I want to address a very specific point for the understanding of voters who will be participating in this DAO. One key concept to understand as a voter in the Maker system is that the more assets we support on the system, the better, and that risk needs to be looked at and understood very carefully.

Currently, Dai is only backed by a single asset, Ethereum. This test version of Dai is exposed to the most amount of risk it will ever be exposed to since there is a single point of failure. If Ether’s price falls quick enough, there wouldn’t be any valuable collateral to support the Dai ~ $1 peg. The system would become insolvent. However, if you give Dai more than one leg to stand on the risk of insolvency during a black swan event drastically decreases. This is called a Diversification Benefit.

Each potential collateral type will have to have various parameters configured to it such as:

the stability fee imposed on CDPs of the corresponding CDP type, expressed as a per-second fraction of the CDP’s outstanding dai.

the maximum total (“ceiling”) dai issuance for the corresponding CDP type.

the minimum required collateralization ratio (value of collateral divided by value of issued dai) for CDPs of the corresponding CDP type.

the penalty imposed on liquidated CDPs of the corresponding CDP type

All of these parameters give MKR voters a chance to fine-tune all types of assets, so that they can appropriately exist in the Maker system in a way which doesn’t expose the Maker system to too much risk. In theory though, any collateral could be valid.

In this post I only want to focus on one parameter, the Debt Ceiling

There will come times where we will be voting-in riskier assets onto the platform. One key controller of Maker’s overall risk is the Debt Ceiling assigned to each type of collateral asset.

Currently, the single collateral system is set-up with a 50 Million Dai debt ceiling. This means that only 50 million Dai could be minted against Ether.

It was written in the Digix/MakerDao partnership announcement that the DGD gold debt ceiling would be eventually set to as high as 3 Billion.

Let’s play with a make-believe portfolio for Maker now versus 1 year from now:

In a rush, so these graphics aren’t exactly meant to impress, only to illustrate a point.

As you can see, to the left is a snapshot of today’s risk profile in terms of collateral type, debt ceiling, and % of total debt ceiling across all collateral types. It’s 100%, since there is only 1 collateral type.