MakerDAO, the popular DeFi dapp and the face of the burgeoning industry, is tweaking the terms of MKR, the dapp’s native currency, auction to reduce token dilution and to protect its price from being hurt in the current crisis.
MakerDAO (MKR) Prices Tanked to below $200
Maker is based on Ethereum and last week, ETH prices sunk by over 40% forcing Maker’s smart contracts to liquidate DAI loans and auction Ethereum (ETH) collateral.
The result was a cascade that saw the price of MKR tokens free fall.
To quantify, its price plunged to new 2020 lows, the lowest level it has ever trended in thanks in part to Ethereum’s vulnerabilities and a congestion exploit, which ended up affecting ETH auction.
Ethereum Congestion and the Bids Exploit
As previously reported by CoinGape, at the height of the ETH price slump of last week, the network was temporarily congested. Taking advantage of this congestion were users who placed zero bids for liquidated ETH collateral.
Although Maker automates the process, only accepting higher bids for collateral and reimbursement to the liquidate vaults, the congestion meant the network lost almost $4 million of ETH because of zero bids.
The affected vaults, as designed in such extreme cases, are now supposed to be reimbursed and MakerDAO is faced with a hard choice.
Decisions, Decisions, Decisions
It is a hard decision, a move that is already back-fired even though the auction price of nearly minted MKR has been set at $200.
Setting the opening bid at $200/MKR is a pretty bold move. Imagine if the market organically goes against them and no one bids. More loss of confidence, more manual interventions, etc. https://t.co/uNh2vGE8vh
— Kevin Davis (@KevinJYDavis) March 15, 2020
MKR spot price is at $169 and projected to fall because of the expected dilution and falling ETH prices.
The dilution will flood the market with newly minted MKR and if supply and demand dynamics kick in, MKR will be marked down, adversely consequently affecting price despite the “set” auction price.
But there is more, not only is the MakerDAO Foundation accused of setting auction prices but for delaying the auction. MKR token auction was supposed to be held within 24-48 hours after last week’s exploit.
“I just learned that the core MKR flop auction mechanics were changed much more drastically than I realized. MKR governance is able to set the starting price directly as well as the delay. The auction should have kicked off 2 days ago and cleared with organic price discovery.”
I just learned that the core MKR flop auction mechanics were changed much more drastically than I realized. MKR governance is able to set the starting price directly as well as the delay. The auction should have kicked off 2 days ago and cleared with organic price discovery.
— nikolai.jpeg (@nmushegian) March 14, 2020
As the MKR price falls, the appetite for new loans will reduce while the demand for DAI should surge as people exit.
At the time of press, DAI was trading at $1.03 against the USD.