BLOG UPDATE:

The Executive Vote is now live at vote.makerdao.com with adjusted parameters. See parameters at bottom of post.

Summary:

On March 12, ETH saw a dramatic drop in price, losing 30% value in approximately 24 hours. This, plus a rapid increase in gas prices put stress on the Maker Protocol, the community, the Maker Foundation, and the Ethereum DeFi ecosystem as a whole. 

These circumstances allowed some Keepers to bid close to 0 Dai for batches of 50 ETH collateral. With $4.5M in liquidations, there was an opportunity for numerous Keepers to participate in auctions and keep the system stable. Keepers play a critical role in maintaining the health of the system and Dai stability; both MakerDAO and the Maker Foundation hope to see more Keepers enter the system, and participate, in the future. Such a development would increase the health and function of the Protocol.

Oracles

During the ETH price crash, a Maker oracle was slow to provide the most current price. While this was unintentional, it had the knock-on effect of actually helping Maker Vaults remain overcollateralized, giving some users enough time to add collateral to avoid liquidation. However, the specifics regarding the issue of the price feed delay itself are still under investigation and will be shared and addressed as soon as possible. 

Next Steps: Adjust Parameters  

The current state of the Maker Protocol is healthy. However, while there was no hack, no bug, and no Emergency Shutdown planned, modifications need to be made. Accordingly, the MakerDAO community will hold an executive vote on Friday, March 13, to adjust parameters to help ensure a similar situation doesn’t happen again. Details of the proposed adjustments are below, with a focus on auction parameters and restoring the Dai peg closer to 1 USD. 

Re-collateralization

Per the whitepaper, the Protocol will mint and sell MKR to re-collateralize the system:

If the Collateral Auction does not raise enough Dai to cover the Vault’s outstanding obligation, the deficit is converted into Protocol debt. Protocol debt is covered by the Dai in the Maker Buffer. If there is not enough Dai in the Buffer, the Protocol triggers a Debt Auction. During a Debt Auction, MKR is minted by the system (increasing the amount of MKR in circulation), and then sold to bidders for Dai.

Our Resilience Was Tested

Today’s activities tested the Maker Protocol and the people who use and support it. The community successfully navigated a brutal storm of external realities, which included rapid devaluation of collateral and a spike in gas prices. The events ultimately showcase the critical importance of an entire community coming together to monitor and protect the system as it decentralizes. 

The community and the Maker Foundation came together today to monitor, assess, and address the situation as it was unfolding. Thank you all for reaffirming your passion for Maker and the stability of the Protocol. Together, MakerDAO, the Maker Foundation and the community as a whole we will continue to monitor the health of the Maker Protocol and the Ethereum ecosystem. 

Additional Resources

The forum discussion on parameter changes can be found here. 

The proposed changes can be found below. MKR holders can vote now here. 

Proposed Parameter changes:

• Lower the Sai Stability Fee 2% to 7.5%
• Lower the Dai Stability Fee 4% to 4%
• Keep the Dai Savings Rate Spread at 0%
  • Note: This will set the DSR to 4%
• Lower the Migration Contract Debt Ceiling 20M to 10M
• Lower the SCD debt ceiling 5M to 25M
• Lower the MCD debt ceiling 50M to 100M
• Set the Global MCD debt ceiling 113M
• Raise the Flip auction TTL from 10 minutes to 6 hours
• Raise the Flip auction lot size from 50 ETH to 500 ETH
• Lower the Flip auction maximum duration from 3 days to 6 hours
• Raise the Flop auction TTL from 10 minutes to 6 hours
• Raise the Debt Auction Delay from 48 hours to 6.5 days

The change in the TTL for the flip and flop auction parameters are designed to give keepers any additional time needed to overcome network issues such as the ones seen this morning. The increase in lot size will also lower the amount of auctions (and, thus, transactions) that will need to take place. A significantly lengthened TTL means that the auctions are likely to reach the maximum duration. A lower maximum duration would help counteract long auctions.

These options will allow the community to reduce the impact of an additional market downturn while it has the opportunity to continue to debate further, more refined solutions, in the coming weeks.