Last night, members of the Maker team proposed an immediate Executive Poll to try and stimulate Dai supply as a means of rebalancing the system.
“Dai is facing a severe liquidity crunch. The Dai peg has been trading as high as $1.10. Dai generation from Vaults is low. Many in the community are buying Dai in order to participate in this upcoming Thursday’s MKR auction. Some are accumulating in order to pay down Dai debt in preparation for another downturn in the Eth price. There is an extreme ecosystem-wide shortage in the Dai supply.”
The Maker Foundation Interim Governance Facilitator has placed an Immediate Executive Vote proposal into the voting system to:
⬇️Lower the Dai Stability Fee to 0.5%
⬆️Increase the Dai Savings Rate Spread to 0.5%
Note: This will set the Dai Savings Rate to 0%
— Maker (@MakerDAO) March 15, 2020
Within this new schema, the system will see a number of changes including:
- Dropping the Dai Savings Rate to 0% – the lowest it’s been since inception.
- Reduce the Governance Security Module to 4 hours, instead of its current window of 24 hours – effectively allowing changes to be implemented faster.
- Implementing a “decentralized circuit breaker” to handle mass Vault liquidations.
Regarding the last point, the “circuit breaker” grants the system the ability to temporarily disable Vaults from being sent to the auction liquidation module. This proposed module lives outside of the GSM and is not subject to any delay.
In practice, this would allow liquidation auctions to happen in a cyclical manner, effectively allowing Keepers to bid on collateral in a more controlled fashion, all with the intent of mitigating the issues which arose this past Thursday.
“If auctions were to be more sequential, as opposed to parallel, then keepers would likely have the ability to recycle their Dai from auctions and rebid again.”
Why Is This Happening?
While each upgrade has a specific intention, they are all geared at balancing the Dai peg and easing the supply constraints.
Relative to the 0% DSR, the lack of interest to be earned from holding Dai should free it up for those wishing to acquire capital to pay down their active Vault or participate in auctions in light of looming volatility.
Regarding the GSM, the short-term reduced window would allow for changes to be implemented quicker, thus allowing any new issues that arise to be handled in a swift manner.
USDC as Collateral?
In parallel with these new changes, the Maker community is now considering the addition of US Dollar Coin ($USDC) as a collateral type to issue new Dai.
While many have come to recognize that introducing a trusted collateral type which relies on a centralized entity for custody (Circle) may defeat the premise of an entirely “decentralized” stablecoin, many have vocalized that this short term measure *should* help mitigate supply constraints in the coming weeks.
In tandem with a community call to discuss this issue, this forum recorded the pros and cons of introducing USDC as collateral with more conclusions to be announced by Maker in the coming hours
If one thing is for certain, the last week has been a huge test for the leading lending platform.
As we continue to keep an eye on the upcoming auction with support from the Maker Backstop Syndicate, it will be fascinating to see if the system can hold up well in lieu of the upcoming global pandemic.
If Dai can hold it’s peg in response to these issues, we’re likely to see a stronger system arise, along with valuable insight as to how crisis situations can be handled in the future.
Cooper is the Editor of DeFi Rate and a contributor to leading DeFi outlets like the Defiant and Bankless. He is active in the DAO ecosystem through projects like MetaCartel and Raid Guild where he seeks to incubate governance models and grassroots community development. He is an ambassador of Set Protocol and the Director of Fitzner Blockchain Consulting where he authors a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.