Ethereum auctions with zero value won by a keeper

The sharp decline in the ETH price tests the feasibility of the entire MakerDAO loan system.

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2 The MakerDAO Foundation has to come up with a solution

MakerDAO is the largest and most important application in Ethereum’s decentralized finance ecosystem (DeFi). At the moment, it is facing the possibility of stopping its activity due to the low price of ETH.

Maker protocol works by creating loans in the DAI token when users upload ETH or BAT into the system as collateral. Maker then automatically sells that guarantee by auction when the market goes down. The goal is to remove DAI from the market until the system achieves its 150% ETH / BAT warranty target.

Ethereum auctions with zero value

The problem is that the ETH price has dropped too much for MakerDAO’s automatic bidding to keep up. Specifically, the official value has dropped from $ 250 to $ 95 in the last week.

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In addition, due to the lack of a minimum value threshold, ETH worth $ 4 million was sold at the price of $ 0. Users have found that their warranties have been liquidated without them receiving DAI in return.

The official forum of the MakerDAO Foundation mentions:

“The MakerDAO community and the Maker Foundation work together to monitor, evaluate and resolve the current situation.
What has happened today is that during the huge drop in the ETH price, a lot of collateral became available for liquidation. At the same time, the Ethereum network was congested with a lot of transactions, which led to a sharp increase in the gas price.
This led to a situation where a single keeper continued to trigger liquidations and bid $ 0 for ETH, without competition. This situation lasted about 2/3 hours, before other participants enter and resume normal operation.
As a result, some guarantees were liquidated with 0 DAI returning to the system, resulting in a net loss for the system. MakerDAO had a surplus of $ 500,000 before the price dropped, and now has a $ 4 million shortfall that needs to be filled.
The protocol covers this problem, the solution being to trigger an MKR emission that will be sold by auction. DAI obtained by this method will be used to cover losses.
To avoid winning a zero-value Ethereum auction, the Maker team is currently discussing possible solutions. “

The MakerDAO Foundation has to come up with a solution

Currently, the MakerDAO Foundation and the holders of the MKR governance token are discussing the implementation of measures to prevent such situations in the future.

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Options include reducing the rate of DAI savings, extending the time for liquidation auctions and even triggering an emergency shutdown, effectively restarting the MakerDAO system.

If MakerDAO were to stop, the crypto market would be flooded with about 2.4 million ETH. Both the developers and the community consider this measure to be a last resort.

Currently, my most likely solution is to issue several MKR governance tokens.