[nordsieck]

> Feel free to peruse the documentation and point out which parts seem unbelievable. The system is currently live and I hold a Dai Savings Account and can attest I've been paid according to the system's documentation.

The problem with bad financial instruments is not that they don't work at all, but that they work fine for a period of time and then blow up.

I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy.

I don't know of anyone who things the US economy has a real growth rate of 6%.

[hnews_account_1]

> I think the point your parent was trying to make is that the long term interest rate of any security has an upper bound of the growth rate of the economy.

This is incorrect. Economists won't need it explained, but you're probably not one. Think about it like this - the growth of the economy is a weighted average of the growth of many different assets. By definition, a few of them will have higher rates of growth a few will have lower rates of growth.

What you should've said is that the higher rate ones are typically higher risk. So at the lowest possible risk, you probably cap out at the economic growth rate (also not a truism, but somewhat closer).

[v64]

There are certainly black swan scenarios, such as the value of Ether dropping largely overnight, that would test the system and possibly lead to a decoupling of the peg. The bubble bursting in early 2018 tested this aspect of the system and the peg was able to be maintained.

The 6% Dai savings rate is not static. Overtime, both the interest rate charged to those taking loans and the savings interest rate will need to be adjusted in response to economic conditions in order to maintain the peg. These adjustments have occurred many times and are part of the normal operation of the system.

That being said, MakerDAO has considered these scenarios and in the event that the peg can't be maintained, an emergency shutdown procedure occurs that gracefully shuts down the system. There's a separate token called MKR, and holders of the MKR token are the lenders of last resort. In the event of an emergency shutdown, MKR token is printed and auctioned off to settle debts in the system, devaluing the MKR token. Similarly, when a loan holder pays off their debts to the system, they pay that in MKR token and the MKR they paid is burned, creating scarcity of the token to reward MKR holders.