9 - Going Bankless with Maker | Mariano Conti

Episode: #9 April 27, 2020 Ryan & David talk with Mariano Conti https://twitter.com/nanexcool about Dai, Maker, & his epic bankless journey. Learn how Maker can help you go bankless through this conversation with Mariano. We talk: Mariano's life in midst of Argentina's capital controls Why Mariano moved from Bitcoin to DAI and Ether The components of Maker including: DAI (stability) Vault/CDP (credit) Dai Savings Rate (interest) Governance (MKR token) Centralization risks of Maker Is Maker the last say on decentralized stablecoins? What's it going to take to see 1m people into DAI? This is our first of three episodes in the "King Money Protocols Series" where we talk through the three most important DeFi protocols. Stay tuned for the next two episodes! Before the episode begins we also talk about: The Lendfme hack & what it implies Insanity of negative oil prices! ----- Tools from our sponsors to go bankless: Rocket Dollar https://www.jdoqocy.com/click-9261763-13920047 - tax shelter your crypto ($50 w/ "BANKLESS https://www.jdoqocy.com/click-9261763-13920047") Monolith https://monolith.xyz/ - holy grail of bankless Visa cards Aave https://aave.com/ - money lego for lending & borrowing Zerion https://zerion.io/ - portal to your DeFi portfolio ----- Resources discussed: VIDEO: How I Survive Argentina's 50% Inflation https://www.youtube.com/watch?v=ZEPx-iS7sz8 - Mariano PODCAST: Rise of MakerDAO: A Personal Journey https://unchainedpodcast.com/the-rise-of-makerdao-a-personal-journey/ - Mariano Learn how Brice pays for his lunches with DAI https://bankless.substack.com/p/how-defi-can-pay-for-your-lunches - Bankless Follow Mariano's on Twitter https://twitter.com/nanexcool ----- Episode Actions: Check out Maker protocol https://makerdao.com/en/ How to get a DAI Savings Account https://bankless.substack.com/p/how-to-get-a-dai-saving-account - Bankless Tactic 23 Give Bankless podcast 5 stars in iTunes! ----- Subscribe to podcast on iTunes https://podcasts.apple.com/us/podcast/bankless/id1499409058 | Spotify https://open.spotify.com/show/41TNnXSv5ExcQSzEGLlGhy | YouTube https://www.youtube.com/c/bankless | RSS Feed http://podcast.banklesshq.com/ Leave a review on iTunes https://podcasts.apple.com/us/podcast/bankless/id1499409058 Share the episode with someone you know! ----- Don't stop at the podcast! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit official Bankless website http://banklesshq.com/ for resources Follow Bankless on Twitter https://twitter.com/BanklessHQ | YouTube https://www.youtube.com/c/bankless Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:14Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front-run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman once again, and we're here to help you become more bankless. David, I am super excited about our guest today and about the topic. Can you tell us about it?

• 0:35David Hoffman?

  Mariano Conti, who I call the King Midas of Ethereum, because everything he touches turns to Ether. We all know and love Mariano Conti. He is the head of smart contracts at the Maker Foundation. He has been absolutely critical in the rollout of the Maker DAO system, and he's been there from day one, back when the Maker DAO system was what they called proto-psy. That's the psi before the current psi, which is the psi before the current die. So he's been there all the way in the history of Maker DAO. The really cool thing about Mariano Conti, in my opinion, is that he is from Argentina, which is one

• 1:17David Hoffman?

  of the many countries in the world that really needs crypto as infrastructure for value management and just for living your life. So at the same time that Mariano is living on crypto, using crypto systems to support his personal finances, he's also building the platform, the Maker DAO protocol, that also will help him live his life even better. And so like, he's a dog food in crypto, and then he's also building his own product that he needs at the Maker Foundation. So getting into this episode, we talk about stability, how Mariano lived on Bitcoin before there was even Ethereum or DAI to live off

• 1:57David Hoffman?

  of, how that helped his life, and then the problems that that also created, and then how he came to the Maker Foundation and started living off of DAI. Mariano has done a ton of different talks around this space, and so we have those linked in the show notes if you guys want to hear more about Mariano's story. But truly a fantastic individual, a really strong representative, ambassador of the Maker DAO system and for crypto at large.

• 2:22Ryan Sean Adams?

  Guys, this is going to be part of a three-part series we are doing on the King Money Protocols. And the first of these is Maker. The second is going to be Uniswap, and the third is Compound. So we've got three banger episodes coming up for you guys. I think in addition to hearing Mariano's story, which is fascinating, you're going to learn a lot about Maker, DAO, the protocol, about DAI, the stablecoin, about accessing credit and how to use this interesting, this bankless system. But before we get into it, let's talk a bit about our fantastic sponsors. The first is for our US listeners, Rocket Dollar.

• 3:02Ryan Sean Adams?

  If you have an IRA or a 401K, the chances are it's jailed in your brokerage, in your Schwab account, in your Fidelity account. That means you only get good access to stocks and ETFs. If you try to buy crypto inside of it, you're getting ripped off. You don't have access to buy crypto at the spot price. So the price of something like an ETH inside of your brokerage account is going to be 5X what you'd pay on a Coinbase. Don't do it. Get a self-directed IRA. You can get a Roth IRA. You can also get a self-directed 401K. Use Rocket Dollar. They take care of all of the paperwork, all of the administration. You can break your retirement account out of jail. You could start investing in crypto.

• 3:47Ryan Sean Adams?

  Now is a fantastic time to do that, by the way. And if you go to rocketdollar.com, you can use the code BANKLESS and get $50 off.

• 3:56David Hoffman?

  zerion.io is the front page to the DeFi ecosystem. If you are looking to onboard your friends or even yourself into the world of Ethereum and DeFi, I highly recommend going to zerion.io and using their interface to manage all of your crypto assets. Zerion is specifically designed to make crypto extremely easy and extremely sexy to use. And so instead of going to all your individual protocols, like going to uniswap.io, compound.finance, the Maker Vault page, you can just go to zerion.io and see all of your assets and all of the DeFi protocols that you want to interact with, all in the same place.

• 4:37David Hoffman?

  To me, it is the replacement for logging into my Wells Fargo account and seeing my personal finance situation. Instead, I just go to zerion.io and I see my DeFi accounts all in the same place and I can swap on Uniswap, I can borrow and lend in Compound, I can open a vault in Maker DAO, and then you can even invest into Uniswap and Bancor pools. Something really cool and new that happened with Zirion is that they acquired my DeFi and they are also building out a set of API tools. And so, you know, the world of money Legos is not just confined to Ethereum applications. On in the traditional web 2.0 world, there's also the data Legos. And so now,

• 5:18David Hoffman?

  you can use Zirion as your data Lego for data and analytics about the DeFi ecosystem. So if you are building something that needs data about DeFi, Zirion is rolling out a API product for you to build on top of. Check them out at zerion.io.

• 5:37Ryan Sean Adams?

  All right, David, before we get into Mariano and Maker, let's talk big picture. There's always weird stuff going on in the world outside of crypto and within crypto. So something crazy that happened last weekend, David, was a Deforce DeFi protocol called Lend F Me got hacked for like $25 million. So what happened there, man?

• 5:58David Hoffman?

  Yeah, this this story is really interesting and kind of comical, I think, in my opinion. So Deforce is this DeFi protocol that is very similar to Compound. In fact, it is almost exactly the same as Compound. And the reason why we know this is because there were some pretty clear indications that they copied and pasted Compound's code and then used it for their for their own application. And the reason why we know this is because there were little identifying tags that literally said Compound in the code that they forgot to remove. And so that was already a red flag. And then they made some tweaks, made some changes. They implemented a new token standard called ERC-777, which Compound specifically did not include. And then,

• 6:42David Hoffman?

  because they allowed for these new this new token standard, They allowed for what is called a reentrancy attack. Really simply explained, a reentrancy attack is imagine if you go to your local bank, ask for a withdrawal and then while the teller is opening up the cash register to pull out the money, you teleport to another of the same bank and you ask the next teller to make the same withdrawal. And so you go and do that a thousand times at all the different banks and before all the tellers register that you are withdrawing $200 from your account, you've gone to 10,000 different banks and then you withdrawn $200 from all of them. And turns out that you actually drained the whole entire system before they could account

• 7:27David Hoffman?

  for that. And so that's what happened with the deforce attack. The attacker was able to withdraw $25 million of different crypto assets from the protocol. And I think it might have been pretty obvious to see this coming, understanding that we saw them copy and paste Compound's code. It clearly showed that the expertise of these individuals was not up to snuff for managing users' funds.

• 7:51Ryan Sean Adams?

  Yeah, absolutely. So it was put together in a sloppy way. It was not a defi protocol that we'd recommend. It wasn't properly audited. This, the hack that you mentioned was a sort of a well-known flaw that they kind of disregarded. But that aside, you know, it's really interesting about this story. So the hacker goes and steals a 25 million worth of assets. So he steals assets like USDC and IMBTC. And these assets, what I think is really interesting about this story is these assets are actually like redemption tokens. So they don't have strong settlement guarantees.

• 8:30Ryan Sean Adams?

  In other words, if you buy, if you hack, rather steal USDC, what you're actually stealing is a redemption coupon for some US dollars that Coinbase keeps in a bank somewhere. You're not actually stealing a bearer asset that you can then settle anywhere. You have to settle USDC at Coinbase. Same with IMBTC. It's kind of a redemption coupon for.

• 8:57Ryan Sean Adams?

  For getting some BTC, some Bitcoin out of the bank. So weaker settlement guarantees, these are just redemption coupons. These are vouchers for the asset, not the actual asset itself. So the hacker, the thief goes and steals those things. And the very first thing he goes and does with those assets is he swaps them. And what does he swap them for? He goes to a DeFi exchange called One Inch and he swaps them for assets that have much stronger settlement guarantees. So more trustless assets like ETH, like some of the DeFi bearer asset protocols like MKR and KNC and Lend.

• 9:40Ryan Sean Adams?

  These assets have stronger settlement guarantees. He doesn't have to redeem them at a bank and so they're more liquid. And I think that really ties into something that we were talking about in episode six. When we talked about the DeFi trust spectrum, how there's a tendency for high density assets and high density protocols. And by density, we mean stronger settlement guarantee protocols to become the preferred protocol as the foundation. Thieves prefer them even because they have stronger settlement guarantees. They don't have a trusted intermediary that's required in order to redeem these assets for something of value.

• 10:22Ryan Sean Adams?

  And I think we'll see that theme emerge in our talk today with Mariano, where we talk about the difference between DAI, which has a stronger settlement guarantee, it's more trustless than a stablecoin asset like USDC, which is at the end of the day, a voucher, a redemption coupon for some US dollars in a bank account.

• 10:45David Hoffman?

  I think the metaphor of settlement guarantees doesn't only apply to crypto assets, but also to crypto protocols. Deforce, comparing the settlement guarantees of Compound versus Deforce, it's a little bit harder to vet. Actually, it's a lot harder to vet the settlement guarantees of these applications. But a really easy and quick way to do it is time. Compound has been live for At least a year and a half now and DeForce had been live for a week and a half. And so when it comes to trusting these applications, time is actually a really good measuring stick to see which of these applications are going to offer stronger settlement guarantees. This is called the Lindy effect. If something has been around for a long time, it's likely to be around for a longer amount of time.

• 11:30David Hoffman?

  And so I think the Compound versus DeForce story is actually really interesting. And I kind of see it as a West first East story. China is famous for stealing Western code and just using it for their own benefit, like re-appropriating it and doing as they see fit with it. However, you can't really do that in crypto because of the settlement guarantees of these networks as a whole. You know, if you mess up once in the traditional world, you can just write a patch and deploy it and you're fine. If you mess up in the crypto world, you lose users' funds.

• 12:05Ryan Sean Adams?

  The story does end well, actually. So in the process of exchanging some of his lower settlement guarantee assets for some higher settlement guarantee assets, the hacker actually used a DeFi exchange called One Inch. And in the process leaked some metadata about his IP. The police were able to use that to track him down, find him in Singapore. And ultimately, the hacker returned the entire 25 million worth of assets. So, you know, protocols and hacks don't usually get quite so lucky. But DeForce and Lenefme were quite lucky in this case

• 12:48Ryan Sean Adams?

  that it had a happy outcome for some of the folks that put money in these protocols. But I think there's a number of lessons here. One of the final lessons is probably be very, very careful where you deposit your funds. We talk so often about DeFi and Bankless being kind of the Wild West. And in the Wild West, it's really incumbent on you to do your research and make sure you know the risks of a particular protocol. Going into it, as David talked about the Lindy effect, the amount of time a protocol has been around, the amount of value in that protocol. Those are both good indicators for how safe or the risk of a given protocol.

• 13:32Ryan Sean Adams?

  Let's, let's talk about something else, and this is happening outside of crypto, and that's negative oil prices, David. What, what's up with that?

• 13:39David Hoffman?

  This has been a really interesting story in the outside world. And it's, it's also interesting that it's happening during the times of the coronavirus crisis, which it's relatively independent from, but because, you know, this is all happening at once, the, everything is relevant now. So what happened is that in the futures market, there comes a time where if you are the holder of a specific contract for a barrel of oil, the, the clock strikes midnight and that contract sets in, and you are then committing to actually take physical delivery of oil at a specific place in, inside the United States. And so what happened was the OPEC countries have been pumping out oil in the last month.

• 14:23David Hoffman?

  There's been this other, like, like I said, there is this alternative, like, crisis going on with oil that is independent from coronavirus, but it's very much exasperated by coronavirus. No one's driving their cars, no one is flying in airplanes. General demand for oil is just like cut off, like 90% down. And so there is this massive supply of oil. And while there's this massive supply of oil, there is increased demand for storage. However, there is finite storage. And so a lot of investors really, really don't want to have to take physical delivery of oil. These are people in the CME, the Chicago Mercantile Exchange, who are, you know, invest, they're, they're futures traders, they are commodity traders.

• 15:07David Hoffman?

  They, they wear a suit and tie and they go to work and then they drive home. They don't, they're not truckers, they're not delivery people, they don't want that oil. That's not their job. There's this very interesting separation of these two populations. And all of a sudden, a lot of CME traders, all of a sudden became oil holders in, without really intending to. And so there was a rush to sell oil. And there's no reason why the the price has to hit zero. If you really don't want that asset, if you really don't want to take responsibility over owning that asset, you can pay someone to not have that responsibility of holding the oil. And so oil went all the way down to negative $30 a barrel, which means people were paying

• 15:50David Hoffman?

  $30 to not have to take ownership over a barrel of oil because there's so much oil and there's no place to actually put it. And so that's what happened with oil in the in the oil markets.

• 16:01Ryan Sean Adams?

  So Ethereum Ether had this meme, "Once upon a time that ETH is oil," right? We've talked about ETH as not being just a commodity like oil, it's a triple-point asset. But I had so many maximalists, Bitcoin maximalists, troll me on Twitter the day this happened and said, "Ha, ha, is ETH oil now? What do you say to that? Like, what's... Did you get that too?"

• 16:25David Hoffman?

  Yeah, yeah, it's a funny connection, but it really has no grounds in reality. Ether is digital oil for paying gas or powering the Ethereum blockchain, but it's just a metaphor. There's nothing actually real there.

• 16:38Ryan Sean Adams?

  Yeah, and there is a difference between Ether and something like oil. You mentioned that the reason oil prices went to actually negative territory is because there's a cost to store the oil itself, right? The physical cost, inventory cost, putting it in a warehouse, that sort of cost. You don't really have that with cryptocurrencies because they are purely digital commodities. So Ether, when it's being used as a commodity to pay for gas, there's no storage cost associated with that. Or at least, you know, the storage costs are a lot smaller because it's fairly easy to secure your crypto in a decentralized way.

• 17:19Ryan Sean Adams?

  You don't need large inventories and warehouses and barrels and trucks in order to store and transport this stuff, right?

• 17:29David Hoffman?

  Absolutely. I don't guarantee many things in the crypto world, but I will guarantee that there will never be a negative crypto price. You will never be able to have negative Bitcoin or negative Ether. That will not happen. And that's simply because, yeah, like you said, it doesn't cost anything to store it. And that's a really strong advantage. And that's actually the same thing that allows you to memorize 24 words in your head, hop on a plane, travel across the world, and then still have access to your funds. That zero storage cost is why you can store money in your brain. And so I think this really illustrates a very strong difference between like real world, physical assets and internet-based assets,

• 18:11David Hoffman?

  where, you know, real world assets like gold, storing it also has risk. While people generally consider gold as a very risk-off asset, you know, storing it is a part of that risk. There is still risk there. And so while crypto is considered extremely risky, storing it, you know, the zero cost of storing it is a reduction of risk. And if you can get your crypto storage system down, that is an insanely awesome feature to have as an asset.

• 18:39Ryan Sean Adams?

  Absolutely. Keeps it decentralized. Okay, before we get into the episode, let's talk about our sponsors. The first is Aave. Aave is a lending and borrowing protocol on Ethereum. So what does that mean? We're going to talk about DAI today, the stablecoin. You can actually take that DAI, you can put it in Aave. It will magically transform that DAI into an interest-bearing DAI token. That means when you hold the token called a DAI, which is Aave's version of an interest-bearing DAI token, it's actually earning you interest as you go. You can also borrow from the Aave protocol in the same way you can borrow from Maker. One difference, though, with Aave, the rate is fixed. It's not variable. With Maker, the rate is variable, so it can change on a week-to-week basis.

• 19:24Ryan Sean Adams?

  With Aave, you can lock in a rate, it remains fixed. Also, if you're a developer, you've got to check out their flash loan protocols. They can be integrated in all sorts of really interesting money protocol applications. To lend or borrow from Aave, go to ave.com. That's A-A-V-E dot com, and check it out.

• 19:49David Hoffman?

  In this episode, we're going to talk a lot about DAI and how Mariano Conti uses it as a freedom tool to get what he needs out of his personal finances. If you also want to use DAI as a freedom tool and have it be a useful tool for your personal finances, I highly recommend getting the DeFi card from Monolith. Monolith allows you to get a Visa card that you can spend wherever Visa is accepted, which is like the whole world. And so you put your your DAI inside of your Monolith account and then that's connected to your DeFi Visa card. Monolith is approaching the $1 million topped up in their platform on their Visa DeFi card. And so you should definitely be a part of

• 20:31David Hoffman?

  that people that bring that to $10 million. So go to monolith.xyz and sign up, get your smart contract wallet deployed to Ethereum, and then get your Visa DeFi card that's connected to your smart contract wallet. It puts a little bit of Ethereum in your pocket for you to use out and about as you see fit. And you can always feel really cool when you swipe your card and it makes a transaction on Ethereum. So go to monolith.xyz to get started.

• 20:59Ryan Sean Adams?

  Without further ado, this is our interview with Mariano Conti from MakerDAO.

• 21:11Ryan Sean Adams?

  All right, let's dig in. Welcome, Mariano, to Bankless. Really excited to have you here. You know, I think it'd be great, Mariano, if you start and just tell listeners about yourself and a bit about your Bankless journey.

• 21:26Speaker 02

  Yes, of course. I'm really happy to be here. So I'm currently the Head of Smart Contracts at the Maker Foundation, where we build and bootstrap the Maker Protocol, which we'll get into after. But my Bankless journey began in 2014 when I started accepting Bitcoin as my salary. And it took off from there. In 2015, I got into Ethereum and then I started getting paid in Ether. And I discovered Maker and through a series of coincidences ended up working there. And as soon as the first version of the Si stablecoin was created,

• 22:11Speaker 02

  an initial private alpha that we call Proto Si, I started getting paid in that. And when we released Si, I started getting paid in Si. And then when we released Dye, I got paid in Dye. So for the past five or something years, my salary has been, you know, nothing but cryptocurrencies. And in the past three years, the ones that we've been building. So I've been bankless for a long time. And when I say bankless, I mean, I still have to go into the fiat world, right? But I'm trying to do that less and less.

• 22:47David Hoffman?

  So Mariano, let's talk about your very beginnings. Let's go all the way back to Bitcoin and talk about your, the country you live in, Argentina, and then why Bitcoin offered a compelling answer to you? And then, and then why the next currencies offered a, another compelling answer to the problems that Bitcoin offered?

• 23:08Speaker 02

  In 2014, there were capital controls in Argentina. So it was very difficult to get access to dollars unless you went to the, the black market. And the exchange rate was so different. The official was, I don't know, maybe eight. And in the black market, it was maybe 50% more. So the government would buy you dollars at a very low exchange rate. And if you worked for a company in the US or you were freelancing, if they paid you dollars, they would be converted to pesos at a really bad rate, right? So people started looking for alternatives.

• 23:51Speaker 02

  And they went through the usual ones, you know, PayPal, and that got shut down. People opened bank accounts in Europe, where you know, neighboring country, they opened bank accounts in the US, but that's still. Was it wasn't as simple to do. So my boss, he mentioned Bitcoin and said, hey, I can pay you in Bitcoin. And after I did some research, I discovered that this was really something great for me. There were already some websites that would let you pay, you know, utilities using Bitcoin or send it to other people. And that was really the the beginning.

• 24:33Speaker 02

  And I felt that I could take charge of my money, you know, it was it was something that the government couldn't touch. And and I got soaked into the whole ecosystem. The problem was, I mean, looking back, I see some of the utility bills that I paid. And depending on the on the month, I either overpaid by hundreds of dollars or got really lucky and and, you know, paid when the prices were just right. And and that always bothered me, you know, the volatility. I remember I I did some freelance work and I had set up a rate.

• 25:15Speaker 02

  And then we had problems when I wanted to collect because the person was giving me the rate of Bitcoin two dollars at the time that they paid it, but I wanted it at the time that I delivered the project. And it was really good for them, but not for me. And that always stuck in my head, you know. How can we make this better? And that's why my interest in stable coins.

• 25:40Ryan Sean Adams?

  You mentioned one thing. So I I think a lot of our listeners can maybe they haven't experienced hyperinflation for themselves, but they can sort of picture it. But one thing they might not be able to picture or understand as much is the kind of capital controls you mentioned. So can you describe how the government and the commercial banking sector in Argentina sort of, you know, work together on those capital controls? Like, what was it like? What did they do?

• 26:07Speaker 02

  I can give you a better example from right now because now in 2020, we have capital controls again. So for example, I cannot buy more than $200 a month legally. So I can go into a bank, I can purchase $200 at the official exchange rate, which is maybe 65 pesos per dollar.

• 26:31Speaker 02

  And then I'm on a database and I cannot do it again until the next month, right? And but if I have one dollar and I sell it in the black market, I can get over one hundred pesos. So you see the disparity there? And if you were to send me ten dollars right now via a bank, the bank is legally required to change it into pesos before they give it to me. So I am losing almost fifty percent of the value of a dollar because you have a country that just either continues to, you know, print money that nobody wants or

• 27:15Speaker 02

  just hangs on to an exchange rate that everybody knows is fake. We have almost twenty different exchange rates of the dollar. You have the official one, you have the one in the black market, you have the one that the government purchases soy to farmers. You know, they're not legally allowed to export to anybody they want. They have to sell it to the government and the government says, okay, I will buy it, but at thirty pesos to the dollar, you know, things like that. It's it's really complicated, but it's also one of the things that gives Argentinians an edge. It's like we have to think about so many things to protect our money

• 27:58Speaker 02

  that I feel that that we play in hard mode.

• 28:02David Hoffman?

  Trying to escape the crypto bubble, I would just assume that everyone down in Argentina is a crypto person because crypto offers them like, you know, the solutions, the infrastructure to escape from the coercive government, the government with capital controls. What has the infrastructure been like down in Argentina, both with crypto and with other solutions that have allowed people to escape this tyranny of sorts?

• 28:30Speaker 02

  There's, there's endless stories. So outside crypto, people will just take a ferry to Uruguay and max out their credit cards, you know, taking out dollars from an ATM until they, they borrowed that. People, if they get some money for whatever reason, they will buy a motorcycle or they'll buy bricks, you know, things that more or less go along with inflation.

• 28:59Speaker 02

  I don't know. They do so many things. Of course, you know, buying dollars. And I read somewhere, Argentina is one of the countries that has the most amount of cash, USD cash in the world, you know, of course, outside the US, because people hoard it so much because we have it in our brains to think about dollars. Properties are, are sold in dollars. And, and in the case of crypto, we're seeing more and more young people, of course, try to make this jump because it, for them, is just another tool to access dollars. That's, that's really what it is. And you have the promise of, you know, unbiased, uncensorable, transparent transactions and

• 29:43Speaker 02

  community. That is, that is really important. And the fact that you get to own your own money, that is big because of course, there's been so many instances that the government just freezes everybody's bank accounts and then says, okay, your money's not yours anymore.

• 30:00David Hoffman?

  Your money's not yours anymore. Wow. What a powerful sentence. And, and this brings us, I think, right back to the world of crypto and why crypto is, has qualities that are really perfectly suited for this, especially the, the seizure resistant nature of crypto assets. And that's why Bitcoin as a non-sovereign currency, I think, offered you a good solution. But I think from, from what you're telling me, everyone wants dollars. Everyone in Argentina is doing what they need to access dollars. And I think that's a good time to transition into talking about the MakerDAO protocol and, and DAI and, and maybe you're also your personal transition from using Bitcoin to using DAI and how the stability of DAI has, has further

• 30:42David Hoffman?

  given you more, more crypto tools in your tool belt to be a bankless person. Can you tell us about that transition?

• 30:48Speaker 02

  Um. Yes. So the first time um we launched what we call Protocci was around July 2017. Uh. There was still, of course, uh, no market for it, right? But we did get paid in this ERC 20 token that we called Si. And it was one to one to the dollar. And we had to go back to Ether uh to actually do something with it. Because there was no market, nobody would uh um would trade you anything for it. But it it showed us that it was indeed possible. And then um when Si was released in December 2017. And you started seeing an ecosystem grow around it.

• 31:33Speaker 02

  That's when when we actually saw the power. Because it was all very gradual. First, you started trading between people that work with you right at the Maker Foundation. Then uh you started trading with people around it. And then as as Si got listed in different exchanges. We discovered um, for example, people here in Argentina who uh were crypto traders that would uh serve as our off-ramps. They started accepting this token as well. Because they they saw it in a decentralized exchange or a centralized exchange, maybe.

• 32:12Speaker 02

  And they realized that they could also use it um, you know, to uh hedge some volatility, maybe uh with um from crypto or just have it um as another uh useful token that they can trade against. And that happened in early 2018. I opened the CDP and borrowed Si to purchase a car. And uh I ended up doing that transaction via Telegram. I contacted somebody that I'd never seen in my life. I sent him Si and he deposited pesos into uh the car dealer. Uh, the car dealer's bank account and I got my car.

• 32:56Ryan Sean Adams?

  So no paperwork required to do that. This is all essentially between, no bank in the middle. It's all just, you know, Mariano's ETH address and a smart contract protocol in order to do that transaction. Now, like, you know, just for folks who maybe aren't as familiar with what you were saying, what you just described. So we've got DAI, which is a stablecoin. You were talking about a precursor to DAI. And that maintains one-to-one stability with the US dollar. And the way it does that is it's collateralized. So it's backed by generally crypto as collateral.

• 33:38Ryan Sean Adams?

  So Ether as collateral, right? So you've got this stability mechanism and this credit mechanism. So when you were talking about opening up a CDP, that was you actually opening up a loan. They're also called vaults in the new maker system to actually mint your own DAI. Is that correct? So this is like stability on one side of things in the maker system and then credit on the other side of things. Is that right?

• 34:07Speaker 02

  That is correct. So, yeah, every DAI that is in circulation is because somebody put in a valuable asset, in this case, most likely Ether, and they over-collateralized to mint this stablecoin DAI. So if somebody puts $150 worth of Ether, they can mint 100 DAI. And the beauty of the system is that you can see and you can verify that there is always a lot more value backing the DAI than what the DAI is worth.

• 34:47Ryan Sean Adams?

  Yeah, so you immediately decided to start taking your paycheck in DAI. And this is not completely foreign or strange to you because previously you were getting paid in Bitcoin as a contractor. But what was the advantage for you in DAI versus Bitcoin?

• 35:05Speaker 02

  Well, the first advantage is that I am now in control of what I want to do with it and In terms that often when I get, when I get paid, I put back most of it back into the crypto market. Right. I, I like buying more ether. But in this case, I don't have to worry if I'm gonna get paid on the fifth of the month. And how Bitcoin is doing that day, or maybe it's a Friday and I'm gonna have to get paid on next Monday or Tuesday. And you know, what if the price went up or the price went down and, and you're wondering.

• 35:46Speaker 02

  So with this, you get a, a reliable paycheck with a reliable number. If you're gonna get paid X, then it's gonna be worth X whenever you get it. And then you can do what you want with it. And for something like a paycheck, I think it is extremely important. I, there are many people who either cannot save or can save a very small amount. And having them get paid in a currency that can go down 20%, that may mean not being able to pay rent that month or buying less food. You know what I'm saying? We all remember when we got paid in Bitcoin and the price went up 20, right?

• 36:31Speaker 02

  But if, try to remember when it did the other way. And maybe we're in a, in a position of privilege where it's like, yeah, okay, I don't need to sell it right now. I'm gonna wait until it's back.

• 36:48Speaker 02

  Where I said, yeah, now is a good time to sell. But so many people don't have that opportunity. It's like, if I don't sell it today, then I'm gonna get evicted. And they may be forced to sell at a price that is not convenient to them. The, the power of DAI and, and stable coins. Just they shield you from that, from that worry.

• 37:10David Hoffman?

  And that's a big deal, right? Like the stability of the value of your assets is really, really important. This isn't something to just kind of gloss over. When you work hard, you, you know, you go to work eight hours a day, blood, sweat and tears as you go throughout your week. You come back and you get your paycheck and then your paycheck starts, you know, changing how much it's worth. That's an extra weight on your mental, you know, your mental capacity that not everyone really should have to, to deal with. And so the ability for being able to depend on the value of your paycheck and it staying where you think it is, is really important, especially for long-term thinking. Stability really allows you to think longer than, you know, the next few weeks.

• 37:53David Hoffman?

  Like, okay, so I have this much Bitcoin and I have this much tolerance for it to change price before I get into trouble and I need to do something. With stability, you don't need to do that. And so like the, the, the creation of stability on Ethereum is, is really, really important. However, there are other ways to gain stability on Ethereum today. There are things like USDC or other stablecoins that offer stability, but they're not entirely bankless. And so Mariano, you are head of smart contracts, perhaps in the top 1% of people that can code on Ethereum. Can you kind of just talk us, talk to us about the difference between the DAI code and the USDC code? And what that represents for people that are interested in going bankless?

• 38:36Speaker 02

  Yes. So USDC, it is an ERC20 token. So it is a smart contract that represents this, this USDC tokens that are also packed to a US dollar. So one, one USDC is one US dollar. And the only backing is a company that is saying that for every one of these that are in circulation, I have that amount.

• 39:06Speaker 02

  In my bank account, either as cash, or I think maybe notes of credit, or something else. I don't know, something valuable, but that it is very difficult for you to audit. You cannot really go and knock on Coinbase and say, hey, can you let me see your your bank statements? Maybe they they do have it. I know that there are other ones like like Tether that have been a little bit more shady about it. I've read anywhere from, yes, we have 100% cash. We have $1 for everyone tether, but then it was, oh, no, we have 70%.

• 39:49Speaker 02

  And then the other 30 is in other assets. In the case of DAI, everything that happens with the protocol happens as smart contracts. And if you know how to read them, you can go and verify that $1, one DAI is backed by over $3 worth of value, whether it's Ether or Basic Attention Tokens, which are the main two collaterals. And now even USDC, which is a little bit less than than 1% of the total supply of DAI.

• 40:27Speaker 02

  This does mean that the protocol is more complicated, but it also means that it is more decentralized. It is more auditable and that it occurs almost 100% on the blockchain.

• 40:44David Hoffman?

  And not only that, Mariano, but the in the code between DAI and USDC, there is a little snippet of code that changes the nature of these tokens, one being fully permissionless like cash and one one being not. Can you kind of explain the difference between the actual code of the token? And how that impacts people's trust in the system?

• 41:04Speaker 02

  There is one main thing is that USDC has a whitelist. So or a blacklist, depending on how you want to look at it. But the company behind the USDC token can decide that one address has done something that they deem not right, and they can block access to their tokens. They can no longer transfer them. And essentially, it's just another way of censorship. DAI does not have this. It's fully permissionless. You can trade it with whomever you want. And I think that also gives it an edge.

• 41:49Ryan Sean Adams?

  We would say DAI is basically fully bankless, whereas USDC requires the permission of Coinbase. And it's really interesting. You know, we saw this in the Lend F me hack. So Lend F me, a guy stole $25 million from a poorly coded smart contract. And the very first thing this hacker did with the USDC he purchased and the other bank-backed crypto assets was sell them. Sell them for assets with stronger settlement guarantees like ETH and like Maker and KNC and a few other tokens. Because those tokens could not be blacklisted.

• 42:31Ryan Sean Adams?

  Those tokens did not require permission from a crypto bank. Those tokens had stronger settlement guarantees. We talked a little bit about that in episode six, where we talked about the density of these more trustless protocols and assets and how their greater density allows them to kind of sink to the bottom and become the foundation for other protocols to build on top of them because the rules do not change. You know, maybe just to finish this off as we're talking about DAI and how you've used DAI. So could you contrast DAI to the US dollars that might be available to you

• 43:15Ryan Sean Adams?

  in a commercial bank in Argentina? So what can you do with DAI that you can't do with US dollars in an Argentinean, digital dollars in an Argentinean bank?

• 43:29Speaker 02

  Like I said, there's only a limited amount of dollars that I can legally purchase.

• 43:35Speaker 02

  I'm probably required to, uh, I don't know, uh, sign a whole bunch of papers before I can transfer, uh, any significant amount. I most likely would have a lot of trouble moving it out of the country. Um, if I move it into the country, then, um, and I'm not even talking about taxes, right? Um, if I move it into the country, then the government expects to, uh, to pay me a laughable amount, uh, for those dollars. And other than that, I'm, I'm just speculating because I honestly haven't done this in, in five years. I can, I can tell you

• 44:19Speaker 02

  from, from what other people have told me, right? And whenever they start doing that, that's when, uh, I bring out the gospel, you know?

• 44:28David Hoffman?

  So moving deeper into the Maker Protocol, I want to talk about vaults and, and credit. Uh, stability is a really important product of the Maker DAO system, uh, and, and stability is instantiated in DAI. But at the, on, on, on the other side of the Maker DAO system is the instantiation of credits and permissionless access to credit. Uh, so maybe you can talk about, uh, how DAI comes to be and the, and how anyone in a permissionless way can access a vault to mint DAI.

• 44:59Speaker 02

  Yes. So, so far we've talked about just one part of the system, right? The actual, uh, DAI token that anybody, uh, can buy on an exchange, or you can get paid in it, you can receive it, you can send it. That's, uh, the basic side of it. And it requires very, very, um, little, you know, um, investment in terms of, you know, reading what it is and how it works. It's, it's really very simple. The other part for more advanced users is, uh, like you say, the, the credit part. And that is for the people who want to create

• 45:38Speaker 02

  this DAI. And the way they do it is they lock up a valuable asset. Let's say Ether in this case. They lock it up in a smart contract. And completely permissionless, anybody with an Ethereum address and some ether in this can lock up this ether and they can borrow against it. They can create dye. So there are a couple of of rules that the smart contract enforces. So the first one is 150% collateralization. If you, if your asset goes below this, then it can be liquidated. So and this happens instantly. This is smart contracts. They

• 46:22Speaker 02

  run 24/7 and have no conscience, their code, so they do what they're programmed to do. So most people keep their vaults collateralized at at least 200 or 250%. And once they create this dye, they can do whatever they want with it. They can send it to somebody else. They can put it on an exchange. They can use any of the protocols that support it. And as time goes on, they, there's something called the stability fee that accrues against the amount of dye that was minted. So right now, the stability fee is very low. I think it's half a percent per year.

• 47:03Speaker 02

  So if you borrow, if you create 100 dye and you keep it for a year, then at the end of the year, you will owe 100.05 dye. And this is compounded per second. So if you only use it for a day, you will only have to pay that that, that small part.

• 47:28Speaker 02

  And really, the offer and demand of the people either generating this dye or paying back their dye debt is one of the main things that that give the, the token stability. If if the system sees, well, I don't want to get to governance yet, but if

• 47:52Speaker 02

  if dye is trading above a dollar, then the idea is that it should be cheaper to create this dye. So there can be more on the market. And the other way around, if dye is trading below the peg, then

• 48:09Speaker 02

  You know, you make borrowing get more expensive, so you have people go into the market and and create more demand for it, so people can repay their debt. So it is a balancing game. It's very interesting.

• 48:25David Hoffman?

  Yeah, that's a really good point, and that's something I want to harp on. When the MakerDAO system deployed its code, it's not simply this input one asset receives stability on the other side. And this is a good lesson in economics and finance. You can't just remove stability. You can't just delete it. It go, you can push it elsewhere. And so when we create a stable DAI, what the MakerDAO protocol does is it takes the volatility that is inherent in all assets. And through some clever engineering, it takes that volatility and it pushes it elsewhere. And so with DAI, it takes the volatility and pushes it onto Ether and onto MKR, the token, which we'll get into later, and then also the stability fee.

• 49:10David Hoffman?

  And so the stability fee for the MakerDAO protocol has ranged anywhere from 0.05% to its highest, I think, of 20.05%, perhaps about a year ago. And so the stability fee is actually relatively volatile, but that acts as the equal and opposite counterweight to the stability of DAI. While DAI is allowed to hover around a dollar, the stability fee will fluctuate up and down to counter the market's demand for DAI. And it's important to note that DAI is not one dollar, right? You cannot go anywhere in the world and deposit a DAI and receive a dollar. You can only sell it for a dollar for its value, which hovers around a dollar.

• 49:53David Hoffman?

  And so it's important to know that stability has been pushed elsewhere with DAI. And that's really what the MakerDAO system does. It is a stability reorganizing system. Now, I want to talk about the collateral inside of MakerDAO that allows for the minting of DAI. And so multi-collateral DAI, which got pushed out earlier last year, allowed For any asset to be deposited into the MakerDAO protocol after that asset has been accepted by the governance. And then that asset can be used to be collateral for DAI. However, there's only really two assets that are able to be collateral for DAI.

• 50:37David Hoffman?

  And really, it's just one because the other asset that's not Ether, the basic attention token, doesn't have that much DAI backing it. What about Ether as a collateral type makes it such good collateral? And why there hasn't been other collateral types to be added to the MakerDAO system? What are the qualities of Ether that make it such good collateral?

• 51:01Speaker 02

  Well, the Maker Protocol runs in the Ethereum blockchain and Ether is the native token to the Ethereum blockchain. So that will always, in my opinion, make it the best collateral for the system. That is beyond question because there's no more decentralized, trustless asset in Ethereum than Ether. So that in and of itself, even though the system at the smart contract level doesn't really distinguish one from another.

• 51:34Speaker 02

  It will still make it the best collateral the system can have.

• 51:41Ryan Sean Adams?

  Yeah, so we've talked about the DAI token itself, which is stability. We've talked about permissionless credit. And we talked about the stability fee, which is essentially, if you were to equate this to a traditional banking system. Somebody takes out a loan and they pay an interest rate. That's what the stability fee is. But there's also another component of all of this that makes it super interesting. So if you have DAI, you can actually put it into a smart contract called the DAI Savings Rate.

• 52:14Ryan Sean Adams?

  And you can receive some interest for your DAI too. So this almost acts like a bankless savings account. Can you tell us a bit about the DAI savings rate? What that is, where those fees come from and how it works?

• 52:29Speaker 02

  That was one of the biggest announcements of multilateral DAI, the DAI savings rate. The system keeps tabs of surplus and debt. So surplus is, as you say, all of the stability fees that the system accrues plus the liquidation penalties should any vaults be liquidated. And on the other side, the system tracks system debt, which in this case is mostly when the system creates DAI, let's call it out of thin air. So the DAI savings rate,

• 53:11Speaker 02

  which can be independent from whatever the system is actually making in surplus, it is really the system minting DAI out of thin air. But the good thing is that if the system is well governed, that DAI will be cancelled out by the amount of surplus in the system. And so really, it comes from people opening vaults and paying their stability fees. And should there be an imbalance, that there is not enough surplus in the system, but there continues to be a DAI savings rate that needs to be paid,

• 53:50Speaker 02

  eventually it can be paid off via MKR inflation. But that would probably mean that the system would need some parameters reworked. In really normal scenario, the DAI savings rate comes from some of the stability fees.

• 54:10David Hoffman?

  So DAI in the DSR receives the part of the interest payments paid by the people that minted the DAI in the first place. And there's actually this really cool team that made this thing called chai, which is DAI that is inside of the DSR wrapped in a new token. And so basically, this new token is DAI plus the interest rate that the DAI is receiving, which makes it really similar to C DAI from the Compound Protocol. And so like both of these tokens represent a claim on DAI and a claim on the interest being paid to that DAI at the time of ownership. And so these really cool tokens are stable

• 54:51David Hoffman?

  plus interest. But chai and C DAI, chai from the DSR and C DAI from Compound, they're not exactly the same. Can you kind of compare and contrast the differences between chai and C DAI?

• 55:04Speaker 02

  The main thing I would say is that chai has no inherent added risk versus something like C DAI, which does have a money market behind it. In the case of chai, it is the DSR. So as long as you accept the risk of the maker platform, you have no added risk because you're not, you don't have a lender and a borrower. You only have the maker protocol and the savings that you earn come from the surplus that the system is making.

• 55:42Speaker 02

  One other thing is, I really like the way that, you know, whenever I bought C DAI or I've traded, there's this weird calculation that I have to make. In the case of chai, you can always say, okay.

• 56:02Speaker 02

  I have one chai and then you can look at the underlying value. So the the number of chai never changes you, but the underlying value does it. It always it's always increasing.

• 56:16Ryan Sean Adams?

  So we've got Mariana, we've got DAI, right? And there are there are ways to kind of compose it with other protocols and other features. And you can create things like chai, which is just DAI wrapped with the DAI savings rate. So you don't have to do anything and you're always receiving interest like a like a savings account embedded inside of a token. Right now, let's get crazy for for a minute here because this is this this kind of thing. The composability of these money Legos like starts to really blow your mind when you think of what the possibilities are of of DAI as a building block for all of these other things. So what are some more interesting combinations that we can make out of this DAI?

• 57:01Ryan Sean Adams?

  So for example, you know, the Aztec team, they are developing a money Lego for privacy. And I know they've created a token called ZK DAI. So it's DAI except completely private. So none of the transactions can be tracked. So could we take something like that? Could we wrap it with a chai at the DSR? Could we then wrap some kind of insurance on top of it? So that you're actually you've got an embedded almost FDIC insurance in case something were to happen with with with Maker? Like, how crazy could we get with this stability primitive of DAI with all of these money Legos?

• 57:40Speaker 02

  I think we can get as crazy as our imagination will let us. Of course, CK DAI was the first one and chai could probably be the second one that Aztec does because it really wouldn't be any different from what they've already done. And then you would get all the benefits of of DAI plus the DAI savings rate. And then as for insurance, I'm pretty sure that you can do almost the same thing. If you look at the open. In the end, what the system produces is also, I believe, a set of ERC20s. So I wouldn't see why not something very similar.

• 58:24Speaker 02

  I'm not an Aztec expert. Maybe they say that that is not possible. But from what I've seen, it should totally be possible to do that. And then you would be wrapping a stablecoin with automatic savings with some kind of insurance protection and the possibility of having it all be private. It's mind blowing.

• 58:51Ryan Sean Adams?

  Yeah, I mean, this is programmable money, guys. This is like we are installing mods on top of our money system and making it better. So what we just covered, Mariano, is we've got this new bankless stability token called DAI, which is completely backed by crypto, doesn't require a bank. We've got this credit facility that Maker has created. So it's permissionless credit, no bank. Once again, we've got a bankless savings account too. But there's one element of the Maker system we should spend some more time on, and that's the governance piece, as embodied at some level in another token called MKR, the Maker token itself.

• 59:33Ryan Sean Adams?

  Can you tell us a little bit about why the Maker token is necessary and a little bit about governance of the Maker system?

• 59:42Speaker 02

  The MKR token is there mainly for two reasons. One is to vote on the different parameters that the system will have. You know, what is going to be the stability fee of Ether? How much DAI can you create with that?

• 1:00:00Speaker 02

  Should the system add another collateral? Things like that. And the other one is that the MKR token is the one that gives you, lets you enjoy the benefits of the system when there is surplus, and it also acts as a backstop when there is deficit. And the MKR token, I always say it's a high responsibility token. It's one that really makes you.

• 1:00:33Speaker 02

  Be involved with the community and you should, if you are a holder, you should be informed of what is happening because you have a responsibility to govern the system in the best way possible. And if you do so, and if the community overall chooses same risk parameters and same collateral and reacts quickly when, you know, there are market downturns, then you can earn money on when the system is doing well. And the same thing, if the system is not doing well, then you can possibly start losing some because of, you know, the system may need to mint more MKR

• 1:01:18Speaker 02

  and you could get diluted. So it is a high responsibility token. It is a volatile token. And it's also where, when David was mentioning that DAI sort of moves the volatility elsewhere. It also kind of moves it in a way to the MKR token. And one of the most interesting things that is happening lately is the addition of the Maker Improvement Proposals, or MIPS, just like the EIPs in Ethereum.

• 1:01:48Speaker 02

  We're finally at a point where the community is now mature enough that it is going through this path of, you know, gradual decentralization and taking a more active role. Because of course, the idea of the foundation is to take a step back and let the community govern itself as it should.

• 1:02:09David Hoffman?

  So the MKR asset, the MKR token is this tool that allows for the management of the MakerDAO protocol to stay on-chain. And so remember, MakerDAO and DAI are entirely on-chain infrastructure. DAI gets its stability from the inside of Ethereum, which is in contrast to USDC, which gets its stability from a centralized bank on the outside of Ethereum. Like the, the, the reason why USDC is stable is because you can take that USDC outside of Ethereum and redeem it for a dollar and that's where it gets its stability. Maker Dow can't do that because it needs to be a fully bankless system.

• 1:02:52David Hoffman?

  And in order to have stability, you have to escape the Ethereum blockchain some way or another. Because stability happens outside of Ethereum. Stability is a reference point. You need something outside of Ethereum to anchor the value of DAI to the dollar. And that requires getting data off the chain onto the chain of Ethereum. And this is what the MKR token really governs over. The network of smart contracts that is the Maker Dow system is a network that is a system that takes outside stability and outside reference points and anchors it in DAI. And MKR is the token that allows for that to happen.

• 1:03:34David Hoffman?

  As Mariano said, MKR is this token that is a governance token. It's a responsibility token and it is also an upside token. And so with DAI, you're never going to really have upside. There's never going to be growth going upwards with DAI. And so that's really what MKR is for. And it's this thing that if you use it and govern over the system correctly, then the value of MKR is supposed to go up. There is upside potential there, but it is also a risk token. So there's the, like Mariano said, the whole idea about Maker Dow is taking the risk and putting it elsewhere. And that's what you, and that's where we have placed the risk. We've placed the risk in MKR.

• 1:04:17David Hoffman?

  Really, the cool thing to me, Mariano, about MKR is that it represents a seat at the table for governing the system. MKR is this governance token and it allows for anyone to also govern the Maker Dow protocol. Just like how DAI is totally permissionless, MKR is totally permissionless. And so that means that anyone can take part in the permissionless governance of the Maker Dow system. Mariano, can you tell us why somebody with MKR would be incentivized to make the right decision? Quote unquote.

• 1:04:49Speaker 02

  Yes, because if they make the right decisions, then the value of the MKR token is supposed to go up. And really, that is, that is at the crux of it. If. If the way the governance contracts, because everything is a smart contract in the blockchain, is the more MKR tokens are locked up for voting, the more secure the system is. Because you need more consensus within the MKR community to enact changes. And people say, I've heard people say, "Well, I don't have that much MKR, then it is pointless to vote." And the answer is no.

• 1:05:34Speaker 02

  Even, even a vote for the negative of anything that anybody is voting, it's still a net positive for the system. So the more MKR is locked up in the system, the better. And I don't know if you want to get into this yet, but one of the core, I think one of the MIPs that are coming, the improvement proposals, is effectively delegated voting, which is something that is sorely missing from the system. And my only concern is that I wish this had been done before, because this being a permissionless system, anybody could have done this in the past two or three years. I'm a little bit saddened that nobody has done it yet,

• 1:06:19Speaker 02

  but I'm hoping that people do it soon. And this will allow you to delegate your MKR in a completely trustless manner to somebody that will make decisions for you. Because I can be informed of what is happening, because I work at the foundation and I'm deep into this world 24/7. But maybe somebody else who has a smaller position, it just doesn't care and cannot vote every day and cannot go to governance meetings, but they can delegate their power to somebody they can trust to make good decisions for them. And the beauty of this system is that if you stop trusting this person, you can instantly remove access and give it to somebody else

• 1:07:04Speaker 02

  or start voting yourself. It's... Like Ryan called them, the protocol politicians, that is going to be a very big deal in the future.

• 1:07:14David Hoffman?

  So this is some combination of like democratic voting slash skin in the game voting, where you get more votes, the more skin in the game you have, but you can also point your votes towards somebody else who you trust that is more informed and more active in governance than you are. So it's a really interesting hybrid mechanism. And the reason why this gets me so excited is because, you know, one MKR equals one MKR. There's no one that has more say than anyone else in the system based on their skin in the game. And that's really been a problem with current democracies. The United States is as a governance, and I think we can say this for most countries, they're trying to

• 1:07:57David Hoffman?

  govern, in my opinion, over too many things, too large of a set of governance things. And as a result of that, you know, democracies have been hard to scale. And I'm really optimistic about this model of both one MKR equals one vote and also delegated voting. And as a little side note, as little, a short little story, on 4th of July, I wore my Maker Dao t-shirt and I tweeted out like, why does this feel patriotic? Like, why does this feel like independence? And that's really what Maker Dao is. It's independence from like legacy financial institutions, and it's this new system that, you know, people need to

• 1:08:39David Hoffman?

  support. People, in order for Maker Dao to function, it needs small grassroots voters to own and have responsibility over the Maker Dao system. And I really am optimistic about the emergence of protocol politicians and the ability to host this grassroots, bottom up revolution, this bottom up protocol that is that Maker Dao is.

• 1:09:03Ryan Sean Adams?

  You guys see what David, you guys see what David just did there is he, he launched his political campaign, his Maker Dow political campaign. Right here on the show, I can tell.

• 1:09:12David Hoffman?

  Vote David, vote trustless.

• 1:09:15Speaker 02

  I know that I want, I know that I want both of you, of course, as protocol politicians for the system because you, you understand it. You are like, you would be perfect for this. And the beauty is, is that I can build a smart contract that delegates my voting power to you guys. But this of course requires a little bit more knowledge of, of the underlying smart contracts. But I can say, okay, you guys cannot vote with my tokens on a Tuesday because I want to. Or once you vote on something, you cannot unvote. So you cannot flip flop on issues. Or I can remove 10% of my, of your voting power that, that you have from me.

• 1:10:01Speaker 02

  But I cannot remove more than that. I don't know, once a day. And this are, this is code. You can do really anything that you can imagine.

• 1:10:12Ryan Sean Adams?

  Yeah, absolutely. And it, look, if we're getting political, a critical politician here, uh, you know, I can be Nancy Pelosi and you can be Donald Trump David.

• 1:10:21David Hoffman?

  You're gonna rip up my papers?

• 1:10:23Ryan Sean Adams?

  Yeah, maybe.

• 1:10:25David Hoffman?

  So, Mauro, I want, I wanted to talk a little bit more about comparing Maker Governance versus the legacy system. And so if people want to take part in Maker Governance, there are these weekly meetings that they can go to. There's the Thursday risk calls and then also the Tuesday community calls. And, and while the foundation is currently hosting those, I do believe that they will exist into the future, no matter what, even as the foundation dissolves. And that's in stark contrast to the quarterly calls that you get from, you know, companies on the public stock markets. Where, you know, once, once a quarter, they begrudgingly have to create this report for all their stakeholders. They have to hop on a call and appease their stakeholders.

• 1:11:07David Hoffman?

  The stakeholders don't really get a say. You can listen on to the call. You can't really voice an opinion. Most, you know, most shares on the, the stock exchange are not voting shares. And so, you know, this is the, the Maker system, the Maker Governance, just like how DAI is completely open and permissionless, so is Maker Governance. And, you know, the, the Maker quarterly reports. They don't happen every quarter. They happen every block. And and also every instead of, you know, the quarterly meetings, there are two weekly meetings that are open Zoom calls. And so the the contrast between this, the old system and the new system couldn't be more salient to me.

• 1:11:45Speaker 02

  Yes, correct. And those are two weekly calls. And there is also, you know, the forums and the chat, which is an asynchronous way of people are sharing ideas, which of course is the way the the world is moving now. Not everybody is free on a Thursday at 1:00 PM Eastern Time, right? And so lately, so much more has been happening in the forums. And then the governance calls, yes, they're a way for synchronously coming up with, you know, some kind of consensus even before getting actual blockchain consensus. But they're they're open. They happen every Thursday.

• 1:12:28Speaker 02

  I encourage anybody to to join one to see how decisions are made.

• 1:12:36Ryan Sean Adams?

  You know, one thing I I also realized recently that's kind of special said special about Maker and your bankless protocols like this and assets that really embody the upside of those protocols is that all of the the cash flows. So so Maker receives upside because when Maker is used and stability fees are paid, Maker is burnt. But all of these these cash flows, if you will, are all entirely on chain. So it's not settlement by legal system. It's settlement by the nation state, if you will, of the Ethereum economy. And this is much different than other, you know, crypto bank tokens like BNB or something like that,

• 1:13:18Ryan Sean Adams?

  where you literally have to trust the the BNB, the Binance entity, to actually burn tokens. Maybe they are, maybe they aren't. All of that cash flow transition is off chain. It's not visible. It's not transparent to you. This is really the birth of assets, crypto, protocol.

• 1:13:40Ryan Sean Adams?

  Assets where all of their cash flows are on chain. And I think Maker is really pioneering that space, which is super interesting to me because there's going to be a lot more to come. And we'll talk about some in future episodes. But, you know, maybe we should, we should kind of conclude with some of the challenges that you might see Maker facing in the future. So one is around centralization risks. So this question of, well, with, with this added layer of governance, you know, is Maker going or could Maker go down the path of becoming a bit more like a crypto bank? Or could DAI with the incorporation of, you know, crypto collateral that's settled off chains, not like ETH, not, not as trustless as ETH,

• 1:14:25Ryan Sean Adams?

  but other crypto collateral could die, become a bit more like USDC. What are your thoughts on that, Mariano? Any, anything top of mind there?

• 1:14:35Speaker 02

  The first thing that I believe is that DAI can be a decentralized asset, even if it is backed by an amount of centralized assets. And I hope I can make the distinction. So right now there's less than 1% of DAI backed by USDC, which we've already said that it is centralized. It has a blacklist. So there is, for example, the possibility that Coinbase freezes the amount of USDC in the DAI system. And that is a risk, just like any other that we've talked about, that Maker Governance has to decide and study and say,

• 1:15:19Speaker 02

  okay, if this is a risk, then what is the limit of DAI that can be created with USDC? Because if at any point they decide to blacklist the system, then MKR holders are, you know, liable for X amount of money. And, you know, MKR needs to be minted. Same thing goes with any other asset that could be used in the future. Anything that represents real world assets, you know, like real tea properties.

• 1:15:59Speaker 02

  Anything that can have, the only thing that you need to put something in the Maker Protocol is

• 1:16:07Speaker 02

  a price fee, really. After that, it is all a matter of managing risk and putting that in a, you know, either a representation of a near C20 token or something that the system can understand. But I would say that, one, the system is still decentralized even if it is backed by an amount of centralized assets. It's just like I said, a manner of risk. I do believe that Ether is going to continue to be the dominant asset that that backs DAI just because of the wonderful properties that Ether has and the fact that it is the main asset on Ethereum.

• 1:16:51Speaker 02

  As for governance,

• 1:16:55Speaker 02

  I hope that with the advent of, you know, delegated voting and and things like that, that we end up seeing. Maybe if we see less individual participation, that it'd be because people are delegating to power users. And I think that in the end could be a net positive. Because you can have, you can have more voting power. And and the good thing is that this is not somebody that you're voting for a four-year term. You're voting them for as long as you want to. And you can automate your contract so that when they vote on something that you specifically do not want, that you take away their power in.

• 1:17:40Speaker 02

  The time that it takes to mine one transaction, that I think is real power.

• 1:17:46David Hoffman?

  Absolutely. And what, to me, in my mind, MakerDAO is this risk filtering system. The different risk parameters that you can set for a specific collateral is really taking out whatever risk that collateral has. And so to whatever degree that a specific collateral has centralization risk, it's the role and responsibility of MakerDAO and the MakerDAO protocol to filter out the risk. However, there are, you know, there are in theory, other ways to design stability, right? And while we don't, while I don't know exactly what they are, because I'm not a technical, technical coder, I'm, I want to pick your brain and see, you know, is MakerDAO the final version of stability on Ethereum?

• 1:18:30David Hoffman?

  Do you think that whatever the design specification of MakerDAO, what that is, is, is that the last, the, the best version of stability? Or do you think that there are actually more algorithmic, more code-based, less human-based versions of stability for DAI out there or a token like DAI? Is there, are there other ways to produce stability that we haven't explored yet?

• 1:18:53Speaker 02

  I'm pretty sure they are. I mean, Ethereum is five years old, DAI is three years old. There are going to be new advances and I hope that the maker community can stay nimble and adopt, you know, whatever new paradigms that make sense for the protocol.

• 1:19:14Speaker 02

  I would say, yes, I think there is room for, I believe some people call it the purity DAI. You know, what used to be single collateral DAI, a stable compact only by Ether. It does have its, its good qualities. It's also probably less resistant to black swan events. So as long as, you know, we can properly communicate the, the risks of, you know, using one system or the other.

• 1:19:46Speaker 02

  There is also the possibility to move certain risk parameters over. And give them over to algorithms. This is possible in in multilateral DAI as well. And the community will be exploring some of those. Cause yeah, if computers are are are smart and are fast and can make better decisions than us, then why shouldn't we? The thing is, this all in the case of of Maker, it's everything is a process that

• 1:20:18Speaker 02

  takes a little bit of time to first propose things and discuss them, vote on them, and eventually putting them on the blockchain. It I hope that we continue to be innovative because we're we're only scratching the surface of what can be done with this technology.

• 1:20:37Ryan Sean Adams?

  Mariano, this has been, this has been fantastic. I want to ask one last question because we we we started this by comparing and contrasting Argentina and the traditional banking system versus this crypto money system. We've talked about it, right? Now crypto has stability. It's got a bankless way to receive credit. It's got a bankless savings account. It's got something that the the state of Argentina cannot stop, cannot impose capital controls on. What's it going to take for more adoption in a place like Argentina? It seems like we have all of these building blocks and the value proposition is clear.

• 1:21:16Ryan Sean Adams?

  Why haven't we seen more adoption? And what's it going to take to bring in the next million people into a system like DAI?

• 1:21:24Speaker 02

  That is a great question. So two weeks ago, I saw something that really broke my heart on TV. We've been in quarantine for a month and two weeks ago, the government's starting paying people's social security on, you know, using traditional banks. And when they could, they would send money to people's debit cards, but there are still so many people that are bankless, but

• 1:21:54Speaker 02

  Not tech savvy, you know, I saw lines and lines and lines of old people who are the people who are most at risk during this pandemic, staying up queuing since 4am to cash either a cheque or or or collect cash for their pensions. And I was thinking, this would be the perfect audience, but they don't even understand the the technology. So how can we make this simpler for for people? And then I realized, for every one of those that I

• 1:22:35Speaker 02

  saw, I'm on Telegram and WhatsApp groups that are onboarding new young people every day. And I think that is where this is gonna be. I seriously, I'm an optimist, but I don't have high expectations of, you know, boomers in the countries adopting this technology. But young people that have been born with the internet and they do their fine and server the phone, this kind of thing really gets them excited. It's, like you said, in Argentina, the only goal for people is to get access to dollars. That's what's on everybody's

• 1:23:17Speaker 02

  minds. And this is a great toolset for them to do that. And, you know, you take away trusting a bank, trusting an institution, which a lot of these young people, they haven't had a hyperinflation yet. They've never lived through one. Maybe they will live through one this year or the next. But it is so ingrained in, you know, their genetic memory that that they know enough not to trust their money to the institutions. This technology just

• 1:23:50Speaker 02

  It checks all the right parts for them.

• 1:23:53David Hoffman?

  Mariano, I want to thank you for coming on to Bankless, sharing your Bankless story and helping our listeners use the MakerDAO protocol to go more Bankless. You are a fantastic ambassador, both for the MakerDAO protocol and for crypto at large. There are a ton of talks and other podcasts that you've done, which we're going to link in the show notes to. That come to mind for me was your DevCon talk in Osaka and then also the essay that you wrote and read on the Laura Shin podcast. If people really want to send something to their friends and family that tugs at their heartstrings as to why we need this Bankless revolution, those would be the two things I would

• 1:24:35David Hoffman?

  point you to. Mariano, thanks for coming on Bankless and giving us your time.

• 1:24:39Speaker 02

  Thank you so much for the invitation.

• 1:24:41Ryan Sean Adams?

  Let's get to the action. So what we want you to do today is go check out Maker the Protocol, go check out DAI, go check out if you're more ambitious, the wrapped protocols on top of DAI, like Chai, deposit some funds into the DAI savings, right? See what happens. You could also, if you're more advanced, test out the Maker Vault feature. You know, it's fine to use test amounts to start and see what the experience is like. Also, in the show notes, you'll see links to all of the podcasts and videos that David was referring to. You can hear more about Mariano's story. It's inspirational. Highly recommended there. As always, guys, this is the Wild West.

• 1:25:26Ryan Sean Adams?

  Eth is risky. Crypto is risky. DeFi, protocols like Maker have risk to them, too. You could lose what you put in. Make sure you understand the risks before you do so. We're headed to the frontier. This isn't for everybody, but we are glad that you are with us on the Bankless journey. Thanks, everyone.