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There's not really a death spiral mechanism for DAI. DAI's reserves are all auditable and on-chain. Anyone can verify if it is or isn't overcollatoralised at an
by shawabawa3 4y ago
There's not really a death spiral mechanism for DAI. DAI's reserves are all auditable and on-chain. Anyone can verify if it is or isn't overcollatoralised at any time.
Theoretically a big enough crash could cause the collateral to drop faster than liquidations happened, and that could cause a run on DAI to cash out the collateral that's left before it runs out
- scotty79 4y agoWhat if ETH would start dropping towards 1$/ETH for some unrelated reason? Would DAI be able to defend peg or also fall and accelerate fall of ETH? People wanting to withdraw their ETH from collateral would need to get DAI on the market to pay back the collateralize DAI loan to get their ETH before it's liquidated. This should initially drive DAI over 1$ peg. Would liquidating loans drive down ETH further? What exactly happens to ETH form liquidate loans? Is it sold? Is it burned? Does it happen automatically or is decided by owners of Maker token?
- Stevvo 4y agoDAI has been backed by a basket of coins for quite some time now, precisely to mitigate the scenario you described. Even if ETH went to near zero it would still be over 100% collateralised.
- shawabawa3 4y agoI'm not sure 100% how the liquidation method works for DAI so not completely sure, but DAI is not backed by 100% ETH, in fact i think most of the backing is actually USDC at the moment