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Maker publishes report post ‘Black Thursday’ Crash – New Safeguards recommended

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Last month, popular lending platform Maker (MKR), one of the earliest Ethereum projects and the dominant leader responsible for nearly 51% of the value locked within the lending sector, took massive damages during the ‘Black Thursday’ crash that saw loses close to $5 million.

The Ethereum network was under heavy load, as investors hurried towards exchanges to liquidate. This resulted in a glitch in MakerDao’s oracle that it uses for price feeds. Oracles could not send accurate price data, and traders could not execute trades without paying high gas fees to record transactions onto the blockchain.

The mass transaction action was due to Ethereum’s 30% drop in less than 24 hours. The steep drop caused a large volume of loans to drop below their collateralization threshold, which triggered liquidation proceedings.

Now, MakerDao has published a report authored by ‘MakerMan’ that discusses the entire timeline of events during the massive crash and various recommendations about how it can be avoided in the future. The report states that there were intangible costs involved:

“This event was not only costly to vault holders, but was to the Maker system as well, in capital costs, system confidence and Maker reputation generally.” 

Due to the high congestion in the Ethereum network, some liquidators were able to win the auction offering a 0 DAI bid, due to a total lack of competition. This resulted in $6.65 million in collateralized debt. Users were unable to participate in auctions, resulting in a single bidder winning nearly 62,843 ETH for virtually zero DAI across 1,461 auctions.

Maker has since then been conducting debt auctions, aimed to programmatically mint and sell MKR tokens in 50,000 DAI increments to use the funds raised to cover outstanding bad debt. The auctions raised more than 5 million DAI, and Venture fund Paradigm Capital won 68% of the auctioned MKR.

Future Safeguards

As of now, the report highlights various changes brought about within the Maker ecosystem that would help prevent future Crises for the protocol. The governance system for Maker can now “instantly halt the auction system.” This will prevent scenarios where collateralized debt positions are sold for 0 DAI.

Other changes have been made to the auction parameters that allow better performance for the auction system. Furthermore, popular stablecoin USD Coin (USDC) has also been added as a new collateral type. The Maker community has also created web interfaces to increase participation in auctions.

The report also suggests that more safeguards should be put in place that would restart auctions if there are less than three bids and two unique bidders. A 50 ETH limit is also suggested for each auction lot, and the creation of a Maker liquidation Dashboard is also requested.

Turmoil in Defi market

This year has seen multiple attacks on several DeFi platforms with some resulting in huge losses. As previously reported by The Daily Chain, a hack of dForce, a Multicoin Capital-backed Chinese language decentralized finance (DeFi) protocol, saw $25 million stolen, nearly cleaning out the accounts of the platform. The funds were later returned by the hackers.

Prior to this, major popular decentralized lending protocol bZx lost more than $900,000 to two consecutive hacks.

Factom-based stablecoin network PegNet underwent a 51% attack that allowed the perpetrator to mint $6.7 million worth of the dollar-pegged stablecoin pUSD. What’s more concerning is the fact that it took just 4 miners to collectively control 70% of the network’s hashrate on April 22.

Anna Larsen
Anna Larsen has been a Crypto enthusiast since 2016. Fascinated by the technology and its usecases she decided to pursue a career in content creation related to this space. The journey has been exciting ever since.

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