Analysis: Ethereum, the largest "air coin" in the industry?

March 2020 is destined to be a month that will be remembered by history.

In this month, the new crown epidemic has begun to erupt around the world, and many countries have closed cities and even closed countries.

U.S. stocks plummeted, crude oil plummeted, Bitcoin plummeted, and even gold plummeted. All so-called safe-haven assets seemed to lose their meaning. Only cash, especially the US dollar, was king. However, the Fed's unlimited QE (understood as unlimited printing of money) followed by the "satisfying expectations" made one wonder, what else should he get?

And the blockchain has not been able to escape this catastrophe. In DAPP, the public chain and other stories cannot be told for the time being, cross-chain is still difficult to produce, and now the only DeFi that can be sold is also on the day when the price of the currency plummeted ( History said Black Thursday) ushered in a big hit. Leader MakerDAO caused large-scale liquidation because of the ETH plunge, and because of the weak performance of ETH, a large amount of ETH was auctioned off at 0 yuan, forming a debt deficit of 5 million US dollars.

As a result, Maker has made several decisions in the past few days:

1. Additional Maker (equivalent to diluting the existing MKR holder's share ratio to repay debt);

2. Increasing USDC as the third collateral that can cast Dai to enhance liquidity (this move triggered a big discussion about the purity of DAI "decentralization", after all, the first two ETH and BAT are purely decentralized Cryptocurrency);

3. Adjust multiple risk parameters (such as Dai's deposit interest rate, maximum auction time, etc.);

4. MKR's token control is completely transferred from the foundation to the governing community. MKR tokens are now 100% controlled by MKR holders.

Well, this is not a problem. In my opinion, adding similar USDC or future BTC as collateral is an effective measure to strengthen the robustness of the system. Where the main collateral of MakerDAO is still ETH, the system is still running on ETH. , We should not be too hostile to the "purity" that USDC may "pollute" DAI decentralization.

However, what I want to say is that MakerDAO's biggest risk is not here.

MakerDAO's biggest risk has always been ETH itself. Strictly speaking, it is the same as ETH, and it is all loss.

01 What happens if Bitmex does not unplug the network cable?

You may have heard that the reason why Bitcoin stopped at 3700 and rebounded rapidly that day was because Bitmex “unplugged the network cable” . As for whether it is really like the official said hardware failure and the DDOS changed later, we do not know, we only know that after 24 minutes of downtime, BTC futures prices began to rebound rapidly from 3614.

Many seniors in the industry actually support Bitmex's unplugging the cable, because this is equivalent to a "hidden circuit breaker"-braking in time for panic emotions and alleviating the liquidity trap. Many people have begun to call for us to have a real "fuse-cutting mechanism" like the stock market, and then we can't imagine it.

What would happen if Bitmex wasn't down?

Maybe many people often shout "Return to Zero" is not a dream, because there are too many BTC as collateral are locked in Bitmex can not come out, let it spiral down like this, 2,000 BTC may also see.

If that's the case, guess how much the price of ETH will hit?

BTC of 3700 corresponds to ETH of 86, BTC of 2,000, ETH price fell by 2,30 is a matter of nailing

What would happen to MakerDao if it was $ 20?

You know, if ETH fell to US $ 56 that day, it would clear US $ 52 million in ETH collateral. If it was US $ 2,30 … Maybe the Maker project would be completely cold.

In particular, considering the congestion superimposed on automatic clearing and other Ethereum when it fell to $ 86, the Gas fee soared to a maximum of $ 30, resulting in more than 30% of non-performing debt caused by 0 bid settlement of more than 5 million. By the time of $ 2,30, the congestion on the Ethereum network, the zero bid settlement ratio and MakerDao's bad debts … I can't imagine it.

02 What if MakerDao gets even hotter?

In this first year of DeFi , how much ETH is locked in Maker? -More than 2 million-Only about 2% of the total ETH issuance.

If after a few years, DeFi is in a big fire, MakerDAO has always maintained a leading position, which has locked more than 20 million or more ETH, accounting for 20% or more of the total ETH circulation, and then minted billions DAI (assuming that the ETH price recovered to 500-1000 US dollars later), and then a similar, even more violent Black Swan came again, and you guess what the industry and currency prices will be like.

Of course, MakerDAO's clearing mechanism will definitely start clearing immediately when the threshold is reached, even if the performance issues of the ether have been set aside (will be discussed next), when the mortgaged ETH is sufficient, can the market catch a spiral of death? ETH?

As an extreme point, if the total value of 10 billion ETH market value, half, that is, 5 billion market value ETH in Maker, issued 4 billion DAI. When ETH began to plunge with the Black Swan, according to MakerDao's mechanism, theoretically, it should be possible to start liquidation when the market value of ETH fell 7 to 8 billion, and it would be completely emptied when only 5 billion or 4 billion was sold (selling all ETH)

But this is just an imaginary scenario. When that level of black swan occurs, it also involves dozens of times the current mass. It is a question whether the market can hold so much ETH in a short time. The point may become very large. Will the point of selling ETH be much lower than theoretically? It is already less than 4 billion to support the 4 billion Dai issued outside. In this case, the value of Dai will be seriously affected. If there is not enough collateral to support stablecoins, the word "stable" will not be able to talk about.

Of course, MakerDao has reached such a large share of ETH. At present, only imagination exists. To reach this volume, it will take a long time, and it may never be there. After all, after ETH to POS, most ETH may be Stolen. But since this possibility exists, we should think more.

03One of the biggest problems exposed by this risk ETH performance

In fact, in a strict sense, the design of MakerDao's mechanism is still OK. Sufficient excess mortgage and sufficient advance liquidation mechanism. Although facing the risk of slippage, it will not cause liquidation failure.

However, with the 5 million debt this time, the "culprit" is the too poor performance of Ethereum.

On Black Thursday, the congestion of the Ethereum network caused the Gas price to soar more than 10 times as usual. During the liquidation process, some users tried to increase the price against the $ 0 bidder. However, because the network was too congested, the block could not be written at all, making the auction too early End. At that time, some players needed to pay 100 times the normal price of Gas to be included in the block. At the time, the price update of the Maker oracle was also unable to be written into the block. It is very interesting that some people say that this may be an unfortunate blessing, because this congestion actually causes the closed loop of ETH liquidation to break, which is similar to intermittent fusing. Otherwise, the smooth liquidation without obstruction may result in lower than 86 dollars Price, forming a more horrifying death spiral.

So will ETH2.0 be the solution?

Can only say-it is possible.

After all, the setup of the GAS model of ETH itself is extremely controversial. The reason why Fomo3D could be ended was to use the "Bug" of the Ethereum Gas model and performance to make the game forcibly end.

Furthermore, even if 2.0 is the solution, this solution is conservatively estimated for 3 years, and pessimistic is expected to be realized for 5 years or even longer. During this period, ETH 1.0 may still experience a black swan event like 312 Black Thursday. This time, 5 million debt was replaced by an additional MKR. Next time? Especially the next time, if the decline is even larger, as mentioned above, if tens of millions of ETH are put in, ETH1.0, how to deal with the network congestion caused by such an automatic clearing system?

04 The bigger problem exposed by this risk is rootless

U.S. stocks have blown, but in fact, even if there is no blowout, they will not keep falling like this. After all, the revenue and profits of these companies are here. Even if they are closed, everyone still has to go to Wal-Mart to buy food and use Apple ’s mobile phone. Driving Ford's cars … the decline is nothing more than the expectations of the economic environment, the decline in corporate profits, changes in the price-earnings ratio, etc …

What about DeFi? Or let me put it another way, is it possible for ETH to return to zero?

ETH is indeed the largest ecosystem with the largest number of developers and the most successful underlying public chain.

But this does not mean that it cannot be reset to zero.

Want to know how the price of ETH rose from a few dollars to thousands of dollars? -Is it because there are some amazing applications on it?

Really not, the reason is simple enough to be appalling-because it is the most convenient way to get ETH, and at the same time, smart contracts such as NXT and Waves are relatively inflexible.

At that time, many projects were received by BTC and ETH at the same time, and later loved Western Europe. It was much more convenient to use ETH alone. ETH became a hard currency, which replaced the role of currency in the BTC circle to a certain extent.

Later, the love of Western Europe was falsified, and the market value of ETH was no longer supported. From the original 1,500 US dollars, the lowest fell to 80 US dollars, which dropped nearly 95%.

However, the power of inertia is terrible. After all, there are thousands of items on ETH. Although most of them are air, compared to other public chains, those public chains that have little air, ETH, are still good. too much. Later, with DeFi, ETH seized the new life-saving straw, and all the narratives began to lean on DeFi.

But this is far from enough. If I ask you where is the value of ETH, your answer may be-it is the infrastructure that can support DeFi.

Ask you again-what is the main collateral in DeFi? -Your answer is-ETH

It ’s really weird, just like, you ask someone-why are you so good? He said, because my dad was great.

Then find his father and ask, why are you so bullying? He replied because my son was great.

Isn't it logical? If his dad said, I'm Li Gang, and my official has a lot of money, don't I feel like I'm fine?

So you see, either the main collateral on DeFi is not ETH, but USDT, BTC or other assets, and ETH is dedicated to building an infrastructure; or ETH has a rich DAPP ecosystem that connects the outside world to support its basic value. DeFi is only a part of its ecology, not the main part or the whole. This logic can be self-consistent. Otherwise, DeFi, which is completely dependent on ETH, and ETH, which is completely dependent on DeFi, are like grasshoppers tied to a line. For both, this is both an opportunity for mutual promotion and a huge risk.

What do you think of the deep binding of DeFi and ETH ? Welcome to the comments area to write your opinion.


"Disclaimer: This article is an independent opinion of the author, and does not represent the standpoint of the vernacular blockchain. This content is only for the popular science enthusiasts to learn and communicate. It does not constitute investment opinions or suggestions. Please take a rational view, establish a correct concept, and increase risk awareness. The copyright of the article and the right of final interpretation belong to the vernacular blockchain. A