MakerDAO founder lays down next steps to prevent another meltdown

MakerDAO founder lays down next steps to prevent another meltdown

Rune Christensen, the founder of MakerDAO, has laid down steps that the platform will take in order to prevent another meltdown.

According to Christensen, MakerDAO already established measures to help the protocol weather unexpected events such as the notorious “Black Thursday.”

Black Thursday event addressed

MakerDAO experienced a meltdown last March 12 when cryptocurrency prices crashed and triggered a massive liquidation of the suddenly undercollateralized DAI in the protocol.

With the liquidations on-going, network congestion and increased gas prices made it difficult for keepers and MKR holders to participate in the liquidation auctions.

This led to an event where there were some lucky few who were able to take advantage of the situation and won liquidation auctions with almost zero DAI in return.

Had the DAI been backed by a more diverse collateral asset type, the impact on the protocol could have been much less.

According to Christensen, it has been decided by the MakerDAO governance to extend auction duration to six hours.

This will allow more users to participate in liquidation auctions, especially when network congestion makes it difficult for them to do so.

Market crash

New collateral types entertained to back the DAI

Christensen also said that they are adopting a stablecoin like the USDC as a new collateral to back and strengthen DAI.

With USDC as an alternative to hedge DAI, it can become less vulnerable to the price changes of Ethereum (ETH). He added:

“You can’t just rely on decentralized assets that all have essentially the same business models which used to be to run on a blockchain transaction network.”

According to Christensen, it is important to entertain the addition of new assets for collateralization in order to add stability to the protocol.

It would help if these assets are backed by real-world assets and not completely reliant on digital assets that can be volatile at times.

Christensen noted that the goal of this new initiative is to invite partnerships with more real assets from different custodians located in different jurisdictions.

If such a partnership leads to the inclusion of more real assets from different sources to back the protocol, then it is “not too exposed to one particular political or legal system.”

MakerDAO hints at merger of DeFi and centralized finance

He also hinted at a possible merger of decentralized finance (DeFi) and centralized finance. A merger between the two is not far from possible, Christensen added.

DeFi and centralized finance protocols can work together by connecting users to different custodians. The custodians will then interact with the DeFi network for the users. He further expounds:

“What’s currently known as CIFi will become the front end and sort of the access points to the various DeFI protocols […] You will have a custodian that you trust and then that custodian interacts with the DeFi protocols for you.”

Images courtesy of Jack Moreh/Stockvault, Jack Moreh/Stockvault

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