Editor's Note: This article comes fromCurrency Bond(ID: BitBond007), Author: Agent Lizhi, reproduced by Odaily with authorization.
Editor's Note: This article comes fromCurrency Bond(ID: BitBond007), Author: Agent Lizhi, reproduced by Odaily with authorization.
I talked to you before,
The stable currency DAI issued on Ethereum, as a low-leverage loan method, is more cost-effective than the high-interest USDT loan.Recently, there has been another storm in USDT, and the price of the currency has fallen, which has hit the confidence of many investors, but DAI also has risks. Let’s talk about how to mortgage DAI with ETH and its governance mechanism.DAI is a stablecoin that circulates on the Ethereum network and is pegged 1:1 to the US dollar. The biggest difference between DAI and most stablecoins is that smart contracts ensure that there is sufficient collateral behind DAI, rather than third-party institutions such as banks. Also, DAI is mortgaged by ETH, which is a virtual asset, instead of USD as mortgaged by USDT.
USDT is a stablecoin mechanism that mortgages U.S. dollars and redeems U.S. dollars with it, which is easy to understand. But the margin behind it is opaque, once
lead to currency price instability.
The decentralized stablecoin DAI can indeed display collateral assets openly and transparently, and can maintain a 1:1 anchor with the US dollar with ETH collateral, so it is necessary to design a perfect solution.
Maker is a smart contract platform. Through this platform, users create a smart contract called Collateralized Debt Positions (CDP), enter the mortgaged assets (ETH) and the desired amount of DAI, and generate equivalent debts in the CDP. The mortgage lending process is complete.
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Maker interface, the collateral asset is ETH
Redeeming assets is also very simple. After repaying the debt (borrowed DAI) and stability fee (similar to interest), the collateral can be retrieved through the Maker platform, and the returned DAI will be destroyed at the same time, and the CDP will be closed.
It seems that as long as there is ETH collateral, the stable currency DAI can be swapped out. However, in this process, ETH is first replaced with WETH (wrapped ETH) in the form of ERC20, and then mortgaged into PETH (pooled ETH). The mortgager finally mortgages PETH, and when the DAI is repaid, the CDP is closed and returned to the user. Also PETH. It is very easy to switch between ETH, WETH, and PETH, so there is no need to worry about this.
In order to ensure that there is sufficient ETH mortgage behind DAI, the exchange rate between PETH and DAI is not 1:1, but 1.5:1, that is, the mortgage rate is 150%. $300 worth of ETH can be exchanged for up to $200 worth of DAI, although this ratio may change in the future.
If the price of ETH falls and falls below the 150% mortgage rate, and the borrower does not add PETH mortgage or repay part of DAI, the contract will start the liquidation mode. The PETH previously mortgaged by the borrower will be auctioned, and anyone can use DAI to purchase the auctioned PETH. These groups that buy PETH at the time of liquidation are called Keepers, which can be understood as people who maintain the system.
There is room for arbitrage. In order to encourage Keepers, the auctioned PETH will give them a 3% price reduction.
For example, a person who needs a loan mortgages 1 PETH (worth $150) for 100 DAI, but the price of ETH drops the next day and becomes $140. The mortgage rate of 140% has fallen below the red line of 150%. He did not add any more margin or repay the DAI. The CDP contract started the liquidation mode, and the mortgaged 1 PETH was auctioned on the market.
In order to encourage Keepers who help liquidate, this PETH will be sold at a price of 135.8 (140-140*3%) DAI. After the contract receives DAI, it is destroyed, the CDP is closed, and the mortgage loan process is completed.
Previously, Bond told everyone about the risk-free arbitrage method of moving bricks. If Keepers has a bottom position in the exchange, they can buy PETH at a price lower than the market price of 3% and sell the ETH in the exchange at the same time, and the entire arbitrage can be completed. In the process, a fixed price difference of 3% can be said to be very cost-effective.
This process may lead to a more serious consequence. Arbitrageurs buy the liquidated PETH and then sell it on the exchange, and the price of Ethereum will fall further. There will be more CDPs to start liquidation, like a snowball, until the mortgage rate behind DAI is less than 100%. If there is not enough ETH funds to support DAI and the US dollar anchor, DAI will collapse.
Of course, this possibility is very small, because the ETH locked on DAI currently only accounts for 2% of the circulation, and even if all of them are smashed now, it will not introduce a huge price change, but in case the market share increases in the future, 10%, 50% will how?
If there is a black swan event in which Ethereum plummets, the Maker platform also has countermeasures, which will trigger global liquidation. All CDPs are closed and MKR holders will redeem DAI.
Maker is a decentralized platform, and its operations are completed through smart contracts. There is no need to consider the risk of the development team taking money and running away, but the risk of smart contracts being hacked should be considered. After all, there are many precedents.
Since it is a decentralized platform, there is a problem of governance. Maker also has the token MKR, which is used to exercise voting power. For important decisions on Maker, MKR holders are required to vote, such as modifying risk parameters (stability fee, liquidation ratio, penalty ratio, etc.), selecting a global liquidator, and so on. MKR has also been designed with some functions. For example, the stability fee is paid with MKR, so I won’t go into details here. Now MKR is mainly in the hands of the Maker Foundation, teams and institutions.
