In the early days, when MakerDAO was just a loose collective of coders and thinkers, Rune Christensen would hold court and talk for hours about his vision for decentralized finance, or DeFi. So much so that his colleagues came to refer to these long sessions as “Rune Radio.”
A former colleague, who did not want to be identified, said Christensen would not only talk for a long time, but people would actually listen. Radio hour was that interesting.
As MakerDAO has become the most important project in DeFi, and DeFi has emerged as the most viable corner of the ethereum world, Christensen, who is Danish, 29, and very tall, hasn’t stopped talking. With a mop of distinctive blond hair and a manner that isn't especially disposed to humor, he is relentless about the project he’s helped create. But then there is a lot to talk about: MakerDAO has a novel and complex structure, which takes time to understand.
CoinDesk tuned into Rune Radio over a long day in Copenhagen recently. We started by cycling around the city’s sights and visiting places important to Christensen when he was growing up, including the apartment complex where he lived during university. It was a gray and rainy day, which Christensen said was the “real Denmark,” not the version soft summer tourists get.
We rode around the old stock exchange with its dragons on the roof, and, outside Denmark’s central bank, he explained how Maker has navigated Denmark’s many financial authorities (not unlike the alphabet soup of authorities American projects face). But we spent most of our day in a conference room at the Copenhagen University coworking space where Maker Foundation’s Danish staff congregate. Christensen wanted to talk.
Christensen is not a person who smiles often or leans forward when he's talking, yet he is easy to talk to, maybe because he's happy to take the lead and doesn't expect to share much of the air time. He’s at his best in an informal context. The office is not a place where he spends a ton of time any more. Maker has always been driven by remote workers and offices aren't really in his habit. Christensen believes that when the foundation is running well, it barely needs him and he's happy to stay away.
Though a big thinker, you would not describe Christensen as a dynamic guy. He doesn’t make a lot of jokes, or try to cajole or charm you, and yet he's managed to hold a cadre of world-changers together for years now.
Over the years, Christensen has maintained his authority without exactly trying (like Vitalik Buterin, he holds outsized sway without ordering people around). He can drive people on or turn people away, but he has achieved consensus mostly through argument and process, rather than by dictating terms (with one well-known exception we’ll get to). MakerDAO never had any sort of traditional organization until late 2018, when powerful VC firm Andreessen Horowitz made a $15 million investment in the project.
“Rune and MakerDAO, as a company or an entity of builders, have been around basically forever,” said Taylor Monahan, MyCrypto CEO, and original ethereum OG, pointing to Christensen’s and Maker’s hard-won credibility. She cited Maker and Joey Krug's Augur (the prediction market) as the first two projects built on ethereum that really captured people's imaginations.
“He's obviously delivered, and in this space that's impressive in itself. There's not a ton of companies that can say that,” she said.
But Maker still has a lot to prove. “In 2020, we're going to distill down and see where the actual value is. The most exciting thing about DeFi right now is talking about DeFi,” she said.
Someone has to lead this thing
For all he’s accomplished, Christensen is strangely ambivalent towards the project he’s led. He’s backed away several times, and looks forward to the day when he can leave entirely.
“I really wanted to be a neuroscientist. I wanted to study natural science and biology and all that kind of stuff,” he said.
The MakerDAO project is represented by two entities. There’s MakerDAO, the protocol. That’s the software on ethereum that runs the lending system that generates DAI, a stablecoin whose value stays more or less steady the whole time.
It’s governed by holders of the MKR token, which is what makes it a Decentralized Autonomous Organization (the “DAO” in its name). They decide parameters such as the rate to charge for loans, how much people earn if they hold DAI over time, and how to spend the interest income.
Then there’s the MakerDAO Foundation, which is a legal entity. Until 2018, Maker didn't have a legal entity at all, until the motley crew (especially Christensen) decided it needed to play friendly with John Law.
The foundation isn’t a permanent institution. Under its chartering terms, agreed last year, it’s meant to dissolve after three years (meaning two years from now).
It’s hard to tell if that will really happen, but it's clear Christensen wants to go. He wants the project to work and he believes it needs him to do so. But he only wants to stay long enough to see that happen.
Will he decide enough has gotten done two years from now?
Early on, the closest thing MakerDAO had to a formal organization was a weekly conference call. All “salaries” were paid in crypto, so everyone involved sorted out their own taxes. It wasn’t until late 2018 that the collective created any kind of legal entity because Andreessen Horowitz told them they needed one.
Theoretically, once the foundation disbands, the MakerDAO community will return to its roots as a distributed entity. “It will be a process of the community truly taking over the project,” Christensen said.
After dissolution, “DAO teams” – disparate little companies working for the DAO itself -- will steward the ship, paid out of its stability fees (the interest on those loans we discussed). Current staff will likely join or start teams taking on anything from risk management to marketing.
Christensen does not plan to lead a DAO team. He wants to invest. He wants to finally make a dent in neuroscience and biology. He wants to raise his family.
Then again, he’s said he was leaving before.
Following ethereum's summer 2015 launch, he thought he could just put out the MakerDAO blueprint and the ethereum community would come in and build it. Then he thought he could help operationalize the idea, and walk away. Then, he thought he could be involved as minimally as possible and the project would run all the more successfully for it.
Now he thinks he has it almost right. MakerDAO just launched Multicollateral DAI, with the stablecoin backed by two assets now rather than merely ETH; more assets are coming, including non-crypto assets eventually. It also deployed the DAI savings rate (an interest rate locked in by smart contract), incentivizing people to HODL a stablecoin.
Christensen claims he did very little work as this big launch approached. The foundation had reached a state where everyone knew what they needed to do and just did it. “Nobody wants the CEO to come and mess with stuff when they are trying to launch this big product,” he said.
How lending creates money
So what have Christensen and his collaborators built?
MakerDAO trustlessly provides loans backed by ETH, made in a cryptocurrency known as DAI. DAI is a stablecoin, existing to maintain relative price stability in this volatile market.
"A stablecoin is in a way what Satoshi wanted to invent but stopped short of," Jake Brukhman, founder the CoinFund VC firm, told CoinDesk.
Bitcoin in its earliest iteration was a way to make payments using an online currency that didn't rely on state power. But it has not worked as a widely-accepted payment method, partly because users never know what it will be worth from one hour to the next.
DAI’s price stays around $1 (usually no more than a few pennies off from that peg on CoinMarketCap, though it has had wild swings). And it’s this price stability that makes it useful for issuing loans.
On the surface, the idea is crazy. A person comes along and says they want to borrow 1,000 DAI. They put up at least $1,500 worth of ETH. Then the system lends them their 1,000 DAI by creating it, there and then.
A lot of people know what DAI is, but don't know it’s created by lending. MakerDAO isn’t just a maintainer of a stable-currency. It's also a bank built out of smart contracts, but a bank without a legal domicile or identity, owned only loosely by the many holders of the MKR token that govern it.
People repay their loans by returning DAI plus a little more to cover the variable interest on the loan (called the stability fee). The protocol enforces the price by selling off a person's ETH if its total value falls below 150 percent of how ever much DAI the user borrowed.
No more and no less DAI exist in the world than loans made in it at that time. Every single DAI is some piece of someone’s ETH, locked up on the Maker protocol until the person who put in their ETH pays the DAI back.
When DAI goes into the system to repay a loan, it just gets burnt. Only the interest (or stability fee) remains for the MakerDAO to use to reward MKR holders, pay the DAI savings rate or cover expenses for the protocol.
Most people who borrow DAI use it to make crypto trades, but some people have employed it for real world purposes (and gotten into a bit of trouble when demand for DAI is low).
Hashtag Disrupt Wall Street
DeFi is not that big yet. The whole market, which includes projects like Uniswap and Compound, is thought to be worth in the region of $500 million. There are products that count as DeFi on other protocols, but ethereum is unquestioned as the leading blockchain so far.
Maya Zehavi, a crypto business consultant, calls MakerDAO a “fascinating experiment,” but she emphasizes it’s still much too small to realistically project out a global disruption based on what’s happened so far. “Sometimes the narrative gets ahead of the reality,” she said.
MakerDAO is small in the world, but it is the giant of the space. There’s $312 million worth of ETH locked in the MakerDAO protocol. The next largest product is Synthetix with $166 million. And DAI's very existence has enabled new products like the SmartWallet Instadapp, the trustless lending platform Compound, and the savings game, PoolTogether.
Further, the stablecoin economy has grown large enough to catch the attention of the U.S. Federal Reserve, which fears the instruments could yield a run if holders lost confidence en masse and demanded back their fiat. Such a run could ripple across asset prices out into the real economy, it warned.
But DAI is not fiat-backed, so far. It’s still wholly crypto-backed and the road to adding one other asset has taken a lot of turns. The community considered adding seven different types of ethereum-based assets to collateralize DAI loans on Maker, but then settled on only one, Brave's basic attention token (BAT).
Because BAT is viewed as riskier than ETH, the multi-collateral version of the smart contract permits only $3 million worth of BAT debt, while it allows $50 million worth of ETH debt. The community is now considering adding Augur's REP, and others will inevitably join too.
Christensen says to achieve true stability, it has to add non-crypto assets eventually. Christensen mentioned tokenized real estate several times as we spoke, but everything is on the table if DAI gets big enough. Every new asset will increase MakerDAO's complexity further because each new asset is a price that has to be monitored, and that means building more “oracles” – software that watches real world prices to make sure DAI has held its peg across all markets.
“Where you have oracles that are decentralized in nature then, you are subject to problems such as frontrunning,” said Lucas Nuzzi of Digital Asset Research. On ethereum, that is a form of market manipulation where traders take advantage of unfinished trades by paying more gas to jump the line and trade ahead of it. There’s a whole website devoted to following the phenomenon.
“There are some fundamental problems that I think multicollatoral DAI will showcase that might put a damper on DeFi as a theme,” Nuzzi said.
At the end of high school, Christensen didn't go straight to college. Denmark was too nice, he said, and it bored him. He went to Beijing for a “gap year” that turned into a mini career. He taught English to very young kids there, and then, finding there was so much demand for English teachers, he set up a business, bringing over Westerners who were good with children.
Then, as seems to be a habit with Christensen, he got bored again and decided he needed to go to college (regulations in China were turning against him anyway). He enrolled in business school and started going back and forth between China and Denmark as he studied, until he became bored with that as well and he started taking biochemistry again, his original love. It was at this point that he learned about bitcoin and became fascinated with it. He bought his first bitcoin in 2011 at $2.
When Christensen sold his teaching company he plowed most of the returns into bitcoin (including lots of Casascius coins – physical coins embedded with bitcoin addresses – an idea he loved immediately). Then Mt. Gox collapsed, bringing about a massive crash and wiping out his winnings. It was the first time Christensen experienced bitcoin’s instability, an experience that led him to invest in stablecoins (BitShares) and to create one himself. When Bitshares, invented by Dan Larimer, itself crashed, a viable stablecoin seemed more necessary than ever.
Many of the researchers who ended up working on Maker came out of the BitShares failure, said Greg Diprisco, part of the business development team at the MakerDAO Foundation (who came onboard during what he calls the “hire yourself” era, now long gone). Then, in mid-2016, the DAO hack happened, serving up another important lesson.
“The problem with blockchain is never building it and getting it to work. It’s getting it secure. Building it takes half a day and then getting it secure takes five years,” Christensen said.
Getting to done
There are people who are called to do a thing and there are those who feel compelled. Christensen is the latter. He isn’t in the space because he’s having fun. He sticks around because there are still some things only he can do (such as order people around) and he genuinely believes that DeFi is the only way to deal with the massive global problems like wealth inequality.
Christensen's comings and goings have at times left Maker rudderless, but never so much that it collapsed. There have been times of tension and infighting, as shown by an explosive tell-all document distributed by Andy Milenius, the first CTO of the MakerDAO Foundation. It details, in particular, one time in which Christensen was no longer willing to wait for consensus, a moment that will forever be known in MakerDAO lore as “the purple pill.”
Christensen and his defenders say that any project that’s getting somewhere requires someone to make tough decisions now and again. “The first valuable thing you learn when building a DAO is that a DAO can't build a DAO,” DiPrisco said.
Brukhman said many projects have to become more formalized as they gain product traction. The pains MakerDAO has gone through are not unusual, he said, and "the long term for Maker is high degrees of decentralization.”
Milenius's account says Christensen decided to take greater responsibility for the project when someone needed to negotiate a sale of MKR (the tokens used for staking and voting) to Polychain, a pioneering token fund. Earlier this year, Christensen looked to shift Maker’s staff into a more traditional organizational (corporate) structure. Christensen said his thinking has evolved from trying to reinvent everything about organizations and money to just reinventing a key part of finance.
“What's important is how do you make it reality. That, in my opinion, is what real idealism is. It's not just about focusing on the philosophy or ideology. It's more focusing on the execution and turning it into reality,” he said.
Brukhman said, echoing Christensen. “You want this technology to be deployed at scale and for people to understand the value of it, and use it.”
For all the many use-cases proffered for ethereum over the last few years, DeFi might be the most realistic. Messari CEO Ryan Selkis argues that the DeFi market is so big potentially that there's no good reason for ethereans to solve any other problems (like, say, decentralized file storage, or intellectual property rights management).
Christensen believes that letting a blockchain protocol manage finance will bring about so much transparency and efficiency that it will have its own kind of gravity. The business world will be drawn to it inevitably. When that happens DeFi will be like a cell phone: something we can’t imagine we ever lived without.
"The world is going to take over DeFi,” Christensen predicted. But, by that point, if he follows through on his itch to leave Maker, he’ll be long gone.
This post has been updated. The minimum collateralization ratio for ETH is 150%, not 300%.