Editor's Note: This article comes fromHoneycomb Finance News (ID: fengchao-caijing), Author: Hoho, reprinted by Odaily with authorization.
Editor's Note: This article comes from
Honeycomb Finance News (ID: fengchao-caijing)
Honeycomb Finance News (ID: fengchao-caijing)
, Author: Hoho, reprinted by Odaily with authorization.
When DeFi encountered a sharp drop in the currency market, this open financial tool failed to withstand the pressure brought by the extreme market.
On the afternoon of March 12, Bitcoin plunged, with a short-term drop of 34%. According to Debank.com data, on March 13, the total liquidation amount on the DeFi platform reached 5.24 million US dollars, and the cumulative liquidation amount of the previous day was nearly 30 million US dollars.
Network congestion has brought about a chain reaction. Some decentralized trading platforms have experienced matching delays, and some decentralized mortgage platforms have taken advantage of the fire. On March 13, MakerDAO, a mortgage lending platform built on Ethereum—the provider of the stablecoin Dai—did an auction of Dai’s ETH collateral, due to network delays and the absence of a large number of bidders, someone won with a bid of 0 Dai. A lot of ETH.
The open financial DeFi platforms that began to appear on a large scale last year have undergone a super test in this extreme market. The emergence of a series of problems began to make operators re-examine the risk control measures of the decentralized financial system.
From March 12th to 13th, the DeFi trading protocol dYdX raised the minimum network transaction volume twice to improve the matching efficiency among users; MakerDAO launched a series of risk control proposals on the evening of March 15th.
Advocating the decentralized governance system of the free market may also start thinking about active regulation to prevent financial risks.
The DeFi ecosystem liquidated 30 million US dollars in two days
From 18:00 on March 12, Bitcoin fell from $7,300 to $5,500 for a short period of time. At 7:00 on the 13th, Bitcoin went down again, once falling to $3,800. It has fallen 62% from this year's high of $10,000. Mainstream digital assets such as Ethereum and EOS also recorded the largest decline this year.
With the market plummeting, the DeFi financial market relying on the Ethereum and EOS public chain networks has entered a wave of liquidation. According to the rules of most DeFi mortgage lending products, when the main network assets ETH or EOS drop sharply, the liquidation means that the digital assets previously mortgaged by users on the DeFi platform will be forcibly returned to the platform; if some users are unable to repay, the platform will have bad debts .
The data shows that on the 12th alone, the total amount of DeFi platforms that should be liquidated on that day exceeded 23 million U.S. dollars, and multiple DeFi platforms experienced large-scale liquidations, among which MakerDao’s liquidation amount was 10.21 million U.S. dollars, accounting for about 44% of the total DeFi liquidation amount; Compound’s liquidation amount is US$6.2 million, ranking second; dYdx’s liquidation amount is about US$4.48 million.
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The DeFi ecosystem liquidated 30 million US dollars in two days
Taking MakerDao as an example, it issued the stablecoin Dai with multi-asset collateral through smart contracts running on the Ethereum blockchain. Based on collateralized loans (CDP) and decentralized governance services, users can issue Dai under the decentralized system, and freely perform operations such as mortgage and redemption of assets.
Dai is a stablecoin anchored 1:1 to the price of the US dollar. It is currently the stablecoin with the largest market value in the DeFi ecosystem. Holders can use Dai to conduct DeFi financial management to obtain income, such as deposits, borrowing and other financial operations.
After the liquidation process was triggered, MakerDAO held a mortgage auction on March 13, and users could bid to obtain Dai’s ETH collateral. The winner of the auction will receive a discount of at least 3% on the collateral price, and the Dai raised by the platform will be used to repay bad debts on the network.
The drop in ETH also caused the price of Dai to "unhook". According to Bitfinex data, the price of Dai rose to as high as $1.24 on the 13th, with a premium of 24%. At press time, its price was back to normal levels around $1.
MakerDao auctions "overturned car" against debt
Ethereum is currently the main public chain network for DeFi platforms to build applications. When DeFi applications are liquidated on a large scale, network congestion is aggravated.
According to DApp Total data, at 9:00 pm on March 12, the one-hour transaction fee on the Ethereum network reached 355 ETH, which was 15 times higher than the 24.19 ETH transaction fee at the same time a day ago.
At the same time, the number of pending confirmation transactions on the Ethereum network also doubled. The Ethereum browser etherscan.io shows that on the night of the plunge, the highest number of transactions pending confirmation reached 123,661, and it was not relieved until two days later. As of press time, there are 19,824 pending transactions on Ethereum.
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ETH network fees soared for a short time
On the Ethereum network, a certain gas fee is required to be paid. This fee is like a handling fee, and is finally paid to the miners in the form of ETH. Therefore, when the network is congested, users can choose to pay higher fees in order to complete their transactions faster.
Some people in the industry pointed out that aside from the performance of the public chain, a large part of the Ethereum network congestion is due to the liquidation wave in the DeFi ecosystem.
According to MakerDao's system requirements, users need to use excess assets as collateral to obtain Dai. Therefore, when the price of the mortgaged assets falls, the user needs to replenish the mortgaged assets in time to meet the "excess" condition, otherwise, the collateral will be forcibly taken away by the platform, and finally auctioned by the system, and the user can use Dai to pay for these mortgaged assets. assets at auction. After the system recovers Dai, it will supply market demand. This is also the mechanism for Dai to issue and maintain the anchor price.
On March 13, when MakerDAO conducted the first auction of ETH mortgage assets after the market crash, due to the lack of bidders, some liquidators won ETH with a bid of 0 Dai.
In this regard, Matteo Leibowitz, a research analyst at The Block, believes that under normal circumstances, when the MakerDAO platform generates mortgage liquidation and enters the auction link, the system will let the built-in liquidation robot make a reasonable bid. However, on the day of the slump, due to the users of the Ethereum network, the liquidation robots did not increase the Gas fee accordingly. The method of increasing the handling fee can be verified quickly, and it is possible to succeed in the auction with a bid of 0 DAI.
According to MakerDAO official news, the auction caused a total debt of more than 4 million US dollars to the system. As of press time, MakerDAO has not responded to the specific reasons for the debt.
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Two DeFi applications increase intervention and anti-risk
After the price of ETH plummeted, the Ethereum network was congested, the handling fee was high, and DEX matching was delayed. These old problems in the past have not been solved. From last year's popularity to this year's DeFi application, it has added new troubles to this centralized network——Waterfall Market Under the circumstances, the open financial products built on the Ethereum network experienced large-scale debt liquidation and fell into a financial crisis.
The developers and operators of DeFi financial products have to join in "artificial" regulation.
On the evening of March 12, Antonio Juliano, the founder of the decentralized contract trading protocol dYdX, took emergency measures on Twitter, announcing that the minimum transaction volume on dYdX would be increased from 5ETH/1000 DAI to 10 ETH/2000 DAI; users The position is closed unchanged, that is, there is no trading volume limit, and the stop loss point continues to operate normally.
Increasing the minimum transaction volume means an increase in network handling fees, which can be regarded as temporarily relieving the pressure on the agreement’s matching delay.
But this temporary adjustment will expire in less than 12 hours. Because the price of ETH plunged again on the morning of the 13th, the minimum transaction volume on dYdX was also raised again to 25ETH/5000DAI.
MakerDAO also started to address the risks. On the evening of March 15th, the risk team of the Maker Foundation launched a series of proposals, including reducing the deposit rate of Dai to 0 and the borrowing rate to 0.5%, so as to increase the market circulation of Dai and prevent a large premium. In addition, a fuse mechanism has been added to the collateral auction to prevent the recurrence of the accident of obtaining the collateral at no cost.
The proposal was passed on the same day and came into effect 24 hours later.
The developers and operators of DeFi have been "mining" through temporary measures, and the concept of open finance has further weakened the absoluteness of "decentralization" due to this crisis.
"When the extreme market comes, the decentralized adjustment mechanism of DeFi applications has not been effectively verified, and human intervention is ultimately inseparable." Some investors lamented.
