Last week, the cryptocurrency market experienced a fire. The second-ranked ETH plunged 40% overnight, which caused a large number of DeFi positions to be liquidated, and the Maker system turned from the initial surplus to the instant. With a debt of 4 million DAI, this forced the Maker Foundation to make a series of unconventional rule adjustments, including zero Dai deposit rate, collateral auction fuse mechanism, etc.
According to the data of Dapp Total, the total value of the 36 DeFi application lock positions that have been counted so far is USD 733 million, a decrease of 35.35% from the previous week. Among them, the amount of ETH locks was 3.68 million, accounting for 3.34% of the total ETH supply; EOS locks The warehouse position was 70.499 million, accounting for 6.93% of the total EOS supply. The three items with the highest proportion of locked-up value distribution are: Maker, EOS REX, and Edgeware, accounting for 35.63%, 17.52%, and 11.57%, respectively.
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ETH plunge triggers huge DeFi ecological shock, 0 DAI bids cause MakerDAO system debt to exceed $ 4 million
A brief review of the event:
On March 12, Beijing time, after the collapse of Ethereum, the Ethereum blockchain experienced severe congestion, and transaction fees skyrocketed nearly 30 times.Many on-chain transactions were not packaged in time by miners, and some 0 Dai bids were lost because In order to overcome competitors, we successfully detected and captured ETH worth more than 100 US dollars, and eventually caused the MakerDAO system to lose about 4 million DAI.
This incident forced Maker (for the first time) to use the form of debt auction to sell MKR tokens in exchange for DAI to fill the loss hole (scheduled on March 19).
Stablecoin Dai suffers from liquidity tightening, and new policies such as Maker's zero deposit rate are controversial
In addition, Dai, a stablecoin known as the DeFi pillar, also faces severe liquidity tightening. The exchange rate between Dai and the US dollar was once higher than 1.1. Overall, the supply of Dai is in extreme shortage in the entire ecosystem. status.
As a result, the Maker Foundation Interim Risk Group has made a number of proposals to mitigate these issues, including introducing the following changes:
- Reduce Dai deposit rate to zero;
- Reduce Dai borrowing rate to 0.5%;
- Launch of collateral auction fusing mechanism;
- Reduce safety response delay time to 4 hours;
(Picture from: tuchong.com)
According to official sources, the proposals were passed on the same day and will officially take effect at 3 am Beijing time on Tuesday.
According to Cyrus, a member of the Maker Foundation, the occurrence of the 0 Dai bidding event is obviously affected by two major market issues:
- Network latency issues;
- Dai's lack of liquidity;
Although the 6-hour auction extension period determined by MKR holder voting should effectively alleviate network problems, in some cases, insufficient keeper liquidity may cause auctions to be affected. For example, a sudden plunge in Eth prices (similar to what happened last Thursday) could trigger another series of parallel auction events.
According to his summary, the liquidation freeze and circuit breaker mechanism will be another community governance tool. Without them, MakerDAO is still vulnerable to sharp price fluctuations. This is not a question of how much collateral the exchange can absorb, but Dai liquidity. The question of how much collateral can be generated and utilized by the underwriters, and the fusing mechanism will help to handle liquidation in a more orderly manner.
In some cases, extreme price drops may require additional action by the community (such as intervening in oracles or triggering emergency shutdown mechanisms), and the community should continue to explore other possible actions, such as adding new types of collateral.
As for the proposal to reduce the DSR (Dai Deposit Rate) to zero, maker community member Leighton commented:
"DSR should be greater than 0% (even only 0.25%), and some DeFi applications (such as Compound, Dharma, PoolTogether) rely on this. In the eyes of ordinary users, setting DSR to 0 may put the entire system in trouble."
Another community member proofplum also agreed:
"I fully agree with this view, which will prevent new users from entering the DeFi space."
In response, Maker Foundation member rich.brown explained:
"This is not a good situation, but DSR can change weekly (or faster in an emergency), it's just a short-term solution."
- The overkill of monetary policy is not the most important issue at present. We cannot know the demand between $ 1.001 and $ 1.03;
- The liquidity situation has improved, but not enough to protect us from events like last Thursday. Some kind of interest rate restriction is necessary before a better long-term solution is found;
- Freeze liquidation is an optional tool, and if it is not considered useful, we do not use it;
- 4 hours of new GSM means that governance can be more flexible and DSR can be added very quickly;
- Code conditions are good, but their motivations need to be well understood;
One week DeFi golden sentence review
Regarding the DeFi ecosystem after the fire, members of the cryptocurrency community have given very different comments. Some people think that DeFi is dead, while others think that DeFi will be reborn.
- "Ethereum's promise: distributed oracles, failed! Scalability, failed! Token economy, failed! DeFi, failed! What's next ?!" —— Fernando Nieto
- "As long as digital currency pledge is used to create a stablecoin of fiat currency, it will be necessary to support the value of the stablecoin by selling the pledged digital currency on a certain day. If the stablecoin with fiat currency pledge as the anchor is made, If the legal currency funds are brought into the digital currency market, what the stable currency represented by defi does is to take the digital currency funds away from the market to support the legal currency. Therefore, there is a reason why the defi game cannot be played in the bts era. Because this idea is really bad. "-Fhrp
- "DeFi needs a stress test network. In this test network, price supply, network congestion, market risk, and liquidity risk can all be simulated using DeFi's composability and edge cases."-Stave Kulechov, CEO of Aave
- "Bitcoin will not die because of just a bad day. Ethereum and DeFi will not face death because of a bad day. In the coming months, the world will See what anti-fragility means. "-Erik Voorhees, ShapeShift CEO
Personal opinion: "The wildfire is endless, and the spring breeze is blowing again." A fire has burned out many root causes in the DeFi ecosystem. If the community can learn from it and improve it well, the future of DeFi is still expected.