MakerDAO Risk Leader: ProgPoW may do no good to the DeFi industry

Written by: Cyrus Younessi, Head of Risk Management, MakerDAO

Discussions about whether ProgPoW should be activated are putting the Ethereum community at risk of fragmentation. ProgPoW is a solution designed to transform Ethereum's hashing algorithm into an ASIC-resistant.

ProgPow supporters believe that the transition to ProgPow in the months prior to Ethereum's transition to PoS will help avoid miners-led forks, as ProgPoW will put those at a disadvantage using dedicated mining equipment.

However, many members of the Ethereum community have also expressed their opinions and objected to ProgPoW activation. They believe that the stated goal of ProgPoW is to avoid controversial forks when transitioning to proof of equity, but if activation increases the possibility of such adverse consequences , Contradicts the original goal.

Cyrus Younessi, head of risk management at MakerDAO, published a series of tweets on Twitter over the weekend, putting forward his views from the perspective of the DeFi protocol risk and security management on Ethereum. He pointed out that if Ethereum adopts ProgPoW, it will put the DeFi protocol at risk.

Here are the main tweets from Cyrus Younessi:

Due to the ProgPoW algorithm, decentralized finance (DeFi) will be at risk. If you are concerned about mortgage-based DeFi systems, such as Maker / Dai, Compund, dYdX, etc., please consider your position on ProgPoW. I think the current priority is to prevent disputed divisions, not to approve / reject ProgPoW (PP).

If the implementation of the ProgPoW algorithm is promoted, Ethereum will likely have a controversial split, because there must be someone who wants to make non-ProgPoW blockchains also have sufficient economic value. Even if the split is only temporary, a large amount of collateral will be liquidated immediately.

For example, if the market value of Ethereum is split at 60/40-this ratio is derived by referring to Ethereum / Ethereum Classic (ETC) and Bitcoin / Bitcoin Cash (BCH), then a large amount of debt mortgage Positions (Vault) and other positions will be liquidated. The current standard value of the Maker mortgage rate is 150%, but the average mortgage rate is about 300%.

Even if ProgPoW is a successful hard fork, all oracles are optimistic about the Ethereum blockchain based on the ProgPoW algorithm, and the exchange lists all Ethereum tokens that are not ProgPoW algorithms as altcoins, but as long as the non-ProgPoW algorithm area If the blockchain loses 40% of its economic value, it will see the emergence of large-scale liquidation.

Add to this the spiraling effect caused by shorts, panics and other factors among ordinary investors, which could make the situation worse. Even if the blockchain based on the ProgPoW algorithm wins and recovers the full value in a few days, the situation cannot be improved because the damage has already been caused.

Or, if we can foresee a split in advance, the DeFi protocol has no choice but to increase the mortgage requirement immediately (to increase the mortgage rate to 200%? Or 250%?) In order to ensure the security of the ecosystem, but the same is true. It will also cause some liquidation and other problems.

At this stage, some DeFi protocols don't seem to want to "trip this muddy water" to participate in discussions about whether to conduct a ProgPoW fork, or they may not have noticed the risks that this event may cause. Unless Ethereum can guarantee that the failed fork chain will be eliminated immediately, I will definitely think about it. In fact, the DeFi protocol cannot afford to wait for one month extravagantly, and then see which fork chain gets the final result. victory.

Let me talk about some of my personal views:

1. All these problems will appear on alternative clients and exchanges;

2. My expectation is that if Ethereum can't avoid ProgPoW upgrade in the end, can it launch a backup client to maintain a reliable non-ProgPoW fork chain?

3. In my opinion, if one party must back down, it is the ProgPoW supporter, because they have the responsibility not to cause any controversial blockchain split;

4. In the case of a disputed blockchain split, inactivity should be the default setting, which is also the cryptocurrency standard. We have many precedents because this is the correct approach;

5. We cannot seek guidance on DeFi from Ethereum core developers. At this stage, they are reducing any possibility of a blockchain fork;

6. I think that for the Maker community, there is a higher risk of doing nothing. They might as well choose one side and then make sure that one side wins.

These opinions published by Cyrus Younessi have also stimulated many discussions. RTradeTech co-founder and CTO “Bonedaddy | bonedaddy.eth” responded to this remark:

"This is not ProgPoW's fault, but the DeFi protocol itself. If the design goal of the DeFi protocol is not to try to link as many threats as possible, such as forking, then this is a problem with the protocol itself, not an upgrade. So, The designers of the DeFi protocol don't want to deal with the problems caused by the elastic system and the management of the elastic system, and then they want to kidnap Ethereum and prevent Ethereum from doing a ProgPoW upgrade. "

"Cyrus.ismoney.eth" responded, "Everyone wants to bring up a controversial fork, Ethereum should be" kidnapped ", yes."

"Bonedaddy | bonedaddy.eth" means:

"This position is very bad. With this position, you may never do anything controversial. We have a dispute over gay marriage. Should we simply ban same-sex marriage, if a small number of people might issue Something different, do you feel uncomfortable about it? "

Kay Kurokawa, another community member, pointed out that the view of "Cyrus.ismoney.eth" seems to say that the DeFi protocol is not unable to deal with the blockchain split caused by ProgPoW, but it cannot deal with the 40% drop in Ethereum price, so this The problem may still be with the DeFi protocol itself, not ProgPoW.

Responding to this "Cyrus.ismoney.eth":

"Yes, but if you have foreseen a 40% price drop, then you will definitely avoid letting it happen. As I said, the DeFi protocol must raise the mortgage rate in advance for preventive purposes, otherwise it will make itself more vulnerable How troublesome. "

Kay Kurokawa questioned, "What's the trouble?"

"Cyrus.ismoney.eth" said: "You must explain to all users with a mortgage rate of 150-250% why the funds were suddenly liquidated. In general, we have done very poorly and cannot pass the 150% mortgage rate. Being hardcoded, I'm sure there are other problems. "

Kay Kurokawa replied: "It looks like DeFi needs a lot of customer support, so is DeFi really a sustainable direction? If people don't understand these risks, there will be more problems that will affect them in the future."