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A new report includes several recommendations for preventing future debt crises for the DeFi Maker protocol.

April 29, 2020

Maker → (MKR) has released a new report that tries to put the events of “Black Thursday” in contextand recommends protective measures to ensure that it cannot happen again.

On March 12th and 13th a fall of about 50% in price The Ethereum (ETH) led to an undercollateralization of the debt positions that underpinned Maker’s Stablecoin Dai (DAI).

The document, authored by “MakerMan” says that The fall led to liquidations that “effectively flooded” the liquidators of the system.

A new report includes several recommendations for preventing future debt crises for the DeFi Maker protocol.A new report includes several recommendations for preventing future debt crises for the DeFi Maker protocol.

Because the ETH network was overloaded, Users could not participate in the auctions, which resulted in a single bidder winning almost 62,843 ETH for almost zero DAI in 1,461 auctions.

Losses of $ 6.65 million

Overall, the author appreciates that The auctions meant that the maker system had no guarantees for 6.65 million DAI. The document states that there were also intangible costs:

“The event was costly not only for cryptocurrency holders, but also for the maker system in terms of cost of capital, trust in the system, and maker’s reputation in general.”

The report states that If other holders were able to participate in the tenders, the prices offered would be between 10% and 14% of the collateral return.

MakerDAO has been recapitalized through debt auctions

MakerDAO is the decentralized financial protocol (DeFi) that the stablecoin DAI creates.

Dai are created when users take on secured debt positions where the collateral exists (often ether) is stored in an Ethereum smart contract, y Part of the value of the stored assets is represented by the DAI newly created.

The guarantee is also used to help stabilize the value of the Dai, and the system promotes its creation or destruction depending on whether the Dai’s price is above or below USD 1. Loans that can no longer be secured by your collateral go into a liquidation process in which the collateral for the loan is auctioned in exchange for the Dai.

In response to the crisis MakerDAO has launched a new series of debt auctions where new MKR tokens are created and auctioned by DAI to recapitalize the system.

More than 5 million DAI were collected at auctions;; The Paradigm Capital Risk Fund won 68% of the auctioned MKRs.

Make changes to avoid future mistakes

The Maker report identifies several important changes that have been made to the Maker system to avoid comparable protocol crises in the future.

MakerDAO Governance now has the ability to “stop the auction system and thus the remaining stock immediately”. to prevent the sale of debt backed by 0 DAI.

Also Additional changes have been made to the parameters of the auction system, including the addition of the Stablecoin USD Coin (USDC).. The Creators community has also created web interfaces to increase participation in auctions.

In the report It is also recommended that protective measures be taken to restart auctions with less than three bids and two unique bidders, a limit of no more than 50 ETH lots per auction lot and the creation of a maker settlement committee.

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