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- MakerDAO was able to raise $5 million in an auction to cover losses caused by a platform system failure on March 12, 2020.
- The investment firm Paradigm won 68% of the total saled MKR tokens.
MakerDAO will be able to cover its loss in the Ethereum DeFi sector after raising $5.3 million in an auction. MakerDAO sold tokens of the platform, MKR, to interested buyers. In addition, it was learned that about 20,000 MKR tokens were sold at an estimated price of $292.
MakerDAO’s losses occurred on March 12 when a drop in the crypto market and also for Bitcoin occured. A sudden drop in Ethereum’s price caused the platform to go into lockdown. As the price suddenly fell, numerous borrowers saw their collateralized debt positions (CDP) liquidated at 100% of their value. As one MakerDAO user explained, liquidations should have cost between 30% and 40% of the borrowed funds.
However, the rapid decline in ETH prices also affected the speed of the Ethereum network and caused congestion, which was at its highest level since November 2018. For this reason and due to the high gas price, the “keepers” did not participate in the auctions of MakerDAO. The system went into lockdown and the debt was produced.
Has trust been lost in Ethereum DeFi?
In the auction, the investment firm Paradigm won 72 of 106 bids from MKR. This represents 68% of the total auctioned and a return of 3.6 million Dai to the system, as stated by Paradigm. The second largest winner of the auction was the Maker Foundation which managed to win 33 of the rounds. In total, the two entities won 105 of the 106 bids in the auction. It is not known whether this result was caused by low participation in the event.
As a result of the failure that generated the losses, the Maker Foundation decided to implement some changes in the risk parameter of MakerDAO. The changes consisted of reducing the stability rates of Sai from 7.5% to 3.5% and reducing the stability rate of the Dai from 0.5% to 0%. The objective was to encourage users to use Dai and to regain stability in the token. Dai has struggled to maintain its parity with the dollar and has fallen below $1 since March 12, at least once.
For now, there are no indicators to show that MakerDAO has managed to regain the confidence lost by its users. Nor have any effective measures been put in place to provide guarantees that the March 12 failure will not be repeated. MakerDAO presented a failure in November 2019 when the CDPs were liquidated for more than $3 million. This second system failure has proven to be a major obstacle to MakerDAO’s operation and sustainability.
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