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Makerdao’s single collateral DAI has been struggling and the low price of ETH has left millions worth of DAI undercollateralized

The ETH price dropped two digits on March 12, affecting decentralized financial space (DeFi). In it, millions of DAI – Makerdao’s only mortgage asset – have dropped significantly.

The Black Swan and ETH dropped also affects the DeFi space

Makerdao and DAI projects have been extremely popular in the past 12 months. The total value locked (TVL) in Maker touched an all-time high (ATH) on February 14, 2020. After that, Maker’s TVL started falling and has been sliding for three weeks straight. To make things worse, the cryptocurrency market faced the fear of Coronavirus and started dropping prices three days ago. Then on March 12, the cryptocurrency market lost over $ 44 billion, and the ETH price quickly fell below the $ 100 range.

Because of the Makerdao project leverages ETH for overcollaterization, the price of ETH has dropped significantly, putting pressure on DAI and mortgage loans. Besides, approximately $ 4 million to $ 4.5 million DAI has been undercollateralized excessively due to this event.

This caused severe disruption for the DAI hodlers and the team behind the Makerdao project. DAI’s problems caused a holder to lose 1,713 ETH from Collateralized Debt Position (CDP), which was liquidated. The group of developers behind Maker planned to stop the emergency operation right in the middle of a sell-off. However, this proposal is extremely controversial and unpopular.

This story has been predicted for two years

Makerdao and DAI had dealt with previous issues when assets struggled to hold the dollar in April 2019. There is nothing as severe as the March 12 cryptocurrency, but the ‘Black Swan’ ‘by Makerdao was predicted in June 2018. Specifically, Bennett Tomlin’s blog has a post entitled’ A Deep Look at Maker DAO and Dai and MKR, ‘which summarizes quite a lot of Makerdao on the March 12th Makerdao issues two years before it happened.

Tomlin said:

“DAI cannot always be collateralized in excess, because if there is a black swan event that destroys the value of ethereum that is no longer true. My biggest fear here is in the case of a serious, drunk 40% 1-hour movement in the value of Ethereum. You are going to have people selling their Ether, possibly into Dai if it is trading in a pair, creating a strong demand driving the price of us, at this same time, it is now easier to collateralize and create more DAIs. Still, the value of the collateral is rapidly depreciating, thus leading to a greater likelihood of Dai becoming undercollateralized.”

makerdaos-single-collateral-dai-has-been-struggling-and-the-low-price-of-eth-has-left-millions-worth-of-dai-undercollateralized2

Source: DeFi Pulse

According to Defi Pulse, Maker’s TVL right now has about $ 347 million on March 13 after selling the cryptocurrency market on Thursday. Yesterday’s DeFi action spurred some anomalies with collateral, and observers noticed all sorts of differences on many DeFi platforms.

The Makerdao team published a blog post entitled “Recent Market Activity and the Next Steps,” referring to the ‘Black Swan’ event. Developers are discussing a system mortgage. The MakerDAO community will hold an executive vote on Friday, March 13, to adjust the parameters to help ensure the same situation does not happen again. Details of the proposed adjustments below, focusing on auction parameters and Dai pegging closer to 1 USD,

Defi proponent Ryan Berckmans explained:

“Social contract of MakerDAO is that MKR tokens take a haircut in the event of system failure. Keepers and MKR buyers should prepare for sustained high gas prices, and downward pressure on ETH and MKR – The Dow Jones hit sell-off circuit breakers three times in the past week and a half. It’s a historic week.”

The DeFi project Makerdao now has plans to initiate an MKR governance token auction on March 15, 2020. The plan is to offset the $ 4 million that’s currently undercollateralized from the wrath of Thursday’s market carnage.

Daily transaction fees on Ethereum hit $564,000 amid network congestion

In addition to the impact on Makerdao, the Ethereum network congestion has resulted in a significant increase in the total fee payments over 24 hours. In particular, about $ 564,000 ETH was paid by traders on March 12. A transaction fee is paid to prioritize transactions for users on the network; The higher your fee, the more likely it is to put in the next block.

Additionally, on Thursday, the network saw a spike in gas charges to over 100 Gwei from about 12 days ago. This fee spiked along with a significant liquidation of ETH amid a declining cryptocurrency market.

March 12 saw most of the fees be paid in a day for 2020 and is the highest day of its kind since February 2019.

makerdaos-single-collateral-dai-has-been-struggling-and-the-low-price-of-eth-has-left-millions-worth-of-dai-undercollateralized

Source: The Block

The amount of Ethereum transaction fees paid overshadowed the amount that Bitcoin users paid for $ 298,000. However, Bitcoin fees have shown a steady upward trend over the past few days.

The amount of liquidation on Compound reached the highest level ever, with the majority of those liquidations in the form of ETH. At the time of data collection, $ 4.19 million ETH and roughly $ 120,000 worth of the USDC stablecoin had been liquidated in those 24 hours.

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