DeFi Giant MakerDAO Avoiding Shutdown in the Face of Tanking ETH — For Now

March 13, 2020 admin

The collapse in Ether’s price could lead to an emergency shutdown for DeFi leader MakerDAO, though it’s a contingency that developers are eager to avoid.

As Ether’s price sees record losses, MakerDAO, the biggest player in decentralized finance (DeFi) on the Ethereum network, is looking at responses including a shutdown — though that possibility remains unlikely at this point.

Markets clobber DeFi

Per a March 12 call in response to “Black Thursday” losses, developers and MakerDAO Foundation members weighed the damage that the drop in Ether’s price had done to MakerDAO’s lending protocol.

MakerDAO lends DAI for collateral in the form of Ether. As the market for ETH drops, MakerDAO’s protocol automatically sells. The recent market saw losses too dramatic for the protocol’s auctions to keep up with.

Total shutdown still unlikely

For now, stakeholders are understandably eager to avoid disabling the protocol. As Ethereum developer Ryan Berckmans wrote in response to the call:

“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.”

As developer LongForWisdom said on the call, the shutdown is currently a remote prospect, but may become the most rational decision if ETH falls to $80 or so: “If Ether price drops another 30, 40%, then we might be looking at that.”

Cointelegraph reached out to the MakerDAO Foundation for comment but had received no response as of press time. This article will be updated to include comments as they come in.