MakerDAO Works to Regain DAI Peg after COVID-19 ETH Price Shock

MKR User Activity is on the rise as the community votes on actions to mitigate the sudden Ethereum (ETH) price crash on March 12th. MKR price has dropped 53.20% in the past 10 days. 

Fundamental Data: MKR User Activity has gone up 58-points (7.24%) in the past ten days, driving FCAS up 27-points (3.20%). Market Maturity also increased 25-points (3.52%) in the same timeframe. 

Recent Events: 

  1. Ethereum’s price crashed on Thursday March 12th, causing high network congestion.

  2. Users flocked to DAI for stability, increasing the token’s price and lowering supply on the market. 

  3. Network congestion prevented timely oracle updates, and keepers from placing their bids for collateral auctions.

  4. Users were able to place 0 DAI bids for over 62,890 ETH (~$7.1 million).

  5. To cover the system shortfall, the MKR community is running an auction today to trade newly minted MKR in exchange for DAI. 

  6. Worried about the liquidity of DAI for the auction, MKR added stablecoin USDC as a third collateral option. This is very controversial because USDC is centralized. 

Perspective: The liquidation mechanism is one of the main ways that DAI maintains its peg with the U.S. dollar, and adding a new, stable collateral is the surest way to increase liquidity, allowing more participants in the liquidation auctions. Nonetheless, the fact that the stablecoin continues to sit above the dollar peg is raising concerns that Maker’s underlying economics are not working as intended. 

The Flipside: Recent events proved the Maker community’s strength and ability to govern the protocol. Partners such as Paradigm pledged to participate in the auction up to the entire amount of the shortfall. Dharma is championing a “backstop syndicate” currently counting over 100 undersigners who pledged to cover the shortfall “one way or another.”

About Maker (MKR) 

Maker (MKR) is a governance token in MakerDAO’s protocol that underpins the first crypto-collateralized stablecoin on Ethereum, called DAI. Previously, in order to generate DAI, users deposited ETH or BAT into a Collateralized Debt Position (CDP), and received DAI in return. The system charges a Stability Fee to open up a CDP, which essentially works as an interest rate to control DAI supply and keep it at its $1 peg. 

MakerDAO, the project, functions as a dual-token system, where the MKR token behaves as a governance token to vote on proposals within the ecosystem, most commonly in regard to the DAI Stability Fee, and the DAI stablecoin is a product of the system’s loan mechanisms. MKR tokens are also minted or burned in accordance with price fluctuations.

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