ForkLog’s regular author Dmitry Bondar analysed the current state of MakerDAO’s stablecoin DAI.
In the first weeks of May, the supply of DAI fell by 28%, according to data from Daistats.
“I think this was the owners of volatile collateral who decided not to take on the risk of losses from the liquidation of their positions,” Bondar said.
At the time of analysis, the overall collateral ratio for DAI was about 129%. But the following should be noted:
- 50.8% of DAI is backed by USDC;
- 7.2% — USDP;
- 18% — LP tokens of DAI/USDC pools on Uniswap.
Thus, the current DAI supply is two‑thirds backed by centralised stablecoins, for which the bear market is not as dire.
Meanwhile, 10.7% of the tokens are still backed by Ethereum and 5.3% by WBTC.
“At the moment, the collateral ratio of Ether positions is above 300% (the only exception is ETH-B — at 201%), and in Bitcoin above 230% (the only exception is WBTC-B — 170%). In sum, you should start worrying about DAI no earlier than when Ethereum and Bitcoin fall by 50% from their current price or when holders of Ether and Bitcoin positions begin to withdraw part of their collateral, lowering the collateral ratio of their positions and increasing the risk of losses from their liquidation,” the analyst said.
He regards such a scenario as possible only in a panic among investors and a rapid market collapse, when MakerDAO borrowers would judge that the “today’s income” from selling the largest possible portion of collateral is greater than the “tomorrow’s loss” from liquidating the remaining position:
“In this case cascaded liquidations are possible — mass sales of collateral could dump Ethereum and Bitcoin even further, leading to the liquidation of more highly collateralised positions and so on in a death spiral.”
In mid-June, the crypto-lending platform Celsius paused withdrawals, exchanges and transfers between accounts “due to extreme market conditions”.
Coin Metrics drew attention to the fact that Celsius runs one of MakerDAO’s largest WBTC vaults. Through this collateral the platform issues DAI. To avoid liquidation, in June Celsius had already increased the amount of WBTC in the vault from roughly 18,000 to 24,000 tokens.
In MakerDAO, through the increased collateral, the liquidation price of the vault was raised to $14,000 per WBTC.
Georgetown University law professor Adam Levitin says that liquidating the loan in MakerDAO for Celsius was more expensive than increasing the collateral, but Celsius’s bankruptcy is almost inevitable.
According to the media, Celsius hired the financial conglomerate Citigroup to seek a possible solution to the problems that arose after clients’ assets were frozen.
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