Thursday’s flash crash wreaked havoc on Maker Protocol as the price of MKR dipped 58% in one day. After several borrowers were completely liquidated, emergency changes to the protocol’s risk parameters are being put to an executive vote.
Emergency Proposal to Rescue Borrowers and MKR Holders
Borrowers on Maker with open CDPs and Vaults were caught on the wrong side of an unstable market as millions of dollars worth of collateral was auctioned off for $0.
Ethereum network congestion was at its highest level since November 2018. As a result, Maker collateral auctions received very few bids, and some parties bid nothing for collateral, paying only an exorbitant transaction fee.
Liquidators ended up pulling 100% of collateral from some CDPs and Vaults even though they are supposed to sell enough collateral to bring the loan’s collateralization ratio back to the 150% threshold.
This sparked a quickfire discussion amongst the MakerDAO and stakeholders on the protocol’s forum. An executive vote to alter certain risk parameters is currently in play.
According to the executive proposal, the stability fee for SAI is being reduced from 9.5% to 7.5% as well as reducing DAI from 8% to 4%. Stability fees accrued from minting DAI fund the DAI Savings Rate (DSR), so the new yield will match the 4% stability fee.
Debt ceilings on DAI and SAI and are being reduced to 100 million and 25 million, respectively. Auction times and the delay before liquidators can fix loans have been pushed further, allowing individuals to correct their collateralization ratio before it is delegated to liquidators.
Network Congestion or Flawed Protocol?
Many borrowers who were trying to add more collateral to their loans but were unable to do so as the network faced hysterical congestion
The $0 bids winning collateral auctions and borrowers being unable to add to their loans both boil down to network issues. But this doesn’t mean Maker isn’t complicit.
As previously mentioned, Maker liquidators are not meant to fully seize the collateral and liquidate it, but rather take just enough to fix the collateralization ratio. The reason for liquidators doing this, or rather being able to do this, is currently unknown.
Risk parameters in the executive vote may help the system recover, especially after the DAI surplus went negative. The Maker Foundation is taking active steps to reduce the adverse effects of Thursday’s events, including a $4.5 million MKR auction.
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