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It's not even worse. MakerDAO (creators of DAI) is a solid protocol. DAI is backed by collateralized debt position with automated liquidations. if the value of

It's not even worse. MakerDAO (creators of DAI) is a solid protocol. DAI is backed by collateralized debt position with automated liquidations. if the value of a CDP holders assets drop below a threshold, they get liquidated automatically. DAI was born in 2017 when ETH was $1450 and survived the drawdown to $80. If you put in $3K of ETH and borrow $1500, then your ETH collateral falls to 150% of your loan ($2275), you will get liquidated, and your collateral will be sold immediately to pay your debt. These mechanics are fully on-chain and fully automated by keepers (a liquidation can be triggered by anyone and they earn penalty fees for doing so). The system is not without risks, but those are well known to all.

blitzar 4y ago
You are right it is not worse, because the protocol is known, flaws and all, and not just one guy sending his personal account 50mil every day because its a bull market and they can get away with it or cashing out whales while regular joe gets 1 cent in the dollar.
vlovich123 4y ago
Something doesn't make sense to me here. If it's automatically liquidating but ALSO it's the thing propping up a bunch of cryptocurrencies, it feels like there's a crash that's inevitable here. As the value drops, it sells automatically, which drops the value further, which causes more sell-off. What's stopping that from happening?
- chrisco255 4y ago
  It's not the thing propping up crypto prices. DAI is relatively small ($6.5B mcap), DAI is also partly backed by USDC [1], which is backed by cash and US government bonds (held at Circle) so it would be extremely difficult for DAI to lose collateral backing faster than keepers could liquidate positions. Does DAI have an influence on the $1T crypto industry? Of course, but its liquidity pales in comparison to USDC, USDT, and BUSD (~$100B between them). If the market is crashing, it's doubtful DAI is the culprit (as it's actually a solid, battle-tested protocol that already lived through the Covid crash and '18 and '19 severe drawdown and many other trying market scenarios). But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market. [1] https://daistats.com/#/ https://daistats.com/#/

blitzar 4y ago

You are right it is not worse, because the protocol is known, flaws and all, and not just one guy sending his personal account 50mil every day because its a bull market and they can get away with it or cashing out whales while regular joe gets 1 cent in the dollar.

vlovich123 4y ago

Something doesn't make sense to me here. If it's automatically liquidating but ALSO it's the thing propping up a bunch of cryptocurrencies, it feels like there's a crash that's inevitable here. As the value drops, it sells automatically, which drops the value further, which causes more sell-off. What's stopping that from happening?

chrisco255 4y ago
It's not the thing propping up crypto prices. DAI is relatively small ($6.5B mcap), DAI is also partly backed by USDC [1], which is backed by cash and US government bonds (held at Circle) so it would be extremely difficult for DAI to lose collateral backing faster than keepers could liquidate positions. Does DAI have an influence on the $1T crypto industry? Of course, but its liquidity pales in comparison to USDC, USDT, and BUSD (~$100B between them). If the market is crashing, it's doubtful DAI is the culprit (as it's actually a solid, battle-tested protocol that already lived through the Covid crash and '18 and '19 severe drawdown and many other trying market scenarios). But what you say is true of all debt markets. Debt has an inflating effect on the price, and when those debts get wiped off from liquidations, it can have a cascading affect in the opposite direction from that on the way up. That is precisely what happened to the real estate market in '08. People didn't think the real estate market could go down in terms of price. And yet, it did, and we had a major financial crisis as a result as real estate prices drew down 50% or more in some areas and foreclosure supply flooded the market. [1] https://daistats.com/#/ https://daistats.com/#/