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It's backed by volatile assets that can be wiped out in a flash crash and we all saw how well volatile asset backed securities work in 2008.
by polygamous_bat 4y ago
It's backed by volatile assets that can be wiped out in a flash crash and we all saw how well volatile asset backed securities work in 2008.
- whimsicalism 4y ago> volatile assets It's backed by a multi-collateral set of assets. If they drop below the vault threshold for over-collateralization, they will be automatically auctioned off.
- salawat 4y agoAuctioning causes price movement which can cascade. If markets were straightforward, economics would not be "tge Dismal Science".
- whimsicalism 4y agoWhich is why the auctions are triggered while eth still has considerable room to fall and also why Dai is multi-collateralized.
- FabHK 4y agoWhat process is in place to guarantee (!) that the price of the collateral does not gap down below the value required to secure the peg? You realise that a stop loss order sell order triggered when an asset hits 100, say, turns into a market order and might be executed at basically any value.
- whimsicalism 4y agoThere is no guarantee. We are talking about auctions so your discussion of different types of orders is irrelevant. if it dips below $1.45 in collateral for $1, the auctions will be triggered and Dai collateral will shift to USDC & RWA. If the price slips 50% before the auction bots can bid (it is close to instantaneous, so it would have to be an extremely fast crash of more than 50% - which I'm not sure we've ever seen in eth/btc), then you are shit out of luck. This is a risk. But it's not as big of a risk as the stupid reasons these other stablecoins have been failing.
- FabHK 4y agoGlad you see it: there is a risk. Note that to go from 1.45 to 1 is a drop of 31%.
- whimsicalism 4y agoDai is at 166% collateralization, so closer to 40%