The cryptocurrency industry is in its infancy, and in emerging technology, a handful of companies are often leading the charge. For those holding shares in these companies, this is often considered a recommended thing. For others, it is not.
The recent rise in decentralized finance (defi) makes no difference, and the torch-holding company is MakerDAO. When market conditions are favorable, these mighty companies can be industry pioneers. However, if they face an existential threat, they can drag the industry down with them.
Calling the COVID-19 pandemic a black swan seems like a modest way of saying it. With just one beat, this black swan has brought down markets, economies and created unemployment at a rate the world has never seen before. The steady spread of the virus, along with mixed reactions from companies and governments, has created widespread uncertainty - kryptonite (something that can seriously weaken or harm you). one person or item) to the global market.
Cryptocurrency prices have also plummeted, with some arguing that institutional investment is inevitably associated with mainstream financial assets, while others argue that in times of crisis, Worry investors sold everything. It was only a matter of time before a drastic change from the growing financial crisis came to MakerDAO.
MakerDAO feels dangerous
On March 12, the price of Ether dropped on the edge of the cliff, dropping 30% in 24 hours. Suddenly, MakerDAO's decentralized protocol had to carry the millions of dollars in debt from lending under collateral. The company has suffered a fatal blow and has considered emergency shutdowns.
Dai (DAI), Maker's stablecoin, is pegged to the dollar. Dai is minted by users taking on mortgage positions, where collateral is deposited into an Ethereum smart contract, with a percentage of the value of the assets paid in Dai. The collateral is then released when the token is returned and Dai destroyed. Loans that cannot be backed by collateral are liquidated, in which the collateral is auctioned to Dai to pay off the debt. But the fall in prices led bidders to liquidate a 0 DAI auction - Maker's crisis worsened.
By March 13, the company had time to assess the damage. It seems that MakerDAO's boss saw a glimmer of hope and called for a community vote before the company's first debt auction.
At the time of the auction, MakerDAO's financial crisis expanded to about $ 5 million. A post on Maker blog issued an apology from the company:
“MakerDAO had a positive surplus of $ 500,000 before rebate and there is currently a negative $ 4 million surplus that needs to be filled. The protocol that covers this problem, the solution is to enable MKR minting and auctions, DAI is being used to fill the debt. During normal operation, MKR is burnt when the debt from the vault is repaid, which will be the opposite mechanism.
The commentator turned around but most were optimistic
Cryptocurrency communities often demand sanctions when companies make mistakes. However, it seems MakerDAO has captured a spot in the hearts of industry commentators. In other cases, while sudden technical vulnerabilities and losses can create a wave of boycott, the Maker response is mostly supportive.
Alex Melikhov, CEO of EOSDT, a DeFi company, explained that MakerDAO's recent troubles are of a technical nature, not economic: “These cases show a shortage in the system. MakerDAO system and the weaknesses in Ethereum network capacity ”.
Although Melikhov's analysis of the failure blamed the technical side, he also had some clear criticisms of MakerDAO's monopoly on the use of a prophet for price sources, which did not hold the The transaction is pending.
According to Melikhov, this created a "perfect storm" (an unusual combination of events or things that produce unusually strong or bad results) for MakerDAO. Company managers are not interested in buying ETH at a price higher than 20% of the market - a marked change from the usual 3% decrease. Meanwhile, Kain Warwick, founder of Synthetix and CEO of blueshyft, made a more optimistic note, arguing that while the price cuts revealed underlying problems in DeFi, the basic quality of Ethereum is still strong.
Security questions are raised in the DeFi sector. MakerDAO's Gustav Arentoft echoed on-stage security issues at London Blockchain Week:
“It is a difficult field. We have a greater responsibility to build the system, because the code is completely public. We have limited time to build the system. Hackers have unlimited time to research code and create hacks. And that is the most difficult problem. ”
Ryan Selkis, the founder and CEO of Messari also expressed skepticism about the level of security in January - before any specific hacks or technical vulnerabilities were raised. He said that "it is too optimistic to say that there will not be an error before DeFi becomes big".
Maker solves the situation
MakerDAO's hugely important debt auction ended on March 23, with a total value of $ 4.3 million under Dai collateral being auctioned through two phases. Although there was initially some criticism for Maker's lack of decisive action at a time when the company was considering an emergency shutdown, the community was mostly optimistic about how the company handled the situation.
It seems the auction has failed. 20 minutes passed, only two bids were made. One community member wrote: "I cannot wait to tell my grandchildren about this."
However, a few days before the auction, a "backstop organization" was established. The organization will join and act as the final buyer if the price drops below 100 DAI. The organization is made up of community members, along with Michael Anderson of Framework Ventures, reversing his previous position at MakerDAO. Anderson said that his decision to ensure the stability of DeFi in general, once again shows the degree of complexity of the fate of the industry with its largest company.
Maker takes important steps to further decentralize
Gustav Arentoft, MakerDAO's European business development representative, explained that DeFi projects will often have a relationship with the concept of decentralization in their early stages, saying if the projects are decentralized from The first day, they will open up a lot of attack vectors in the system.
Arentoft emphasized that although MakerDAO fully supports decentralization in this area, it is adopting a gradual method. He said that decentralization in DeFi does not need to be a binary position: "I personally do not believe that it is binary in the sense that you are decentralized or you are like traditional finance."
But when all the trouble has subsided from the debt crisis, MakerDAO is delegating governance to smart contracts that underpin the company's protocol for MKR hodlers. A driving force for the entire DeFi region, this move is an important step forward for decentralized governance.
Although the three-month community transfer of power has been completed, the platform has prompted the Maker community to remain deeply involved and continue to vote smartly and regularly, saying that the Voter indifference can threaten the project.
Rule Christensen, CEO of Maker Foundation say The company has quickly moved up to full decentralization:
“By fulfilling the commitment to transfer MKR token contracts to MKR hodlers, the Maker Foundation continues towards a fully autonomous MakerDAO. And it is just the beginning. We will continue to be ready for the community to fully decentralize in the coming weeks and months. ”
According to Cointelegraph
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