DeFi Project MakerDAO could experience an emergency shutdown after Ethereum loses 30%, CoinDesk has reported citing project representatives.
As a result of the sharp decline in the price of the second largest cryptocurrency by market cap, $4M of its stablecoin Dai are not backed by their underlying crypto asset. If MakerDAO eventually experiences a shutdown, 2,4 million ETHs might arrive to the market.
The Maker protocol works by creating loans with the stablecoin Dai that use as collateral the ETH or BAT tokens users upload to the platform. Maker automatically sells the collaterals when the market drops in order to get the Dai off the market until the system hits its 150% collateral target. However, ETH price has fallen so sharply and unexpectedly that MakerDAO has been unable to sell the collaterals on time.
The total dollar value in crypto locked in DeFi protocols plummeted by 20% in just one day. At the same time, the total amount of Ethereum in the ecosystem increased by 200,000 ETHs, probably because users are making new deposits to avoid a liquidation.
At the moment, both the Maker Foundation and MKR governance token owners are looking for a solution to the current situation. Some of the options that are being considered are to cut down Dai's savings rate, to extend the length of time for liquidation auctions and an emergency shutdown. It must be noted this last option involves a system reboot.
If the emergency shutdown eventually takes place, new CDPs will be frozen, auctions will finalize and the remaining Dai tokens could be redeemed for ETH at a fixed price set at the time of the shutdown.
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