Cameron ODonnell

The DAO governing one of Ethereum’s most important stablecoins looks to ConsenSys for its network and specialized research.

MakerDAO is one of the ecosystem’s largest and most influential DAOs, providing decentralized financial services that are considered a cornerstone in DeFi. As protocol adoption increases, the urgency to govern DAI and related DeFi functions becomes more apparent.

Across our ecosystem, DAOs face new challenges across macroeconomics, operations, regulations, and specialized finance. The ConsenSys Cryptoeconomics team is uniquely suited to help MakerDAO weigh governance decisions against this dynamic market backdrop. Through extensive outreach and research in the ecosystem, ConsenSys understands Maker’s complexities and challenges and is excited to help support the advancement of the protocol.

“MakerDAO’s resiliency depends on motivated actors governing the protocol. We’re pleased to add ConsenSys to our impressive list of Recognized Delegates, and look forward to seeing how Consensys applies its resources and reputation to protocol governance,” said Payton Rose, Governance Facilitator at MakerDAO when asked about ConsenSys joining Governance Delegation.

ConsenSys Deepens its Web3 Participation

ConsenSys has been at the forefront of decisions that keep the spirit of decentralization and transparency alive in the Ethereum ecosystem. As the Ethereum ecosystem has grown, new players have entered the market. Many of these new entrants are coming to our space with the mindset of the centralized establishment forces that do not care for the communities they serve, and focus on extracting as much value out of those communities as possible. 

We sought to replace these extractive values in crypto. Now, many of these extractive agents are appearing in the most crucial layer of our ecosystem: its governance. Thus, ConsenSys sees a profound need to ensure there are influential actors within the governance of core Web3 protocols that protect the values of decentralization and accountability that our industry was founded upon.

The MakerDAO governance delegation is led by members of the ConsenSys Cryptoeconomics team specializing in tokenomics & mechanism design, investment strategy and solutions, and Web3 & DAO participation. The MakerDAO community can leverage the team’s deep industry knowledge, network, and thought leadership to expand collaboration within the protocol and throughout the ecosystem.  

“Decentralized autonomous organizations and community NFTs are leading us towards new ways of working together, creatively collaborating, and growing from the fruits of our labor. In our cryptoeconomic work, ConsenSys is marrying the quantitative approaches of mechanism design with the qualitative art of balancing governance, participation, and community empowerment,” said Lex Sokolin, Head Economist & Global Fintech Co-Head at ConsenSys when describing ConsenSys’ Web3 participation.

In addition to its governance roles supporting prominent ecosystem protocols, ConsenSys is encouraging employees to participate in external DAOs, brokering industry-first relationships with groups like BanklessDAO and even experimenting with internal DAOs to improve grant funding for products like MetaMask.

“Direct and mutually-beneficial ecosystem participation is a cornerstone of the Web3 ethos. DAOs are a critical piece of ecosystem infrastructure that requires attention as the industry continues to gain global adoption. As an agent of change in Web3, ConsenSys identifies DAO governance participation as a critical factor supporting ecosystem sustainability,” said Cameron O’Donnell, DAO Governance Strategist.

You can follow our governance participation on Twitter and on our blog. To read more about our work on DAO governance, DAO design and token engineering, visit our cryptoeconomic research hub. 

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Cryptofunds, market makers, and trading desks can interact with these DeFi protocols with MetaMask Institutional

MetaMask Institutional offers unrivaled access to the DeFi ecosystem without compromising on institution-required security, operational efficiency, or compliance requirements. We enable funds to trade, stake, borrow, lend, invest, and interact with over 17,000 DeFi protocols and applications.

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Found this research useful? Connect with the ConsenSys Cryptoeconomic Research team at [email protected]

Disclaimer: ConsenSys Software Inc. is not a registered or licensed advisor or broker. This report is for general informational purposes only.  It does not constitute or contain any individual investment advice and is made without any regard to the recipient’s objectives, financial situation, or means.  It is not an offer to buy or sell, or a solicitation of any offer to buy, any token or other investment, nor is it intended to be used for marketing purposes to anyone in any jurisdiction. ConsenSys does not intend for any person or entity to rely on any facts, opinions, or ideas, and any financial or economic commentary expressed in this report may not be relied upon. ConsenSys makes no representations as to the accuracy, completeness, or timeliness of the information or opinions in this report and, along with its employees, does not assume any responsibility for any loss to any person or entity that may result from any act or omission based upon this report. This report is subject to correction, completion, and amendment without notice; however, ConsenSys has no obligation to do so.

When a traditional organization wants strategic advice on a project, or their organization structure and workings, they turn to consulting firms. Consulting companies can provide specialized services in return for money. The strategic needs of Web3-native projects, protocols, and decentralized autonomous organizations (DAOs) are very different and require contributions from other crypto-native people. This is where service DAOs come in. 

Much as the name suggests, service DAOs provide support in terms of operations, management, public relations to other DAOs and protocols. Contributors to these service DAOs are paid in terms of a reward per job and a stake in the client organization.

Paying for a service sounds like a simple transaction — do work, get paid. But in the world of Web3, things are not that straightforward. Projects take time to complete, require specialized skills, and many people operate anonymously. 

These imperfect conditions create the “invoice dilemma”: how do freelancers ensure they are paid for their work while simultaneously ensuring clients receive the value they’re paying for? Freelancers, or teams within Service DAOs, could guarantee payment by charging clients before starting work, but the client risks the freelancer disappearing without completing the project as agreed upon. Clients could ensure they get exactly what they want by only paying the freelancer after the project is complete, but then the freelancer is working on spec – or hoping the client doesn’t stiff them.

If we flip traditional invoices on their head and combine escrow, milestone payments, and arbitration — all facilitated by smart contracts – we get smart invoices. 

Thanks to escrow, a service provider can send a smart invoice before they start the work, instead of billing the client after the work is done. The client funds the escrow with the agreed-upon amount, and the service provider can see the deposited funds before beginning the project. As each project milestone is completed, the client releases the corresponding payment.

And, if there’s a dispute, an impartial third-party arbitrator can resolve the conflict onchain.

Smart Invoice, powered by RaidGuild DAO

In October 2020, members of the RaidGuild service DAO committed to solving one of the biggest problems facing DAOs (especially service DAOs): safely transacting with anonymous contributors. The solution was a milestone-based escrow tool.

This tool proved to be so effective and popular with RaidGuild’s clients, the DAO decided to make it a public good anyone could use for free, even if they were not part of the RaidGuild DAO.

In the summer of 2022, MolochDAO provided the Smart Invoice team with a grant to move the tool out of beta and develop the invoicing tool you see today. Other examples of smart invoicing include Gilded and Request. Today, let’s dive deeper into Smart Invoice, as it is a great example of what smart invoicing could look like. 

How Smart Invoice Works

The foundation of Smart Invoice is open-source smart contracts. 

These smart contracts allow DAOs and contractors to do business with anons around the world, or a known third party, in a safe and trustless way.

After logging in with MetaMask, Smart Invoice users can manage their invoices as a “contractor” or a “client”.

The Contractor initiates all escrow agreements with their clients through a simple four-step invoice creation process.

First, you enter project details. 

Most of these details are straightforward and include fields like name, description, and start & end date. However, two fields are critical to quickly resolve any conflicts that might arise later. 

The first is a link to a project agreement. This agreement is the contract, engagement letter, and/or statement of work (SOW). This agreement should be thorough, and ideally signed by both parties, because it will be used during arbitration if there is a dispute. This can be stored on any website, or via IPFS. 

The second is the safety valve date.This is the date when the client can withdraw any remaining funds held in escrow – whether the project is complete, or not. (So, it’s a good idea to add some buffer time here in case the project takes longer than expected).

In Step 2, you add the payment details.

This is where the contractor enters wallet addresses, defines payment terms, and chooses an arbitrator. 

The invoicing system supports 15+ tokens, so contractors and DAOs have a lot of flexibility in how they get paid.

Users can select arbitration through LEXDAO, or a custom provider. Arbitration services with LEXDAO cost 5% of the disputed amount in escrow. For example, if the disputed milestone is 10 WETH and arbitration is required, the potential dispute fee would be 0.5 WETH. 

Smart Invoice’s arbitration feature is one of the most unique in the Web3 ecosystem. Dispute resolution happens onchain. The contractor or the client can lock the invoice with their wallet and request arbitration directly from their dashboard. The arbitrator reviews the invoice’s linked project agreement and the arbitration initiator’s comments, then distributes the funds as they deem appropriate.

The third step in creating an invoice is to configure the milestone payments.

Milestones allow the entire project to be broken up into multiple payments. This enables contractors to get paid throughout the project as they complete specific deliverables – instead of waiting until the very end. And it allows clients to better manage expectations to avoid scope creep.

The final step is to review all entered information and approve the invoice creation. Once created, this invoice can be shared with the client. 

The Client

The client’s dashboard will show all invoices assigned to their wallet address. 

After selecting one of the invoices, the client will see all the relevant details for that invoice, and be able to interact with it.

The first step is to deposit funds into the escrow. This will allow the contractor to begin work.

At any time, the client can release milestone payments, deposit more funds into the escrow, and lock the invoice to begin arbitration. 

Clients can also download a PDF version of their invoices for their records, or to hand off to their bookkeeper. 

Another unique feature of Smart Invoice is for the client to enable other wallet addresses to deposit funds into the escrow. This is super helpful for DAOs when one “address” is managing the contractor, but funds are coming from a treasury held by another “address” (which could be a multi-sig).

Arbitration

One of the most unique features of Smart Invoice is the built-in arbitration using a third party. 

The default arbitrator is currently set to LEXDAO, however, custom arbitrators can be added.

For arbitration to occur, the client or contractor must go to a specific invoice and select the LOCK option. This will present the user with a text box to describe the conflict and allow the user to see the cost of arbitration before moving forward.

Arbitrators have access to the Smart Invoice platform with a custom view that allows for the management of arbitration claims. 

Leveraging the project agreement, engagement letter, SOW, or user-provided details the arbitrator will help to remediate the dispute, communicate all findings, and release funds accordingly.

This sort of functionality for impartial resolution of disputes is where Web3 shines, and what excites us about the future of contract work.

Conclusion

As the DAO and Web3 contractor space continues to develop, we’ll see more innovative tools built specifically for Web3 users and their challenges. 

Smart invoice tools solve one of these primary challenges with escrow-based invoicing, including onchain arbitration. Invoices are simple to create and manage, milestone payments keep projects moving forward, and impartial dispute resolution keeps things safe.

Further Reading and Resources

1. https://smartinvoice.xyz/
2. https://smartinvoice.xyz/about
3. https://www.raidguild.org/

Proposal: HVBank Drawdown, Keeper Network Stream Re-Deployment

Created: August 4^th, 2022

Passed: Yes,
94K MKR For

What does it do: Executes the following:

• 25M DAI will be drawn down in the RWA-009 (HVBank) vault
• Re-deploy the stream of 215K DAI to the Keep3r Keeper Network at a rate of 1K/day, as previously covered in ratified poll MIP63c4-SP4

Why: Standard executive votes of original and ratification polls.

Takeaway: Even under current market conditions, MakerDAO continues to operate with operational stability and a thorough governance process.

Greenlight Poll: MIP9 Community Poll – PANDO (PANDO Investment Grade Climate Assets)

Created: August 4^th, 2022

Passed: Not Yet,
13K MKR Abstain,
42K MKR Against

What does it do: Temperature check for funding structured loans through Pando investment grade climate assets.

Why: Pando Climate Inc. (“Pando”) is offering Investment Grade solar assets to Maker. This will enable Maker to earn stable, risk-adjusted financial returns in a market currently dominated by top-tier global institutions. 

Investment Grade solar assets refers to a $220M loan against a $250M pool of rated solar loans. The Maker loan assets are contract cash flows from home PV Solar systems. The solar loan pool will be rated by a U.S. credit rating agency. In addition, Maker would be in the senior secured position, providing significant protection in any downside scenarios. 

Takeaway: Maker’s RWA strategy and focus on sustainable investments is in full swing. Whether or not this poll passes, it demonstrates movement forward with RWA and integrating with TradFi investment firms.

Poll: PPG – Open Market Committee Proposal

Created: August 1^st, 2022

Passed: Yes,
101K MKR For,
3K MKR Against

What does it do: As outlined in the Community Forum, it changes the following parameters: 

• Stability Fee – The annual percentage fee charged on the DAI generated on vaults.
  • ETH-B: Reduce stability fee to 3.75%
  • WSTETH-A: Reduce stability fee to 2.25%
  • WSTETH-B: Reduce stability fee to 0%
  • WBTC-B: Reduce stability fee to 3.75%
  • GUNIDAIUSDC1-A: Increase stability fee to 0.02%
  • GUNIDAIUSDC2-A: Increase stability fee to 0.06%
  • UNIV2DAIUSDC-A: Increase stability fee to 0.02%
• Maximum Debt Ceiling – The maximum value for debt ceiling allowed in the given vault type.
  • GUNIDAIUSDC1-A: Increase maximum debt ceiling to 1B DAI
  • GUNIDAIUSDC2-A: Increase maximum debt ceiling to 1.25B DAI
  • MANA-A: Increase maximum debt ceiling to 17M DAI

Why: Increasing the stability fees will help to minimize risk exposure while AMM pools are under-utilized. Decreasing the stability fee will simplify reporting conducted by the protocol. 

Increasing the maximum debt ceiling allows users to maximize economic output during periods of high volume on AMMs. Decreasing the debt ceiling reduces exposure risk under current market conditions.

Updates on Prior Coverage

• Greenlight Poll: bIBTA (Backed Finance Short-Term Bond) – Passed with 72.5K MKR

News

• Cointelegraph: Cred Protocol unveils its first decentralized credit scores

Temperature Check: Risk Parameter Updates for Aave V2

Created: August 4^th, 2022

Passed: Not Yet,
13K AAVE For

What does it do: Adjusts the following Aave parameters:

• Liquidation Threshold (LT) – The percentage at which a loan is defined as undercollateralized.
  • CRV LT to 64% from 65%
  • DAI LT to 85% from 80%
  • ENJ LT to 67% from 70%
  • LINK LT to 83% from 78%
• Liquidation Bonus (LB) –  Bonuses paid to liquidators who buy discounted collateral and cover the account’s debt
  • DAI LB to 4% from 5%
  • ENJ LB to 6% from 6.5%
  • LINK LB to 7% from 6.3%

Why: Recommendations are from Gauntlet’s simulation engine, after processing the latest market and liquidity data. The risk parameters are being changed in line with theModerate risk level the community decided on. 

Takeaway: The parameter changes should drive capital efficiency whilst maintaining protocol risk at safe levels. This also provides a future liquidation MEV opportunity.

Updates on Prior Coverage

• Proposal: Appoint Securitize as a Whitelister to Aave Arc – Passed with 501K AAVE

 News

• ConsenSys: Introducing GHO and Situating it in the Stablecoin Ecosystem
• Cryptoslate: GHO Stablecoin to be launched as Aave DAO gives a 99.9% approval
• Cointelegraph: Aave devs propose freezing Fantom integration

Consensus Check: [Consensus Check] “Fee switch” Pilot for Three Pairs

Created: August 4^th, 2022

Passed: Not Yet,
3M UNI For.

What does it do: This is the second step in Uniswap’s voting process. The Consensus Check establishes a more thorough quorum than a Temperature Check. After the design phase, it was established that a 1/10th fee would be collected through the “Fee Switch” for the following pairs:

• DAI-ETH-0.05%
• ETH-USDT-0.3%
• USDC-ETH-1%

Why: The “fee switch” enables the ability for Uniswap to retain a portion of what is already being paid to liquidity providers. The retained funds can then be used to build or fund new tools for UNI token holders to leverage in growing the protocol. 

Takeaway: The community is moving forward with the Fee Switch decision. There is a lot of community activity around this proposal. As previously covered, The fee switch hasn’t been tried and tested – this change would help provide real data and give the community more time to debate on how funds accrued should be utilised.

• Uniswap
• Aave
• Compound
• Sushiswap
• Rari Capital

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Cryptofunds, market makers, and trading desks can interact with these DeFi protocols with MetaMask Institutional

MetaMask Institutional offers unrivaled access to the DeFi ecosystem without compromising on institution-required security, operational efficiency, or compliance requirements. We enable funds to trade, stake, borrow, lend, invest, and interact with over 17,000 DeFi protocols and applications.

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Found this research useful? Connect with the ConsenSys Cryptoeconomic Research team at [email protected]

Disclaimer: ConsenSys Software Inc. is not a registered or licensed advisor or broker. This report is for general informational purposes only.  It does not constitute or contain any individual investment advice and is made without any regard to the recipient’s objectives, financial situation, or means.  It is not an offer to buy or sell, or a solicitation of any offer to buy, any token or other investment, nor is it intended to be used for marketing purposes to anyone in any jurisdiction. ConsenSys does not intend for any person or entity to rely on any facts, opinions, or ideas, and any financial or economic commentary expressed in this report may not be relied upon. ConsenSys makes no representations as to the accuracy, completeness, or timeliness of the information or opinions in this report and, along with its employees, does not assume any responsibility for any loss to any person or entity that may result from any act or omission based upon this report. This report is subject to correction, completion, and amendment without notice; however, ConsenSys has no obligation to do so.

Proposal: Appoint Securitize as a Whitelister to Aave Arc

Created: July 27^th, 2022

Passed: Yes,
188K AAVE For,
6 Against

What does it do: Appoint Securitize as a whitelister on the Aave Arc market.

Why: Aaave Arc is an institutional Defi platform with the same features as Aave but complies with KYC and AML standards. On the Aave Arc platform, a whitelister completes the onboarding process on behalf of a protocol by providing KYC/KYB, T&C, Disclosures, and Granting Specific permissions.

Securitize is a candidate for a whitelister and boasts an impressive resume that includes, but is not limited to, being a leading digital asset securities company, Finra member Broker-Dealer, and a Registered Transfer Agent in the digital asset space. 

Takeaway: Aave continues to focus on the holistic suite of opportunities that Aave can provide. These opportunities include development, governance updates, and institutional onboarding.

Updates on Prior Coverage

Greenlight Poll: bIBTA (Backed Finance Short-Term Bond ETF)

Created: July 18^th, 2022

Passed: Not Yet but looking likely,
48K MKR For,
11K Abstain,
7K Against

What does it do: Determines if bIBTA should be a priority for inclusion by Core Units.

Why: Per MIP-6, Declaration of Intent – Invest in short-term bonds, Backed Finance is creating tokenized short-term bonds that are backed 1:1 with the financial instruments. Maker and the community is looking to acquire these tokenized financial instruments using DAI. This Greenlight Poll allows for the inclusion of Backed Finance Short-Term Bonds to be managed under core unit responsibilities.

Takeaway: Maker continues to push the boundaries of DeFi, partnering with name brand protocols to integrate with traditional finance on-chain.  

Updates on Prior Coverage

 News

Updates on Prior Coverage

 News

• Daily HODL: Large Uniswap Holders Awaken, Accumulate Nearly 75M
• Blockworks: Uniswap’s Proposed ‘Fee Switch’ Would Cut Into LP Payouts
• Other Internet: The State of Uniswap Governance: A Paradox of Minimization

• Uniswap
• Maker
• Aave
• Compound
• Sushiswap
• Rari Capital

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Cryptofunds, market makers, and trading desks can interact with these DeFi protocols with MetaMask Institutional

MetaMask Institutional offers unrivaled access to the DeFi ecosystem without compromising on institution-required security, operational efficiency, or compliance requirements. We enable funds to trade, stake, borrow, lend, invest, and interact with over 17,000 DeFi protocols and applications.

---

Found this research useful? Connect with the ConsenSys Cryptoeconomic Research team at [email protected]

Disclaimer: ConsenSys Software Inc. is not a registered or licensed advisor or broker. This report is for general informational purposes only.  It does not constitute or contain any individual investment advice and is made without any regard to the recipient’s objectives, financial situation, or means.  It is not an offer to buy or sell, or a solicitation of any offer to buy, any token or other investment, nor is it intended to be used for marketing purposes to anyone in any jurisdiction. ConsenSys does not intend for any person or entity to rely on any facts, opinions, or ideas, and any financial or economic commentary expressed in this report may not be relied upon. ConsenSys makes no representations as to the accuracy, completeness, or timeliness of the information or opinions in this report and, along with its employees, does not assume any responsibility for any loss to any person or entity that may result from any act or omission based upon this report. This report is subject to correction, completion, and amendment without notice; however, ConsenSys has no obligation to do so.