Introduction to Auctions and Keepers in Multi-Collateral Dai

17 July 2019

Late last month, we published Multi-Collateral Dai (MCD): Milestones Roadmap, in which we not only listed the milestones that must be achieved before MCD goes live, but also promised to provide materials that will help everyone in the Maker community better understand MCD system operations. Today, we begin to deliver on the latter by presenting documentation on Auctions and Keepers—two critical elements of the Maker Protocol.

Whether you’re an MKR holder that actively participates in the governance of the system, someone interested in opening a Collateralized Debt Position (CDP), a Dai user that depends on the stability of the system, or a blockchain enthusiast that wants to contribute to Maker’s decentralized system, it is important to understand how Auctions work and what role they and Keepers play in maintaining system balance.

Stewards of Stability

The Maker Protocol, which powers MCD, is a smart contract system that backs and stabilizes the value of Dai through a dynamic combination of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and appropriately incentivized external actors. To keep the system in a stable financial state, it is important to prevent both debt and surplus from building beyond certain points. 

Auctions and Keepers do just that.

Briefly stated, if the collateral value of a CDP falls below a certain limit, that CDP is deemed risky and is automatically liquidated. Liquidations are handled by Auctions. There are three types of Auctions in the system: Surplus Auctions, Debt Auctions, and Collateral Auctions, each triggered as a result of specific circumstances. 

Keepers are independent (usually automated, rather than human) actors that are incentivized by profit opportunities to contribute to decentralized systems. In the context of Multi-Collateral Dai, Keepers participate as bidders in the Debt Auctions and Collateral Auctions when CDPs are liquidated. They can also perform other functions, including trading Dai motivated by the expected long-term convergence toward the Target Price.

Dig In

As noted earlier, people choose to interact with the Maker system for a variety of reasons. But, regardless of reasoning, all users have one interest in common: system stability. And it’s because of that interest we invite you to dig deeper into the role of Keepers and the Auction parameters and their mechanisms: Read Auctions and Keepers in Multi-Collateral Dai.

To participate in community discussion and debate about MCD and all things Maker, join the new MakerDAO Forum.

17 July 2019