Right guys, here’s the thread where we discuss and figure out what we are doing, and when we are doing it.

We need to decide the following:

What are we doing?

When are we doing it?

Are we happy to ignore the regularly scheduled polls this week?

Do we want to consider triggering Emergency Shutdown in the short term?

I would like to see as many short-term options suggested and discussed as possible, I will collate these, and will be responding on this thread until we actually decide on something (via forum poll). Once we have the options together, we will start forum polling on what we want to do and what we don’t.

It would also be fantastic if someone can do a writeup of the situation that I can include in this initial post so that everyone knows what is going on.

At that point, we can take the consensus options and present them to the Foundation for inclusion in an executive.

Link to ongoing call - Note that there is a 100 participant limit and we are running into it every now and again.

Summary of the Situation

Courtesy of @silto - Thank you!

During the ETH price crash, some Vaults (containing ETH as collateral to mint DAI) became undercollateralized (under 150% collateral). Since the oracle ETH price fed to MakerDAO came under those vault’s collateralization limit, they became available for liquidation. Liquidations are triggered by users calling the contract, which starts an auction for the ETH from the vault. The auctions is used to raise DAI to reimburse the liquidated vault’s debt. In normal operation, user (named “keepers”) compete for this auction, and the winning bid is paid (in DAI) in exchange for the ETH in the vault. The DAI is then burned, the debt erased, and if some ETH is left, it is returned to the vault’s owner.

What happened today is that during the big drop in ETH price, a lot of vaults became available for liquidation, at the same time as the Ethereum network became clogged with lots of transactions, leading to a sharp rise in gas price. This confluence of circumstances led to keepers either stoping their activity for fear of slippage (price dropping fast + transactions taking a long time to validate) and for lack of liquidity to absorb all those liquidations. This lead to a situation where only one keeper continued triggering liquidations, and bidding 0$ for the ETH, with no competition. This situation lasted around 2/3hours, before other keepers came in and resumed normal operation.

As a consequence, some vaults where liquidated with 0 DAI coming back in the system, resulting in a net loss for the system. The MakerDAO had a +500k$ surplus before the price drop, and now has a -4M$ surplus that needs to be filled. The protocol covers this issue, the solution being to trigger an MKR mint and auction, the DAI raised being used to fill the surplus debt. During normal operation, MKR is burned when debt from vaults is reimbursed, this would be the opposite mechanism.

In order to avoid a 0$ bid from winning a liquidation auction (which was possible because of a short auction timeout - 10mins -, the biggest bid wins the auction if no other bid covers it) the Maker team is currently discussing the possible solutions.

Summary of the Call

Media should email [email protected] An emergency shutdown (not happening now) would cause DAI holders to take a haircut, whereas the social contract of MakerDAO is that MKR tokens take a haircut in the event of system failure. Therefore we should try and ensure that MKR holders take a hair cut by avoiding emergency shutdown if possible. I heard that emergency shutdown is not being considered as an immediate option. MKR buyers should prepare for a large MKR system auction in < 48 hours. If this is successful it will pay back the current $-4M surplus. For altruistic whales who want to help, the current best way to “donate” to this issue is to bid on the upcoming MKR system auctions. MKR buyers should consider buying MKR on open market to support the underlying MKR price. (down 44% in last 24h) ETH buyers should consider running a keeper bot to buy liquidated collateral and help prevent this issue from happening again. https://github.com/makerdao/auction-keeper The simplest root cause here (unconfirmed) is that a lack of keeper bot competition contributed to ETH collateral being sold for $0, possibly because of high gas prices and eth node sync issues, and many keepers run their own eth nodes. In the next 24 hours, we must work on ways to make it easy for anyone who can afford it to participate in the MKR system auctions. We won’t want to constrain the set of auction buyers to those who can afford it and have the technical ability. In @ryanberckmans opinion, keepers and MKR buyers should prepare for sustained high gas prices, and downward pressure on ETH and MKR. The Dow Jones hit sell-off circuit breakers three times in the past week and a half. It’s a historic week. We should plan for global markets to potentially crash further which may correlate with further crypto drops.

Helpfully provided by @ryanberckmans

Current Issues

1. Dai is off-peg.

2. FLOP Auctions will occur concurrently, we may want to attempt to mitigate this.

3. There is ~4 million worth of bad debt in the system currently.

Suggested Options

1. Increase the FLIP auction lot size

Pro: Decreases the load on the ethereum network.

Pro: Easier to track instead of 1000 liquidations at once.

Pro: Lower transaction fees per unit collateral makes it more worthwhile to take part.

Con: Prevents keepers with lower levels of capital from participating in auctions.

Yes

No 0 voters

2. Reduce the FLIP auction lot size

Pro: Allows keepers with lower levels of capital to participate in auctions.

Con: Increases the load on the ethereum network.

Yes

No 0 voters

3. Reduce the DSR

Pro: Brings more Dai in circulation, hopefully moving the Dai price closer to the peg.

Yes

No 0 voters

4. Reduce the Global Stability Fee

Pro: Encourages more CDPs to be opened for arbitrage on the price of Dai, hopefully moving Dai closer to the peg.

Yes

No 0 voters

5. Create an out-of-order executive to pass the chosen changes as soon as possible

Pro: Faster response.

Con: Breaks the known schedule, possibly confusing MKR Holders.

Yes

No 0 voters

6. Ignore the current set of polls in order to do emergency response procedures.

Pro: Faster response.

Con: Breaks previous precedents around process.

Yes

No 0 voters

7. Increase the initial bid price for the collateral auctions.

Pro: Resolves zero bid-size issue.

Con: Requires a technical change to the smart contracts, might not be immediately available.

Yes

No 0 voters

8. Increase the minimum bid time.

Pro: Gives more time for keepers to bid on each auction.

Con: Increases market risk for keepers.

Yes

No 0 voters

8. Make the minimum bid time dependent on the spread between the bid and the oracle price.

Pro: Gives more time for keepers to bid on each auction if the bid is currently low.

Con: Increases the market risk for keepers as they no longer know for sure how long the bid will last.

Yes

No 0 voters

9. Increase the debt buffer before the MKR mint auctions happen.

Pro: Prevents MKR from being auctioned to recover from the bad debt.

Con: Prevents MKR from being auctioned to recover from the bad debt, this breaks the implicit promise that MKR will be used to recapitalize the system.

Edit: Turns out this isn’t as simple as changing a parameter, probably not feasible in the short-term but I will leave the poll up.

Second Edit: Turns out this is possible by increasing the debt buffer to greater than the current level of debt.

Yes

No 0 voters

10. Decrease the MCD ETH-A debt ceiling to 110million and the MCD global debt ceiling proportionally. (From Cyrus)

Pro: Reduces the severity of the OSM attack.