The largest project in the decentralized finance (DeFi) space, MakerDAO, is set to auction MKR governance tokens to avoid having to trigger a shut down, effectively “rebooting” the system.
According to a call made in response to the so-called “Black Thursday,” in which the price of most cryptocurrencies plummeted and BTC went from $7,100 to $4,100 in a 24-hour period, it was agreed new MKR tokens would be sold.
The auction is necessary to cover over $4 million loans in under-collateralized debt, meaning that $4 million worth of the DAI stablecoin, because of freefalling Ethereum prices, ended up not being backed by the 150% collateral MakerDAO requires.
MakerDAO’s protocol works by creating DAI loans when users load ETH or Basic Attention Token (BAT) into the protocol as collateral. If the market tanks, the collateral is sold to get the DAI off the market. Amid the ‘Black Thursday’, Ethereum’s price drop was so aggressive the system failed to keep up.
CryptoCompare data shows that over the last 24-hour period, Ethereum’s price went from $170 to about $120, losing about 30% of its value in a short amount of time.
Source: CryptoCompare
The total value of cryptocurrency locked in the decentralized finance space dropped by over 72% amid the sell-off, from around $890 million to a $246 million low, before recovering to $641 million. At press time, the funds locked in Maker account for 55.8% of the total.
On a posted summary of the call, it was noted that MKR buyers should prepare for the auction, which could provide enough funds to pay back the $4 million surplus. Whales wanting to help can also “donate” by bidding up the price of MKR during the auctions, or buy MKR on the market to help its price rise.
Those looking to buy Ethereum were told to consider “running a keeper bot to buy liquidated collateral and prevent this issue from happening again.”Ryan Berckmans, an Ethereum developer, wrote regarding MakerDAO’s situation:
An emergency shutdown (not happening now) would cause DAI holders to take a haircut, whereas the social contract of MakerDAO is that MKR tokens take a haircut in the event of system failure. Therefore we should try and ensure that MKR holders take a hair cut by avoiding emergency shutdown if possible.
Berckmans added he heard an emergency shutdown “is not being considered as an immediate option.”
Featured image via Pixabay.
