Recently, due to the sanction of Tornado Cash by the US authorities, some USDC has been frozen. As the decentralized stablecoin with the largest market capitalization at present, USDC accounts for more than 50% of DAI's asset reserves, causing market panic. Whether DAI will be decoupled from the U.S. dollar in the future, whether Maker will be implicated in sanctions... A series of issues have attracted attention. Recommend reading Odaily's previous articles"The Threat of Sanctions Hit MakerDAO, Will It Trigger a Greater Chain Reaction? "。

On August 28, MakerDAO co-founder Rune Christensen wrote another article titledThe Road to Compliance and the Road to Decentralization: Why Maker Has No Choice but to Prepare for Free-Floating Dai, mainly explaining that facing the current severe regulatory situation, Maker cannot cater to the regulation and move towards compliance—because the contract has been locked and cannot be added to the blacklist or upgraded, so it can only choose to take the road of decentralization. “We must choose the path of decentralization, which is the intent and purpose of DAI, as DAI was originally designed.”

And choosing the road of decentralization means that DAI needs to be converted to free floating, because it may face physical threats, that is, RWA (real world assets) collateral may be fined by authorities' attacks; in order to reduce the possibility of such attacks, it is necessary to let DAI floats freely, and even adopts negative interest rates, thereby increasing the proportion of collateral such as ETH and reducing the proportion of RWA.

In order to realize the decentralization and automatic floating of DAI, Rune Christensen proposed a plan called "Endgame Plan" and designed two tools - MetaDAO & MetaDAO tokens, and Protocol Owned Vault (protocol's own treasury).

At the end of the article, Rune Christensen said that the instability of the global economy and the chaos of local geopolitics are a critical time for Maker at a time when danger and opportunity coexist: on the one hand, the possibility of physical attacks on Maker at the national level has increased; On the one hand, people's distrust of the government and elites in chaotic times has contributed to the rise of decentralized currencies such as DAI.

Odaily compiled the original text of Rune Christensen, with deletions, the text is as follows:

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The Post-9/11 Financial Regulatory Model

Let's start with a brief discussion of what I've heard many people refer to as the post-9/11 model of financial regulation, the "post-9/11 paradigm." This is a trend in financial regulation that, when taken to extremes, divides all financial activity into two categories: either you are a fully compliant, regulated bank, or you are a terrorist.

It should be noted that the real world is not black and white, which means that there are many financial activities that are not fully regulated by the government like banks-over time, this trend is one-way, and financial freedom will is eroded, and will never increase as long as the trend persists.

Of course, government control of finance is a historical trend dating back to the earliest invention of paper money in China (and how it ended up being controlled and hyperinflated), but 9/11 can be seen as a modern day regulatory intensification The beginning of a trend that will slowly but surely kill all forms of financial freedom.

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window of opportunity

The "window of opportunity" is an ideal shared by me and many others: Blockchain technology and DeFi have huge potential advantages, and through the integration of RWA (Real World Assets) in the financial system, they have the potential to be catalysts and ultimately change the financial regulatory paradigm , from the “post-9/11 paradigm” into a new post-blockchain paradigm. It (blockchain) has the advantages of transparency, credible neutrality, efficiency, and inclusiveness, which can easily solve the chronic diseases of the financial industry.

Ideas such as "clean money" and "inclusive finance" are derived from the above viewpoint. In our vision, we can take advantage of the fact that the last big crypto bull market has shown real benefits beyond people's expectations, thus showing the mainstream society the huge positive potential of the blockchain, such as providing a large-scale renewable energy foundation for governments. large-scale financing, or provide large-scale cheap and efficient financial services for developing countries, etc.

At some point, if we do enough, combined with some effective media and PR campaigns, we can overwhelm the old by proving to mainstream society that the advantages of permissionless financial innovation in the public domain cannot be ignored. The regulatory paradigm, introducing a new third type of financial product between complete regulation and complete decentralization: a neutral financial infrastructure based on blockchain - just like Malu and Linux, even North Korea is use, and we will not ban these things, as they provide significant value to society as a whole.

But unfortunately, the window of opportunity is now closed forever.

First of all, the blockchain industry produced absolutely nothing of value during the bull market and basically achieved nothing. No new products, services, or any tangible benefits derived from blockchain technology have entered mainstream consciousness at any level. Maker is a good example, our concept of Clean Money has been supported by many people, and they also theoretically agree with this concept. But no one cares about intent, and we don't have the ability to put ideas into practice. It turns out that operating a DAO and doing useful work in a decentralized paradigm is very difficult.

Second, and worse, some of the failures of the last crypto cycle have caused mainstream public consciousness to associate blockchain and cryptocurrencies with tragedy. The moment Terra crashed, we realized that there was simply no way we could convince the public that cryptocurrencies should be treated differently from other financial services. Instead of producing anything useful, crypto has instead focused mainstream crypto awareness on disasters like Terra, Celsius, and other crypto scams that robbed ordinary people of their savings and even caused them to commit suicide. In the eyes of the mainstream, we have successfully created the "Crypto Brothers" who are more notorious than the "Wall Street Brothers".

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Two core assumptions of RWA risk

Sanctions against TC should not be seen as a direct consequence of any of the aforementioned factors — rather, it is likely to be random and not even have any direct relationship to cryptocurrencies, but just a quick and short-term oriented attempt, through some announcements and Press releases for political victories. But it's also a wake-up call for us, do you want to be seen as a bank, or do you want to be seen as something other than a bank, and do you fully understand the risks and consequences of doing so?

Although the DAO currently has no real legal presence or entity, nor the ability to enforce legal rights (although the government does not think so), the risk of RWA has been manageable in our opinion before, mainly due to two important factors:

One, any attempt to seize RWA or crack down on cryptocurrencies, such as blacklisting or freezing collateral, will be notified in advance to give innocent legitimate users time to react. Our thinking at the time was that the government would not simply nuke Maker and cause widespread harm to innocent people; if we did not follow their regulatory regime, they might simply prohibit Maker from relying on their legal system. This turned out to be false, as in the TC sanctions case, secrecy was kept until the trap was activated, and innocent users (luckily only a small amount) had their USDC frozen in the TC smart contract.

Second, even if the RWA collateral is frozen or seized, innocent users can recover their money through some channels. The representative case is e-Gold (Note: e-Gold's first successful online payment system was adopted by the United States The Justice Department sued, and eventually some users managed to get some of their funds back in their accounts).

Unfortunately, this is not a foregone conclusion, as we have seen with the TC sanctions, those affected by the USDC blacklist may have lost their property forever. Even if they are completely innocent and perfectly legal to use TC to protect financial privacy.

This also means that the consequences of non-compliance and not becoming a regulated bank are very serious. They're not something you can gamble with, especially when it involves the savings of many people.

Why does DAI have no choice but to prepare to free float?

So we're left with two options: the path to compliance, and eventually, long enough, to turn Maker into some kind of next-gen fintech/neobank; or the path to decentralization, which means This means placing strict limits on the extent to which a regulatory crackdown could undermine the agreement.

However, it is important to note: the road to compliance is no longer possible for us. Why? Because the developers who created DAI were far-sighted and completely ruled out the possibility of adding or upgrading the blacklist, making it never possible to become a tool for financial supervision and control, even if the Maker governance department wanted to do so (to cater to supervision) less than. In this sense, DAI is actually a truly decentralized stablecoin.

Therefore, for Maker, there is always a sword of Damocles hanging over our heads-at some point in the future, Maker is likely to be severely attacked by global authorities, and the process is similar to TC being sanctioned. Of course, this may not happen for many years, but we need to plan ahead.

Therefore, we must choose the path of decentralization, which has always been the intent and purpose of DAI, just like DAI's original design. Choosing the path of decentralization means DAI may have to prepare for the possibility of free floating. The reason is simple: the road to decentralization means that we may be subject to physical attacks (that is, government authorities may seize and freeze RWA assets), so the proportion of RWA collateral in the entire investment portfolio must be adjusted. I have set this cap at 25% in the "Endgame Plan" plan (before insurance and defense measures are applied), which is the strategy that the agreement will adopt, but whether it will actually be implemented at present.

The only way to ensure a hard limit on RWA exposure is to allow DAI to float freely, as excess demand for DAI may not be met by additional supply backed by a fully decentralized asset such as ETH. The only way to deal with this imbalance and prevent the peg from breaking is to introduce a negative target rate, which would cause the price of DAI to float freely - from $1 to a lower exchange rate, thereby reducing the demand for DAI and increasing the supply of DAI, Because it becomes cheaper to generate it using a decentralized treasury like ETH.

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2 powerful tools for DAI free-floating success

The main challenge with decentralized and free-floating DAI is that no one pays attention to it, even those who blather about decentralization don’t use it, and eventually it’s too late. The downside of decentralization is obvious, i.e. its potential to lose value relative to the dollar; while most of the benefits are completely hidden from the human brain as we cannot perceive long-term and tail risks.

The "Endgame Plan" provides two very powerful tools that can overcome this challenge and turn DAI's free float into something that Maker can survive and even thrive on.

MetaDAO and the MetaDAO Token

The most important tool in existence is MetaDAO. Is there any way for someone to accept a free float price and lower interest rates that could make their dollar value drop over time? The answer is, you have to give them something else in return.

It turns out that while decentralization has almost only downsides, there is a tangible benefit that people really care about — the ability to create tokens — and it’s the most powerful force that brought most people into crypto in the first place. As described in the "Endgame Plan" article, "the creation of blockchain tokens is by far the most powerful form of meta-engineering". In fact it is so powerful that even governments recognize this power and try to shut it down and control it.

With a decentralized currency, it is possible to create a decentralized economy run by decentralized businesses governed by tokens, and which cannot be shut down or controlled whether the authorities want to or not - as long as you have a real , the actual decentralized currency as the backing.

You can provide this benefit to DAI holders by offering MetaDAO tokens, projects that have real, profitable, sustainable and fully decentralized business models - but only because there is a fully decentralized The centralized currency realizes the closed loop and proves that DAI is free floating.

In addition to this, MetaDAO token yield farming can also be used to incentivize the generation of decentralized DAI from fully decentralized collateral (such as Stake ETH), which helps increase the supply of DAI and reduce the amount of DAI holders Negative interest rates have to be accepted.

Protocol own treasury

Another major tool is the Protocol Owned Vault (Protocol Owned Vault) - a strategy for Makers to accumulate large amounts of leveraged, pledged ETH (Staked ETH) themselves, thereby becoming a net issuer of fully decentralized, over-collateralized DAI. This has two big advantages: First, it allows Maker to take advantage of the negative interest rates generated by natural DAI demand, which is actually exacerbated by the presence of MetaDAO yield farming (it has to exist, though, because it justifies the existence of DAI, That is, if it is not pegged to the US dollar, what other meaning does DAI have.)

I believe you can also understand that having a lot of leveraged exposure to assets with an annualized rate of return of 5% and above, and then having a lot of debt on top of that, which itself can generate 5% per annum because negative interest rates make it in Automatically falling in dollar terms, it will be very profitable.

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Back to the source of cyberpunk

The last major benefit of decentralized and free-floating DAI is that it brings Maker finally back to its true roots. Not just the roots of Maker and DAI, but the roots of crypto itself, from the cyberpunk movement of the early 90s, when governments first tried to ban crypto and enforce a hellish dystopian future where any form of personal The very concept of privacy becomes illegal (much like financial privacy has become illegal).

It’s hard to overstate how much of Maker’s cultural, community, and governance issues ultimately stem from a perceived bias toward this primordial ethos, and the contradictions of many of the necessary actions taken over time, such as the Maker Foundation’s governance strategy (which needs to be very strict information control), or introduce unlimited USDC to enforce the dollar peg at all costs. Of course, I don't think those choices were wrong at the time, because it's what got us to where we are today, with real network effects, momentum, and success. But we shouldn't underestimate the toll it took on the soul of the community and the project -- now we have the opportunity to bring that spirit back.

I think that's actually what might end up being the biggest problem. If we can recapture this original ethos and once again prove ourselves to be the vanguard of the whole crypto ethos, as we once did when we pioneered on-chain stablecoins with real functionality and created DeFi, it will create a whole new world around the Maker ecosystem. A whole new focus that will lead to an influx of users, community members, contributors - but also inspires Maker governance, reducing bureaucracy, delays, etc.

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Fortune and misfortune depend on each other, and crises coexist

A final point worth discussing is how this all fits into the broader global metadata created by the state of irreversible, accelerating decline that exists in modern globalized societies. There are multiple factors including overpopulation, climate change, peak oil, peak farmland, peak fertilizer, post-truth social media, etc. Modern global capitalism will likely not be able to overcome the problems it has created, and the immediate consequence is that this politics will become increasingly polarized and unhinged. The world will enter a new, more chaotic and unpredictable equilibrium, dominated by anarchy, eco-fascism, deglobalization and human suffering on a massive scale.

This is important to Maker and DAI for two reasons:

First, a fragmented country and a faltering "zombie economy" (note: a zombie economy refers to a situation in which personal financial security is threatened due to a deformed economy or is in crisis in the future), or a country obsessed with capital controls and general authoritarianism, Often more likely to crack down on cryptocurrencies. This trend is easy to see if you look at the list of countries that have banned cryptocurrencies.

This means that, with global economic and socioeconomic stability increasingly fractured in most parts of the world, the likelihood of state-level physical attacks on Maker rises. Since this trend is accelerating and irreversible, it also explains why Maker must prepare to be fully decentralized and expect the worst for its RWA collateral, thus requiring it to be free-floating.

Second, such a chaotic and dystopian future is exactly what DAI and cryptocurrencies as a whole exist for. People will need the tools to navigate the future when governments and elites can no longer be trusted or even save themselves from collapse, let alone have the best interests of their people at heart. In this case, the most important and powerful tool will be a crash-resistant, decentralized currency.

We need to prepare for the worst and focus on accumulating resilient collateral like ETH, or even eventually physically resilient RWA, and building something that could ultimately affect the lives and deaths of millions.