also tend to be the most static and fixed part of MakerDAO, changing relatively irregularly in comparison to the other two processes.

Votes in the MIPs process happen on-chain as part of the monthly cycle after a feedback period that takes place on the forum. If the on-chain polls that are part of the monthly cycle end successfully, the MIP will be considered ratified after the monthly executive vote passes

Are there distinctions between decisions made by ordinary processes (for example, majority votes) and those which require extraordinary processes (for example, supermajority votes)? Or are there non-standard processes you would, or have, used in emergency situations? Explain as appropriate.

There is a so-called Dark Spell Mechanism, which is a process for applying critical bug fixes to the Maker Protocol. Details are specified in the Maker Improvement Protocol 15 (link).

See also ​​MIP24: Emergency Response (link).

Also, the ultimate extraordinary procedure is the Emergency Shutdown. It is intended to be triggered in the case of a system upgrade or serious emergencies, such as long-term market irrationality, a hack, or a security breach. When triggered, Emergency Shutdown stops and shuts down the Maker Protocol while ensuring that all users, both Dai holders, and Vault users, receive the net value of assets they are entitled to under the Protocol’s smart contract logic. However, the value of Collateral that Dai holders can redeem may vary, depending on the system surplus or deficit at the time of Emergency Shutdown. It is, therefore, possible that Dai holders will receive less or more than 1 USD worth of Collateral for 1 Dai.

The Emergency Shutdown Module (ESM) allows MKR holders to shutdown the system without a Central Authority.

Are there aspects that can never be changed through governance processes, short of a contentious hard fork of the network? If so, how is that ensured?

No.

Are there mechanisms that make changing the project easier or harder?

Maker Protocol is fully decentralized, which means that any fundamental changes can be only made by the MKR governance.

What revisions to governance mechanisms have been made, or are under consideration, and why?

The MIP (Maker Improvement Proposal) framework has been amended from time to time to adjust it to current needs. Details can be found in the MIPs Portal (link).

Other Information

No Comments

Sorry, the comment form is closed at this time.