I like it. I’ve been thinking of something along these lines ever since Maker went all in on MCD. I don’t have anywhere near enough time to actually work it though, so it’s nice to see it worked out here. A couple of issues I can think of:
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Others have pointed out oracle issues, which are real but at some level unavoidable. I would want to think along the direction of trying to make the oracles as slow and as time delayed as possible to maximize the time members have to act against oracle based manipulation or attacks. I do not have a good intuitive understanding of the type of attacks that can be made against a slow oracle (so long as the oracle eventually moves through the full set of prices in order), I suspect that this is an underdeveloped area of research you might want to look into. It might be possible to delay the oracle by weeks or more and still have a resilient system.
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One of the major oversights of the DSR is the fact that the interest rate (as far as I know) cannot be negative. Although a negative interest rate might seem counter - intuitive it actually is quite reasonable in this system, since the collateral is quite volatile and is prone to large and swift price drops. In the situation of a large expected price decrease, the stablecoin (DAI/COIN) can see heavy buying pressure (as a safe asset) at the same time that CDP holders/ depositors what to burn the stablecoin and cover their longs to prevent loses. In this situation, the market clearing interest rate to hold COIN at $1 (and not break upward) might be significantly negative to cover the expected losses of ETH holders in the system (eg. COIN holders paying for the safety of the stablecoin). The post doesn’t mention if interest rates can be negative, but I think it’s important to keep this scenario in mind and not assume the interest rate must be positive in all cases.
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The CDP/DAI style of system has exactly two sets of players that are precisely opposed to each other (they take the opposite side of the trade), the CDP holders and the DAI holders. It is impossible for one set of to profit without the other taking a loss. The MakerDAO system makes a third party in the form of governance token holders, but I feel that this might not actually be necessary. If CDP and DAI holders are equally organized (a big assumption) then I don’t see why a third party is necessary at all. All disputes can be handled fairly between the CDP and DAI holders (the worst that can happen is deadlock, and a mechanism such as an ice age that make both sides lose can force a resolution). This might not be possible in practice, and I see you use the governance token profits in useful ways in your design; but philosophically I think that the simplest solution does away with the governance token entirely and has the system self-governing between its willing participants.
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Finally, I think all token voting projects need to think about making it easy for holders to delegate their votes. Having to vote on every proposal is very time consuming and annoying and this causes voter turnout to be very low. If voters could delegate their votes to an intermediary delegate who shares their views and votes in their stead, this could increase effective participation significantly. Of course mechanism must be created to prevent delegate exit scams, but between having a time delay on voting (so if the delegate votes ‘wrongly’ the voters can take their vote back before it goes through) and some kind of deposit to punish bad behavior I think this problem is very solvable and could make voting more legitimate and robust.