Discussion: Maker Teleport

Maker’s Teleport bridge (formerly Wormhole) is scheduled to go live soon. The first phase is DAI fast withdrawals. It’s our belief that Maker’s Teleport bridge presents both opportunities for collaboration as well as possible competition. Hop DAO should discuss the implications of this launch and how Hop should coexist with a natively bridgeable DAI. Friend of foe?

Background

Maker’s Teleport adds bridging functionality natively to DAI by allowing it to be burned and minted by a multisig made up of the signers of Maker’s price feeds. The Teleport bridge will likely take market share away from Hop’s DAI bridge because Maker’s cost of capital for DAI is 0 and can therefore charge 0 fees as long as end users pay for gas.

While the initial rollout will only allow for fast withdrawals of DAI to layer-1, there are plans to enable L2 <> L2 transfers in the future and possibly expand to bridging other stablecoins in the Peg Stability Module, including USDC.

Collaboration

Maker’s Growth Core Unit has expressed interest in providing a grant for Maker Teleport to be integrated into the Hop UI. In this case, it would likely make sense to sunset the Hop DAI bridge immediately or when Teleport enables L2 <> L2 transfers. If Maker were to charge a fee eventually, some of the revenue could be kicked back from Maker to Hop DAO.

There may also be opportunities for Hop to integrate more deeply with Teleport at the contract level. This could take a few forms:

  • Features could be built on top of Teleport, adding functionality
  • If Hop opens up its trustless messaging layer in the future, Maker could use it to limit the liability Teleport presents and improve its trust model.

It’s not clear whether Maker is interested in this type of collaboration or is more interested in owning the whole stack.

Competition

Maker’s Teleport presents serious competition for Hop’s DAI bridge and possibly the USDC bridge eventually as well. It may make sense to rethink our relationship with DAI/Maker and consider them direct competition rather than an aligned party.

This could take the form of sunsetting DAI support or attempting to compete with the Teleport bridge for market share. Hop will likely be much cheaper from a gas efficiency standpoint and could still be the best option for all but very large transfers. It also may take a long time for Teleport to support L2 <> L2 transfers.

Trust Model

Maker’s Teleport is a multisig bridge in its current form. While Maker’s oracles have been historically reliable, this trust model still relies on off-chain parties to secure their keys, and its security can’t be independently verified. While we trust the Maker team and community members to follow best practices and take the utmost care, we have seen how suddenly devastating it can be when multisig keys are compromised, as was the case in the Ronin and Harmony bridge hacks.

Hop DAI Bridge Subsidies

The Hop DAI bridge bonder returns are decent when volume is relatively good and sub-par when it is not. The AMM liquidity is on the low end but not as low as USDT currently is. If Hop continues to support DAI, it will likely be necessary to introduce light HOP incentives for both the AMMs and bonder liquidity to keep the bridge efficient and the bonder interested.

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I think we need to investigate Maker’s openness to a collaborative venture. I think an integration with Teleport into the Hop ecosystem brings not only further credibility to Hop, but also serious revenue-capture potential if (when?) Maker starts taking fees. All this said, the trust model concerns are legitimate. It might require both the Maker-offered grant and a grant from the Hop treasury to not only pursue collaboration but also research/develop better trust modelling. Given the relative “meh” of the DAI bridge bonder returns, I don’t know if it makes sense to approach this from a competitive standpoint.

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I’m very supportive of any collaboration with the Maker team on their bridging initiatives.

While deprecating the existing Dai bridge may be a short-term hit to Hop’s revenue numbers, it will be hard for Hop to compete against a protocol-integrated bridge like the one Maker is proposing.

Furthermore, the Maker bridge still fits within Hop’s goal of providing the “adoption of secure, trustless, and community-owned bridge infrastructure within Ethereum’s scaling ecosystem”.

@cwhinfrey notes that the Maker bridge is dependent on a multisig and compares this bridge to the Ronin and Harmony bridges, however I believe there’s one key difference. Unlike other multisigs, which custody third-party assets, the Maker bridge has the full ability to mint and burn Dai at will. A compromise of these keys would be a breach of the entire Maker system, not simply a bridge hack. Therefore, Hop assumes these risks regardless of the integration with Maker’s bridges, since compromised Maker keys could mint Dai and drain a Hop AMM bridge as well.

At this stage, it seems there isn’t much actionable for the Hop DAO to do, other than open discussions with the Maker community.

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To begin with, I am an ex-MakerDAO enginneer, I was directly involved in the creation of DAI Teleport.

@cwhinfrey excellent writeup. I would like to clarify one important thing regarding oracles (multisig). Teleport vaults are bound by a debt ceiling and this is how MakerDAO manages the risk of teleport oracles compromise. So it’s not like this feature can bring down the whole system. (CC: @dybsy, @david-mihal). Btw. AFAIK Teleport will lunch with non-zero fees and small debt ceilings.

Now, regarding possible cooperation. I believe that DAI Teleport should be regarded as a non-user-facing, infrastructure piece. There won’t be any official, shining frontend. UX is worse by design because it requires two transactions, etc. I think there is a huge opportunity to integrate with the teleport on the frontend level.

Finally, I believe that MakerDAO governance would be happy to integrate something like D3M module for Hop protocol (inject liquidity from MakerDAO to Hop protocol). Upcoming MetaDAO framework might be a good fit for that.

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Greetings Hop community. I am a current engineer in MakerDAO, and although I cannot speak for the DAO it is my personal preference to collaborate rather than compete where possible.

Hop has a great bridging brand built out already, and as @krzkaczor said one option is we could fully/partially white-label Teleport under your brand. Another option is we inject DAI liquidity into your system with a D3M which I’m also supportive of.

It is Maker’s goal to support the DAI stablecoin everywhere and not necessarily to be the biggest bridging solution. If we can work together to get DAI users the best experience possible this is a win all around.

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Really appreciate you both jumping in here @krzkaczor @hexonaut and also appreciate the kind words. As a long time Maker holder, I’m really excited about the work you all have done and it’s great to hear you both think there are opportunities to collaborate with Hop.

It sounds like, at least from the couple comments above, that there is support for collaboration on the Hop side as well. If we do head this direction, we would need to decide how long to keep the Hop DAI bridge alive for before sunsetting it in favor of Teleport in the UI. There are a couple main factors for this timing decision:

  • The DAI bridge AMM liquidity and bonder returns are unsustainably low and integrating Teleport, even for just for L1 <> L2 transfers, would bring these both down even further. If DAI is not sunsetted immediately, injected liquidity from a D3M will definitely be needed and subsidies for the DAI bonder liquidity may be needed. Ideally, the additional AMM liquidity from a D3M would help attract enough volume that bonder subsidies aren’t needed though.
  • Sunsetting the Hop DAI bridge immediately when Teleport is integrated would mean DAI L2 <> L2 transfers as well as Gnosis Chain/Polygon would no longer be available for DAI in the Hop UI until they are supported by Teleport.

@hexonaut do you have an idea of how long it would take to set up a D3M module to inject DAI liquidity across the Arbitrum, Optimism, Polygon, and Gnosis Chain Hop AMMs? Do you think 2M to 4M DAI is possible? If not, we may have no choice but to sunset the Hop DAI bridge because the bonder will likely not stick around given the current state and future outlook of returns.

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D3M support will require MCD deployed on all these chains which is one of our highest priorities atm. We are expecting to launch on Arbitrum and Optimism towards the beginning of next year with more chains following shortly after.

We would also have to build a Hop D3M, so even optimistically we are at least 6-9 months out. Maybe something can be worked out in the interim period as we would prefer not to have to shut down the DAI Hop bridge.

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A D3M would definitely help the Hop DAI bridge operate sustainably alongside Teleport. Especially if we could also find a DAI bonder that has a stake in the Hop DAI bridge existing. This could obviously also be Maker but Gnosis also came to mind as well. The Hop DAI bridge is important to Gnosis Chain because DAI is the native fee token.

If you believe there may be support for a Hop D3M on the Maker side, I think it would make sense to add DAI back to the liquidity mining proposal to incentivize DAI AMM liquidity until the D3M is ready or its prospects change. Would love to hear others’ thoughts though.

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Hi @hexonaut, would like to hear what options you have in mind, as this maybe be something Hop, Maker and Gnosis could collaborate with for a win-win-win scenario.

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