- Title: Promote MKR to collateral tier
- Author(s): cp287
- Submission Date: 18.04.2022
Proposal includes a batch of changes to the Maker token (MKR) on Euler. These include: promotion of MKR to the collateral tier with collateral factor 0.66 and borrow factor 0.76. Enable cross borrowing of MKR.
This is a proposal to promote Maker token (MKR) to the collateral tier on Euler, enabling Euler users to borrow against it. MKR fits the collateral eligibility criteria of a collateral asset. It is backed by a robust oracle on Uniswap v3. It is widely distributed and decentralised. It has relatively high liquidity on numerous decentralised exchanges. Smart contract risk is relatively low. The proposal includes suggested increases to MKR’s borrow factor and enabling of cross tier borrowing. These changes would allow users to borrow MKR in a more capital efficient way. On the upside, adding a new collateral asset to the protocol would increase capital efficiency and provide more utility for users. On the downside, adding a new collateral asset always introduces a degree of systemic risk. In the case of MKR, the benefits outweigh the potential risks.
The goal of the proposal is to boost the capital efficiency and utility of the Euler protocol. The current risk factors on the protocol are purposefully restrictive as a part of Euler’s soft-launch in late Dec 2021. Since then, the protocol has performed well against a backdrop of extreme price volatility and a large number of liquidations across DeFi. Furthermore, there have been no reports of any critical bugs on the protocol in spite of a $1m public bug bounty being live for nearly a month. Promoting MKR to collateral status and amending borrow factors is meant to ramp up capital efficiency in a risk-managed fashion on Euler.
1. What is the link between the eIP author and the asset?
None. The proposer is the independent researcher and has no link to MKR.
2. Provide a brief description of the asset
MKR is the official token of Maker Protocol which includes the Dai stablecoin, Maker Collateral Vaults, Oracles, and Voting .
3. How is the asset primarily used?
MKR tokens is the governance token to define the key parameters of the protocol (e.g., stability fees, collateral types/rates, etc.)
4. Explain why the eIP would benefit Euler’s ecosystem?
MKR is an established asset in DeFi and listing it as collateral would allow users to tap into Euler’s capital efficiency without swapping it for the already-listed collateral assets like USDC, DAI and WETH.
5. Where does the asset trade?
MKR trades on almost every major centralised exchange, including Binance, FTX, and Coinbase. It also has liquid markets on key decentralised exchanges, including Uniswap and Sushiswap.
Consequently, it would allow liquidators to easily offload MKR on various CEXes and DEXes in the event of a liquidation spiral.
6. What are the volumes and market capitalisation?
Market capitalisation is $1.8 billion with $45 million traded in the last 24h.
7. What is the liquidity like in the Uniswap V3 liquidity pool versus ETH?
The 0.3% MKR/WETH Uniswap V3 pool is extremely liquid as it has a TVL of $16 million and, crucially, has full range liquidity.
8. What security/auditing reports have been done?
Maker has been audited by multiple teams of engineers like Trail of Bits, PeckShield and Runtime Verification and has stood the test of time.
|Contract||Method||Token||Token Name||Token Address||Updates|
|governance||setAssetConfig||MKR||Maker||0x9f8F72aA9304c8B593d555F12eF6589cC3A579A2||borrowIsolated:false, collateralFactor:0.66, borrowFactor:0.76|
According to my inhouse research, meaningful attacks on the 0.3% MKR/WETH Uniswap V3 oracle appear unfeasible. The substantial TVL spread across the entire price range is able to prevent both artificially elevated and depressed oracle prices.
MKR have a strong oracle rating on the Euler Finance.
MKR appears well-distributed amongst different holders.
MKR/WETH annualised 30-day realised volatility fluctuates between 80-140%, which is manageable.
MKR is listed on practically all exchanges (both CeFi and DeFi) with most volumes occurring on Coinbase, Binance, Uniswap. Given the depth of liquidity pools and order books, it is unlikely that liquidating users in an adverse scenario will be challenging.
Smart Contract Risk
Maker has been audited by multiple teams of engineers and has been extensively used by key DeFi protocols for pricing for years.
MKR ranks high on oracle security, volatility, liquidity, decentralisation and smart contract risk. I therefore recommend implementing the proposed eIP.