DeFi
How the Bitcoin trading frenzy almost exhausted a vault in MakerDAO – DL News
- MakerDAO is considering a proposal to strengthen USDC support for its stablecoin DAI.
- Tuesday’s market volatility caused a surge in demand for DAI.
- The proposed measures, if approved, would only be temporary.
Bitcoin’s dizzying rise above $69,000 on Tuesday almost upended MakerDAO’s support. $4.3 billion DAI stablecoin.
Indeed, one of the Maker vaults containing collateral that backs DAI was minutes away from being sold out amid the frenzied market action.
MakerDAO’s PSM USDC was the vault in question. PSM, which stands for “peg stability module,” is a tool used by the protocol to create DAI in exchange for supported stablecoins such as USDC.
Ultimately, MakerDAO was able to adequately secure the vault with new USDC supply, but PSM reserves dwindled to less than $320 million, according to a governance body. job Friday by the DAO’s risk unit, BA Labs.
The DAO, or Decentralized Autonomous Organization, is currently considering an expedited proposal to make temporary changes to the protocol that will help the DeFi lender weather periods of excess demand for DAI, as was the case during Tuesday’s market volatility.
The situation is so pressing that the approved changes will be ratified by an executive vote rather than through the normal multi-step governance process.
DAI demand shock
Total DAI supply fell to $4.38 billion from $5 billion at the start of the week, data Makerburn shows.
This drop is mainly due to excessive minting of DAI by crypto traders who were looking to place optimistic bets on the price of Bitcoin.
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“The Bitcoin price surge has made PSM suffer because Maker guarantees a fixed borrowing rate,” said Pablo Veyrat, co-founder of stablecoin Angle Protocol. DL News.
“Anyone looking to purchase Bitcoin-USD at a fixed rate over time has an incentive to do so directly with Maker,” he said.
Traders were borrowing DAI from MakerDAO and switching directly to Bitcoin to profit from the rising BTC price. This depleted the MSP faster than it could be replenished.
USDC PSM is not Maker’s only USDC vault. The DeFi lender also has $1.1 billion worth of USDC on its books. real asset safesbut these funds cannot be redeemed quickly to cover any shortfall in MSP reserves.
A USDC depleted PSM could cause DAI to decouple from the US dollar, but Veyrat said this would only be temporary.
“It wouldn’t have been bad in the sense that it would have gone back to the peg and all the people who closed their Bitcoin for a long time would have had to buy back DAI – putting USDC in the PSM – and pay off their debt,” he said. declared Veyrat.
BA Labs proposal
The BA Labs proposal recommends four major temporary changes to the Maker protocol.
The first is to make it more attractive to save DAI rather than borrow it by increasing the interest rate. DAI savings rate, or DSR — interest paid to DAI holders who lock the stablecoin on the protocol — at 15% compared to the current rate of 5%.
In addition to raising rates for holding DAI, the proposal also calls for an increase in protocol stability fees for borrowing the stablecoin against accepted collateral. The manufacturer’s stability fee is the interest rate charged for borrowing DAI.
BA Labs said the measure was appropriate given that MakerDAO’s borrowing rate lagged behind its DeFi lending competitors whose rates have recently increased.
Other changes include adjusting the debt limit increase intervals from 24 hours to 12 hours. This would allow the protocol to more quickly accept more collateral to support DAI.
BA Labs also recommended reducing the time to approve governance actions after execution to 16 hours from the current 48 hours.
These changes would be temporary. If the DAO approves them, the protocol will return to its normal settings once the crypto market volatility passes.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. It covers DeFi and technology. To share tips or story information, please contact him at osato@dlnews.com.