Stable Magicians (POLL: exchange vs. CDP)

true - the vote has no decision power or is even intended for this. Just wanted to get a feeling how others think about it.

That’s a really excellent summary of the flows and how it would work as one liners – thank you!

Ligi – no speculation, the in/out is all in DAI, and the CDP is per event. Both ticket sales and sponsorships are used to pay down the debt (or, in the case of early sponsorships, top up the CDP).

We understand the “risk” of holding the event with committed funds. So sounds like there would be an “event CDP” for about 3 months or so (usual timeframe of organizing councils from last year).

I’m willing to experiment either way. And we’re looking to @Flash for expertise in how this works :slight_smile:

I have asked Megan from Veriledger to do a treasury management best practices call with us (andy any other company or organization), I hope anyone interested in this topic will join.


I would love to hear what Megan has to say!

RE: Opening a CDP

This would require some monitoring and ongoing work as “we” the operators are exposed to having to put up more collateral should the value of the deposited ETHl fall under a threshold.

Super-helpful overview of CDP and DAI

RE: Converting ETH to DAI, and vice-versa

Ok, so I also started elaborating on a process (and that was out of topic).

What we should do instead is brainstorm on complete processes and then review later, after we hear from Megan and other experts.

I may be missing something, but there is a real difference between using a CDP to generate DAI, and converting ETH to DAI using an exchange.

The former retains your exposure to ETH whereas the latter removes your exposure.

Given that EMs costs are going to be in USD (DAI) and not ETH, unless you want to take a “trading position” on the future value of ETH (which IMO is not something EM should be doing as it has no expertise in this area), a CDP doesn’t make any real sense.

Note that if you open a CDP, and the value of ETH falls, you will end up losing materially more value than if you had turned your ETH into DAI (due to the collateralisation ratio and liquidation fees).

If EM is looking to prudently manage its finances, and not speculate on the value of ETH the only rational option IMO is to turn received ETH into DAI on a regular basis (and accept that between the point where you receive the ETH and turn it into DAI you have an open risk position to ETH / USD so try and keep this period reasonably short).

Surprised this seems so controversial in the above discussion ;-).

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Most people come from zero trading / finance background, so none of this comes naturally.

Your post was – again! – well articulated and is super useful to other people reading. I’m looking forward to our treasury management education session!

P.S. @ligi and I both have German backgrounds. Regular conversation may be perceived as “controversial” when it is, in fact, just strong willed discussion :slight_smile: :de:

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I’m sorry but I’m going to repeat myself again here.

This simply doesn’t apply if the DAI isn’t used to buy ETH. There is no extra exposure from using a CDP.

This logic should put you in favour of a CDP as this is exactly what it allows, a short, calculated move away from Eth. Using a CDP means you are in fact taking less of a “trading position”. The debt created in DAI will be payed back in DAI. Both through donations and through exchange based conversions.

The difference is in the timing. if you are skipping the CDP, you are converting vague large portions of your Eth into DAI (aka taking a relatively long term position against Eth for the purpose of stability) so that it is on hand to pay for expenses.
If you are using the CDP, you have as much DAI as your collateral safely allows, you are effectively paying for expenses in Eth (with DAI) until you are ready to pay back the debt. Then and only then are you converting the exact amount of Eth necessary into DAI.

If I am missing something, I’d really appreciate it if someone could help me out here.

Thanks, yeah, this is valid but keep in mind that if the value of Eth drops and we are forced to close the CDP, the value “lost” will be equivalent to what it would have been if we had initially bought DAI. It might also be worth pointing out that the same is true for holding Eth, if its value drops too low, we can’t pay for anything.

If coming up with the collateral is a problem for any reason then I’d happily advocate for something else.
I’m only trying to clear up misunderstandings, apologies if I ever came off as aggressive. We’re all trying our best here.

This simply doesn’t apply if the DAI isn’t used to buy ETH. There is no extra exposure from using a CDP.

I agree that you don’t get extra exposure from opening up a CDP, but you still have exposure to the price of ETH in USD. If the value of ETH (in USD) increases then you profit, if it goes down, then you lose (potentially more than the value decreases if the CDP is liquidated and you pay a liquidation fee of 13%).

If instead you turn any ETH received immediately into DAI (or as soon as is practical) then you have no exposure to the price of ETH in USD.

So, IMO, it really comes down to whether EM wants to maintain exposure to the value of ETH in USD or not. If it wants to maintain exposure then using a CDP is a reasonable option (although so would only converting ETH into USD at the point it is needed and / or retaining some portion of the treasury in ETH, and some in DAI).

If EM doesn’t want any exposure to the value of ETH in USD then it should not hold ETH, and instead hold USD (or DAI).

It is a reasonable view for an organisation like EM to want to maintain exposure (given its place in the ecosystem) but if you want to be able to plan longer term in a very prudent fashion it should convert at least ~6 months operating costs into DAI so that if the price of ETH plummets it can still operate for this time.

I came in to this conversation a bit late, so if the above decision (that EM wants to retain exposure to ETH/USD) has already taken place I wasn’t aware.

Possibly an analogy would be:

  • suppose you own a house, and you want to start a business that is going to cost $100,000. You could either sell the house for $150,000 (convert ETH => USD) and use that as operating capital (leaving you with no exposure to the housing market), or take out a mortgage against your house for $100,000 (CDP) and use that (leaving you exposed to the housing market). The more prudent approach (in a volatile housing market) is the former, but if you’re an expert on housing and convinced the price is going to increase, the better approach is the latter.

  • by analogy selling 66% of your house for $100,000 would be a compromise leaving you some exposure to house prices, but also guaranteeing you your first year of operating capital regardless of what the housing market does.

NB - I should add that I love makerDAO and the concept of CDPs - just not sure it makes sense in this context :wink:

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What is critical either way from a governance perspective, is that a strategy is decided upfront, and stuck to religiously. No one should (or be able to) make “trading decisions” (e.g. I’ll just re-collateralise my CDP a bit because I’m sure the market is about to recover; or I’ll hold off converting my ETH into USD for a couple of weeks cause I think we’re in a dip).

I am also not aware there was such a decision and I would be really surprised about it

same here - I love makerDAO and the concept of CDP’s - just think the magicians should not have a CDP

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Your argument has done a 180 since I explained that what you wanted is accomplished with a CDP.

I’m not opposed to having a portion of the Eth in DAI but that is off topic, we’re discussing how the funds for this event should be managed. My logic was very straight forward, we currently have Eth (or as you’ve put it we’re “exposed to Eth” ), but we need to pay for expenses in DAI, therefor we should keep the Eth and create the DAI (minimising exposure to DAI). I also liked that CDPs are community facing, the community can see our costs (as debt) and ticket sales could be payed directly into it. Whether or not we want to turn a portion of the wallet’s Eth into DAI is a separate discussion entirely.

This was never an option, if the value drops, we pay off the CDP with DAI bought at market price, leaving things in the same position they would have been in sans CDP. No value will have been lost compared to buying the DAI up front.

I believe we’re leaning towards buying the DAI from a dex. To that regard, I believe we can use the multisig but I like @jpitts’s way around it if we can’t.

The indirection over a CDP does not any of these properties any more than the contract wallet is already doing.

This is simply false as dai_from_dex(amount) > dai_via_cdp(amount)
I think your scope is blurring your vision

Sure it does. You estimate your costs, create the matching amount of DAI in a project specific CDP and publish it publicly. There is already an explorer for this.

This only matter if you’re trying to extract the maximum amount of DAI for your Eth, as we’re not selling all our Eth, this a total non sequitur.

@ligi Creating a CDP does an interesting thing where it absolutely shows the amount that EthMagicians has committed to pay for an event. I totally get it. It’s an interesting way to do this.

I like it, now that I understand it.

There are several “over my dead body” objections in the thread, and no one else is vehemently opposed to the buy DAI as we go version, so we’ll go with that.

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Brilliant, glad to hear it. I hope this thread was at last somewhat educational!

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@Flash I try one last angle to show you why it is speculation - but will stop then as I think we do not really go forward here.
Let’s say we got 1ETH in ticket sales now
a) we exchange with a CDP and got 200$
b) we exchange via some exchange and get 250$

all ballpark numbers of course - only the relations are important.

so wit a we can buy 200 apples with a) and 250 apples with b)

250 apples are better than 200 apples

so now the price of eth drops to 10$

see how you speculated with 50 apples?

@boris why not use a contract/multisig wallet per event then? A CDP sounds like wrong tool for the job. Sure you can use a screw-driver to hammer in a nail - but this does not say that you should …-)

I have no idea what you’re arguing against, these are not the options we are discussing in this thread. You do not “exchange” Eth for DAI with a CDP, we are not trying to maximise the DAI to hand (what good would this do?) and we were always going to use the wallet’s Eth as collateral.

I think these are exactly the options we are discussing

it would decouple us from ETH and make us speculate less.

My argument has remained entirely consistent. You are also making the dangerous assumption that if the value of ETH falls, EM will be liquid enough to purchase enough DAI to free its locked ETH. In a falling market with an organisation like EM this may well not be true resulting in punitive charges vs. pretty much any other option.

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I’m running out of ways to explain this so I drew a little thing for you!

The key thing to notice here is that a CDP does not make any decisions as to (or have any impact on) the composition of the wallet. What is 100% Eth will stay 100% Eth, what is 40% Eth stays 40% Eth. The DAI available to be created with said Eth is NOT bought. Only one market transaction needs to be made, it is exact, has no urgency whatsoever and serves to close the CDP. The wallet and its funds will only be changed for the duration of time it takes for this transaction to execute (whether it is made up of 10% or 100% Eth).

None of the above applies to buying DAI, quite the opposite, as that is an explicit decision on the wallet’s composition and involves holding a position against Eth (nothing is wrong with this, that same decision can be made in tandem to the CDP’s creation).