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