Review of "Black Thursday": this venture fund received 68% of tokens at MakerDAO's debt auction

Crypto venture fund Paradigm Capital revealed that it purchased most of the MKR tokens from MakerDAO's debt auction.

Following the market turmoil in mid-March, the auction for refinancing for MakerDAO (MKR) ended successfully on March 28, bringing in more than $ 5 million in DAI. Crypto risk fund Paradigm Capital revealed in a tweet on March 31 that it received about 68% of the auction tokens.

The company had previously promised to join a "backing group" and fill gaps in the entire system if necessary. As a so-called "backing", if the price drops to $ 100, the company will act as the final buyer by purchasing MKR tokens. (The auction starts at $ 200 and the current market price is $ 288.)

Many prominent members of the Decentralized Finance (DeFi) community have joined the organization, thus ensuring that Paradigm will not fight alone to maintain the capabilities of MakerDAO. But in the end Paradigm didn't need to act as a backing, as the auction quickly found many bidders. Some community members claim that the Maker Foundation bought a lot of tokens because most bids came from a few selected addresses.

The foundation responded that it "provides limited technical assistance to certain bidders." It is unclear whether Paradigm, a major investor in the Maker Foundation, will need that assistance. A representative for the fund did not immediately respond to a request for comment. This article will be updated as we learn more.

The system refinanced, but the user did not

Black Thursday's market crash brought it two losses. At the agreement level, MakerDAO's collateral amount is less than $ 5 million, because the zero DAI collateral apparently did not return enough DAI to Maker, thereby compromising the stability of its peg to the US dollar. Despite the fact that market events broke the peg to the US dollar, tokens traded at a premium.

Despite the auction's successful refinancing of the system, the liquidated individual user's loss exceeded the 13% advertised by MakerDAO and has not been compensated. Their total loss is estimated to be between $ 1 million and $ 3 million.

The MakerDAO community is currently determining how much, if any, token holders should refund to users.

Previous polls have concluded that the vast majority are in favour of compensation and more than 60% have decided to compensate for all losses. However, as the polls are non-binding, discussions continue — Maker's governance is ultimately determined on-chain.

The community is now finalizing the wording of on-chain voting, where MKR holders will express their views on the weight they have in the system.

Some members are worried about setting a "dangerous precedent," in which users must be compensated for all losses, while requiring them to respond and understand the risks.

These arguments highlight some of the differences between Maker users and protocol maintainers. Users aren't expected to be technically savvy, and auction software requires programming knowledge to use it-at least for now.

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