UPDATE: MakerDAO “Hacker” Liquidated $8M in Ethereum, Can the Debt Auction Salvage MKR?

Maker DAO lost over 5.67 million DAI in liquidations on March 11 and 12 as the Ethereum markets gas prices rose to record highs. As the gas prices rose, there arose an opportunity for users of the platform to bit liquidated ETH for as little as zero DAI, causing a run on the account. New information shows that over a third of the liquidated amount was bought for a partly zero DAI tokens (for free) – a total of $8.3 million dollars.

Now Maker DAO, the autonomous governance council of Maker, wants to offer a new debt auction on Thursday, March 19, 2020 in a bid to recover the lost amount. With MKR suffering – in line with the rest of the market – can the debt auction restore the past glory of DeFi’s largest platform?

“Lucky users” liquidate over $8 million in ETH

While this story broke as it happened on Mar. 11 &12, the amount of Ethereum (ETH) liquidated for zero DAI has just been revealed by White Rabbit, a crypto research company. According to the research, the largest MKR vault lost 35,000 ETH at time of failure with the luckiest account making away with 30,000 ETH.

The rapid change in price when the gas prices had skyrocketed caused a lag between the actual price and the oracle price feeding the Maker platform. This caused spikes in the number of liquidations on the platform enabling users who noticed early to take advantage of the situation and make zero DAI auctions.

On the chart above, the number of liquidations spiked in two distinctive periods – around 3 PM UTC on Mar. 12 and midnight the next day. While the oracle price dipped around an hour prior, the intensive bidding process for zero DAI auctions caused the lag and in a way save more liquidations from happening.

The 100% discount bids (zero DAI bids) amounted to $8.32 million dollars, representing 36% of the total liquidations with 20% discount bids accounting for the second highest amount of ETH sold.

Maker DAO community has since announced they will be a planned Debt Auction of MKR in a bid to replace the liquidated amount this Thursday, on Mar. 19.

Will the Debt Auction save the Maker system?

Following the liquidation, Maker (MKR) price plummeted below the $200 mark, setting an intraday low of $188 USD on Mar. 13 from highs of $489 USD on Mar. 12. This highlights a loss of confidence in the Maker system with majority of the holder having to sell. However, the Maker DAO participants are looking at a safe option to recover the amount – through a Debt Auction.

The Debt Auction will involve minting of MKR tokens, whereby each token will start at a price of 200DAI with the minimum lot size set at 250 MKR (~$50,000 USD). Furthermore, the Maker system integrated the Circle’s USDC to boost liquidity on the platform and prevent future cases as what was witnessed last week.

With the two systems in place, Maker looks set to be back on a bullish vibe in the coming days.

Images from Medium (WhiteRabbit)