MakerDAO: Alea Iacta Est – Colin Platt
Having glanced through the documentation on what I had to do, and having a basic understanding of the steps that I would need to take that afternoon, I decided to do some research on what will eventually happen to MakerDEATH that will purposely be left as is. From the documentation, it sounds like I may have to wait quite a while until the decentralised community decides to kill it for me, when MKR holders decide that we’ve all had enough time to do the upgrade.
Once MKR holders do pull that trigger the process leaves more questions than answers. Apparently there is a global setting built into the contract that allows for an Emergency Shutdown. Maker describes the process as follows:
The writing is a bit convoluted, but the process seems relatively straight-forward. Everything gets paused and people are only allowed to redeem their outstanding DAI (now SAI) for some portion of the collateral (ETH) that I put back in, at a rate that MKR holders decide when freezing the system, any unencumbered ETH in the pool can be withdrawn whenever. I’m still curious to understand more about how and where they may give me a final market for SAI/USD and if I would lose any ETH (in USD value) as a result, so I click around to find more info, and am met with this:
After having my brain melted by that diagram, which I later learned was not how the wind down process would work for MakerDEATH but actually how MCD Maker is supposed to work, I gave up and decided to move my 2 DAI from my MakerDEATH account to another address to make sure that nothing funny happened. This 3rd address became “SAI HODLer”. You can follow along here.
In preparation for my move to MCD, I’ve also decided to convert some PAX stablecoin that I had floating around in my PTK activities into BAT, the new token which will be acceptable collateral after the upgrade, so that could be used to collateralise my MCD Vault (formerly CDP). I decided to look around to figure out if any DEX has direct activity on BATPAX pairs, but came up short, went to Uniswap (more info in the appendix) and setup a trade for 5 PAX (~$5). As PAX apparently does not trade much on decentralised exchanges I was hit with warnings that I could expect up to 20% slippage on my trade, and warned about being front-run. I decided to accept such risks for the sake of decentralisation and sent a trade for an estimated 15 BAT.
While waiting for the trade to go through, one thing that came to mind was that for my original ~$5 of ETH backed old CDP, that I hoped to swap to BAT CDP after the move over, is that I now own $10 of collateral ($5 ETH and BAT). It’s only temporary, but anyone looking to swap CDP collateral in the future will face a similar balance sheet expansion while they do the swap. I also learned from someone on the Maker team that Vaults only hold a single token type, meaning that a vault cannot manage both ETH and BAT. The reasons hint towards the more cleaner ability to manage each Vault. The downside is that you get zero netting effect of holding multiple assets.
What this means in non-banker, is that often you hold a portfolio of assets and when one goes down, the other goes up. As the combined value is hopefully less than each component, you should have reduced risk, and your Vault wouldn’t be closed. That’s not the case here, so while your BAT+ETH vault together wouldn’t have been shutdown if BAT drops and ETH goes up, here your BAT Vault gets closed down, and you only have the ETH one left.
While waiting for MCD to open up I conversed on Twitter with the team and they suggested an approach of tokenising my portfolio of ETH and BAT as a single ERC20 token then submit that to their risk management team.
UniSwap transaction done, now I am left with 15 BAT for my 5 PAX. I check online to find that my 15 BAT is worth… just under $4.
But now it’s time to start moving MakerMCD over in the migration, so I headed over to the special web app setup by Maker to guide me through the process. Eager to try out the process and be amongst the first to have new DAI, I setup my itty-bitty CDP in their tool and am met with a warning about my CDP being under the limit to convert.
I looked around a bit online and couldn’t find any information about a 20 DAI minimum in their official guide, so I join their Telegram group to see if anyone is in a similar situation. Upon arrival, and only a few minutes into the switch, I find their group drowning in celebratory animations harking back to mental images of George W Bush on an aircraft carrier, I do find one person with a similar issue.
Kathleen arrives with what may be some potentially info:
Checking out her website, it appears that there is a maximum envelope for SAI converted to DAI, but no information for my mini-CDP. So having understood from the Maker team that in all cases I would need to setup a new Vault (formerly CDP) for my BAT tokens, which I overpaid for, I decided to try that while I waited for any more information. Following the migration, all management of MCD Vaults are moved to a new website, Oasis.app. Why? I don’t know. But here it is:
And because it is a new website, I need to give new authorisations, and permissions, and send more things to the blockchain to activate the same tokens that I had before. A few more cents in transaction fees, but now I was good to setup a BAT backed Vault and get BAT backed DAI. Or so I thought…
Seeing these warnings about 20 DAI minimum, my warning when trying to grandfather in my old CDP made sense. So I decided to go back to Telegram to find out more.
Coulter from Maker quickly responded and confirmed what I knew, and also hinted that there is probably a gaping attack vector with small Vaults that are too expensive to clean up, I don’t know for sure either way, so let’s just agree to call that FUD for now and move on. But now I was stuck not having enough ETH in a wallet, and not wanting to challenge my nocoiner cred any further, I did what anyone in my position would do, I begged the internet for more magic beans, quickly finding a generous benefactor who thought my Tweets about my CDP issues were funny and sent me $20 of ETH to keep it up.
I went back to the old CDP portal, added more ETH (which required more money spent on transactions and the PETH/ETH premium) and pulled out more DAI to make me no longer a small DAI fish. I then headed back to the migration app and fought with the migration website because MetaMask wasn’t showing me yet-more authorisations that I needed to agree to, and getting snarky IT help from Dan in the Maker Telegram (for the record I restarted my PC and it worked, screw you Dan!):
I could see the light at the end of the tunnel
Because Maker has a MKR token that they needed to put to use in order to make bag holders wealthy, fees for managing a CDP/Vault are paid in that. During the migration you need to pay them back, I didn’t have any but they gave me the option of letting them do it for me and paying in DAI. So I made the payment for an amount of MKR owed that was too small to show up on their UI.
A few failed transactions because I skimped on the transaction fees, several minutes later, a wife that was getting frustrated with me playing with the magical internet loan shark and we had great news!
Here’s a look at the shiny new front end for my newly converted CDP… er Vault.
So despite doing all that, I now have a MCD Vault that manages SAI, apparently that need separate upgrade, and surprise I need to give more authorisation to more things. Otherwise the upgrade process for SAI to DAI was pretty straightforward and quick once I got to that point.
Having accomplished that, I had only to unlock more things, and pay yet more transaction fees to the blockchain, but I was there, history made, Vault manager #536.
Whew! That was a trip. In conclusion, while it took significantly longer than the 30 minutes that Maker’s migration guide had promised (lol), and no included no explanations about the 20 DAI gotcha, nor a guide begging for money on the internet, the overall process was actually pretty smooth and well designed from a UX point of view.
I definitely made a lot of superfluous transactions, including buying BAT that I couldn’t end up using, but I was curious what this whole endeavour cost me. Fortunately, Ethereum keeps pretty decent records of these things:
So said, and done, my journey to put myself into ~$22 in ETH backed indebtedness worked out to be roughly $4.75. In addition, I will owe about 4% APR on holding this position open, but rates can be changed according to the rate set by MKR holders. In addition unwinding this process will require further transaction fees, and I will continue to be exposed to the price of ETH (and BAT).
Despite the relatively smooth migration process, there are still a lot of unknowns, and I still shudder to think that people shill this as a means to guard one’s life savings. It is a fantastic experiment in economics, governance and technology, but let’s appreciate it in that light. Going forward hopefully Maker, or something like Maker is ready for prime time.
Veni, Vidi, FUDi.
Published at Fri, 29 Nov 2019 15:26:17 +0000
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