MakerDAO Bets Big on Auction to Plug $4 Million Debt Hole

News / 14.03.2020

Leading Defi firm MakerDao is reeling from the recent sharp drop in ETH price. Consequently, it will pursue an MKR auction in two days to plug a $4 million debt it has incurred during the crash.

MakerDAO Community Vote

However, the firm has called for a March 13 community vote before going on with the planned auction. According to the announcement the vote will decide on the necessary modifications occasioned by ETH’s spectacular fall out. 

The $4 million under-collateralized debts that MakerDao is shouldering have made it unable to keep up with the volatility hence the auction. It will issue MKR tokens to be auctioned in exchange for DAI. This way, Maker hopes to balance the outstanding debt.

Stablecoin Loans

Maker functions by issuing  DAI stablecoin loans. To qualify for one, borrowers use an Ethereum smart contract to collateralize cryptos such as  ETH and BAT. They get their collateral back once they finish repaying their loans.

The network also uses the collateral to stabilize DAI’s value. It does this by incentivizing either the creation or destruction of DAI tokens when they trade above or below $1. Additionally, it liquidates loans whose collateral no longer supports them. It auctions the collateral in exchange for DAI, thus repaying the Debt.

Besides the downturn in crypto prices, the declining competition among borrowers saw some of them win liquidation auctions exchanging for 0 DAI. This further exacerbated the firm’s debt level.

Debasish Das is from India, an engineering graduate and holds a postgraduate degree in management. He has 10 years of experience in the financial sector, having worked for one of the biggest MNC banking groups in the country. Currently he has business in e-commerce, insurance and consultancy. As an avid blockchain and cryptocurrency enthusiasts he believes in investing in the future of technology, and feels this is going to make the world a single marketplace and also give the power from centralized banks and governments back to people.