Amid the correction of the cryptocurrency market, seven large Vaults of the MakerDAO platform were under threat of liquidation. More than $600 million worth of ETH could get into the Dutch auction.
MakerDAO is an Ethereum-based smart contract platform that allows you to issue a DAI stablecoin against cryptoassets. The user sends some ETH or other tokens to a contract address that produces a commensurate emission of DAI. This system is called
The stability of DAI’s peg to the US dollar is provided by the liquidation mechanism. If the value of the Vault collateral falls below a certain threshold, which is determined by
liquidation ratio, assets are automatically auctioned to cover funds in DAI. On the Ethereum hourly bar for January 22, 01:00 (UTC), there was a drawdown of quotes to $2,500 (on the Binance cryptocurrency exchange). This was below the liquidation price set for seven Vaults with a combined $630 million in collateral.
Hourly chart of ETH/USDT on the Binance exchange. Data: Trading View.
MakerDAO users can lower the liquidation price by posting additional collateral or returning DAI to the Vault. This can be done even after the price reaches a critical point, since the protocol sends assets to the auction with about a thirty-minute delay.
According to Rune Christensen, founder of MakerDAO, Vaults owners contributed additional collateral by saving six of the seven vaults. One of them did go through liquidation — 28,048 ETH (~$65 million) were sold at the auction, which took place at approximately 2:00 a.m. (UTC).
Makerburn, the auction lasted 49 minutes. According to Trading View, during this period, there was a drawdown in the price of Ethereum to $2403. This indicates that the sale of ETH at the MakerDAO auction put pressure on the asset quotes.
At the time of writing, Ethereum is trading near $2,500. According to
Block Analytics, there are currently no Vaults at risk on the MakerDAO platform.
DeFi Llama, MakerDAO is the second largest smart contract locked (TVL) DeFi protocol with $14.63 billion.
Recall that at the end of 2020, the head of B.Protocol, Yaron Velner, discovered an exploit in the MakerDAO protocol to avoid forced liquidation.