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MakerDAO Endgame: The Ultimate Central Bank of Crypto?

Lincoln Murr

Summary: MakerDAO, one of the original decentralized autonomous organizations that is most well known for its creation and facilitation of the DAI decentralized stablecoin, recently released its full vision for the endgame of MakerDAO. The five-phase plan aims to decentralize governance, de-peg DAI from the dollar, and even move Maker to a Solana fork. Let’s dive ...

MakerDAO, one of the original decentralized autonomous organizations that is most well known for its creation and facilitation of the DAI decentralized stablecoin, recently released its full vision for the endgame of MakerDAO. The five-phase plan aims to decentralize governance, de-peg DAI from the dollar, and even move Maker to a Solana fork. Let’s dive into each of the five phases, what they could accomplish, and how it could affect MKR.

Maker was initialized in 2015 by founder Rune Christensen to create a DAO to issue an Ethereum-based stablecoin. Two years later, the first version of DAI was launched, and it used overcollateralized ETH as its backing. 

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Over the past few years, the stablecoin market has become much more contentious, and centralized entities like USDC have taken most of the market share from decentralized options like DAI. Additionally, DAI is partially collateralized by USDC and other centralized coins, leading to some calling it a centralized stablecoin wrapper that isn’t truly decentralized or permissionless since USDC or Circle could freeze Maker’s assets at any time. In response, Maker has heavily diversified DAI’s backing and has even been one of the first adopters of Real World Assets, or RWAs, which are on-chain assets contractually representing something off-chain, like debt or real estate. Given the vast complexity of the MakerDAO system and the intricacies of managing these assets, Maker has been given the unofficial title of “Central Bank of Crypto.”

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However, this title is not enough for the ambitious Maker team. In a post from May 11 2023, Rune announced plans for Endgame: a massive five-phase upgrade “designed to enhance efficiency, resilience, and participation” to act as a basis for SubDAOs and achieve the short-term goal of 100 billion DAI by 2026. Phase 1, the beta launch, will transition MKR and DAI to a new brand, codenamed NewStable and NewGovToken. The goal of these tokens is to provide greater liquidity and incentives for both stakers and protocol adoption. 

Phase 2, arguably the most significant, will see the launch of six SubDAOs. These SubDAOs will take on specific tasks that fall under the Maker umbrella, leading to greater parallelization and, therefore fast execution speed of tasks. They will be part of one of two classes: FacilitatorDAOs, which operate the governance processes, and AllocatorDAOs, which will allocate the stablecoin collateral and work on product and growth. All of these DAOs will have their own tokens, which can be farmed at launch through stablecoin farms. There will be six DAOs, two facilitators and four allocators, and they will be gifted MKR tokens to bootstrap their launch. This fractionalization of Maker is an incredibly interesting strategy, as it could help create more value due to specialization while furthering the protocol's decentralization. On the other hand, there could be unforeseen consequences, like only one facilitator and one allocator becoming dominant.

Phase three will see the release of AI tools for governance. For context, Maker has a rulebook called the Atlas, containing all of the principles and guidelines surrounding the DAO. Upon this phase’s launch, AI assistants will be able to interpret and improve the Atlas while making it accessible through summarizations. Over time, the hope is that AI will optimize the DAOs based on learned knowledge. To mitigate the risk of AI governance taking over, a set of unchangeable documents is designed to permanently align AI with the interests of value and public good. Furthermore, Aligned Voter Committees will be created, allowing users to choose a general direction or orientation for their votes to go. Whether or not the use of AI for governance will actually be useful or is simply another product of the ChatGPT-generated AI hype remains to be seen, though it is certainly a unique and innovative proposition.

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Phase 4 will tie Phase 3’s governance upgrades to a participation incentive model through the Sagittarius Lockstake Engine. The SLE will reward users for locking their tokens in governance with tokens from both the DAOs and stablecoin income. There is a high exit fee of 15%, meaning that users cannot simply leave the protocol when a difficulty arises. 

Phase five has been by far the most controversial and even caused Ethereum founder Vitalik Buterin to sell his MKR tokens. The idea is to create NewChain, a new blockchain that will host MakerDAO and prevent any further major changes from being made. Its practical purpose is to host the SubDAO tokenomics and governance, as well as allow for hard forks to be used as a way to recover from malicious actors or attackers. Some of the governance features of NewChain will include creating new SubDAOs or AI-automated MiniDAOs to work on specific tasks. NewChain has become controversial after it was revealed that Rune intends to make it a hard fork of Solana so that it’s optimized, fast, and singularly focused. The other option being considered is Cosmos, but it’s less efficient than Solana. As an Ethereum-centric project, it is surprising that Maker wants to leave the ecosystem, but their reasoning makes sense.

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Maker’s vision for the endgame is incredibly lofty, and there are a lot of untested theories and design decisions. That being said, if they can deliver like they have in the past, the new stablecoin and NewChain could become the future of on-chain finance. 

By Lincoln Murr

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