MakerDao (MKR) has printed a brand new report that makes an attempt to place the occasions of ‘Black Thursday’ into context — and recommends safegu
MakerDao (MKR) has printed a brand new report that makes an attempt to place the occasions of ‘Black Thursday’ into context — and recommends safeguards to make sure it may possibly by no means occur once more.
On March 12-13 a roughly 50% crash within the value of Ethereum (ETH) led to the under-collateralization of the debt positions underpinning Maker’s Dai (DAI) stablecoin.
The doc, which was authored by ‘MakerMan’, mentioned the crash drove liquidations that “successfully swamped” the system’s liquidators.
With the ETH community affected by congestion, customers have been unable to take part in auctions, leading to a single bidder profitable practically 62,843 ETH for nearly zero DAI throughout 1,461 auctions.
$6.65 million in losses
In complete, the creator estimates that the auctions resulted within the Maker system turning into undercollateralized by 6.65 million DAI. The doc mentioned there have been intangible prices too:
“This occasion was not solely pricey to vault holders, however was to the Maker system as effectively, in capital prices, system confidence and Maker repute typically.”
The report notes that when further keepers have been capable of take part in bids, costs supplied between 10% and 14% collateral returns.
MakerDAO recapitalized by way of debt auctions
MakerDAO is the decentralized finance (DeFi) protocol that creates the stablecoin DAI.
Dai are created when customers tackle collateralized debt positions — the place collateral (typically Ether) is deposited in an Ethereum smart-contract, and a portion of the locked belongings’ worth is represented by newly created DAI.
The collateral can also be used to drive the stabilization of Dai’s worth, with the system incentivizing the creation or destruction of Dai relying on whether or not DAI’s value is above or under $1. Loans that may not be supported by their collateral enter into liquidation proceedings — the place the mortgage’s collateral is auctioned in alternate for Dai.
In response to the disaster, MakerDAO entered into a brand new collection of debt auctions — the place new MKR tokens are created and auctioned for DAI with the intention to recapitalize the system.
Over 5 million DAI have been raised within the auctions, with enterprise fund Paradigm Capital profitable 68% of auctioned MKR
Making modifications to forestall future failures
Maker’s report identifies a number of key modifications which have been made to the Maker system with the intention to stop comparable crises for the protocol sooner or later.
MakerDAO’s governance now has the power to “immediately halt the public sale system and therefore liquidations” to forestall the sale of collateralized debt positions for zero DAI.
Further modifications have additionally been made to the public sale system’s parameters, together with the addition of stablecoin USD Coin (USDC). The Maker neighborhood has additionally created net interfaces to extend participation in auctions.
The report additionally recommends introducing safeguards to restart auctions which have lower than three bids and two distinctive bidders, inserting a restrict of not more than 50 ETH batches per public sale lot, and the creation of a Maker liquidation dashboard.