The Wreck on the MakerDao

In trading terms The MakerDao was “wrecked” last week by the Bitcoin drop.

Those of you following my blog or who are familiar with the MakerDao understand that the MakerDao is a credit facility on the Ethereum blockchain.

It provides loans in ”Dai” the dollar pegged stable coin produced by the MakerDao, these loans are secured by Ethereum deposited in the MakerDao

The price of Ethereum must remain >1.5 times the loan balance at all times or the loans are immediately due and the deposited Ether is SOLD or “liquidated”.

As you may imagine, on the day Bitcoin crashed over 50% Ethereum’s price also crashed 50 percent and large numbers of MakerDao loans were suddenly liquidated. This is how Smart Contracts work. It’s a basic “ If then, then this happens” scenario.

As traders you can imagine that this sudden selling of Ethereum deposits created selling pressure, which further lowered the price of Ethereum.

This triggered more liquidations, which resulted in more Ethereum selling, more selling pressure, further lowering the price of Ethereum. The MakerDao is not currently protected by a Market Halt when the market drops precipitously like the Stock Markets.

Ethereum price fell like a stone in the air.

This event will be forever encoded in the history of DeFi as one of its failings and hopefully those involved in the governance of the MakerDao are fixing it now.....

We are in the early history of cryptocurrency. History is being written and we are part of it.....

✍️ Written by Shortsegments