MakerDAO to Conduct $4 Million Debt Auction to Repay Outstanding Debt

News / 14.03.2020

The recent sharp drop in ETH price has caused MakerDAO, a leading firm in the Decentralized Finance (DeFi) sector built on the Ethereum network, to become vulnerable. The firm is going to start an MKR auction in two days to cover for the $4 million debt incurred during the crash.

However, before this debt auction takes place, the firm has hastily called for a community vote on March 13. Per the announcement, the vote will decide on the required modification that were identified during the dramatic ETH fall out.

MakerDAO is currently facing $4 million under-collateralized debts which has caused the platform to trigger the debt auction, as they fail to keep up with the volatility. The MakerDAO programmatically print out MKR tokens which are auctioned in exchange for DAI to balance the outstanding debt.

Maker is a decentralized finance protocol that works by issuing a DAI stablecoin loan. To obtain a DAI loan, borrowers collateralized cryptocurrencies like ETH and BAT in an Ethereum smart contract. The collateral is released back to the borrower after the outstanding loan are repaid.

The collateral is also used to stabilize the value of DAI. This is done by the network incentivizing either the creation or destruction of DAI tokens when it is trading either above or below $1. Loans that can no longer be supported by their collateral is liquidated, as the collateral is auctioned in exchange for DAI to repay the debt.

However, due to lack of competition alongside the crushing crypto prices, some bidders were able to win liquidation auctions in exchange for 0 DAI which further intensified the firm’s debt prices.

Featured image courtesy of Shutterstock. Source: Cryptopress.

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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.