MakerDAO users avert liquidations worth more than $600 million

Against the backdrop of the crypto market correction, seven large Vaults of the MakerDAO platform were at risk of liquidation. ETH worth more than $600 million could have ended up in a Dutch auction.

https://t.co/LFl2CyGkL5 pic.twitter.com/Cw3LZsb8rI

— Hsaka (@HsakaTrades) January 21, 2022

MakerDAO is a smart-contract platform on Ethereum that enables the issuance of the stablecoin DAI collateralized by crypto assets. A user sends some amount of ETH or other tokens to the contract address, which issues a corresponding amount of DAI. This system is called Vaults.

The stability of DAI’s peg to the US dollar is secured by a liquidation mechanism. If the value of the collateral backing Vault falls below a threshold defined by the liquidation ratio, assets are automatically put up for auction to cover the DAI.

On the 1-hour Ethereum chart for January 22 at 01:00 (MSK), there was a drop in quotes to $2500 (on the cryptocurrency exchange Binance). This was below the liquidation price set for seven Vaults with total collateral of $630 million.

Users can lower the liquidation price by adding additional collateral or returning DAI to the Vault. This can be done even after the price reaches the critical threshold, because the protocol sends assets to auction with about a thirty-minute delay.

According to MakerDAO founder Yaron Velner, vault holders added additional collateral, managing to save six of the seven ‘vaults’. One of them was still liquidated — at an auction held around 2:00 (MSK), 28,048 ETH (~$65 million) was sold.

7 siblings saved all vaults except the first that got liquidated. Looks like only $65 million of ETH will be sold for now

— Rune (@RuneKek) January 21, 2022

According to Makerburn, the auction lasted 49 minutes. According to TradingView, during this period Ethereum’s price fell to $2403. This shows that the ETH sale at the MakerDAO auction put downward pressure on the asset’s quotes.

As of writing, Ethereum trades around $2500. According to Block Analitica, there are currently no Vaults on the MakerDAO platform exposed to liquidation risk.

According to DeFi Llama, MakerDAO is the second-largest DeFi protocol by total value locked (TVL) in smart contracts, at $14.63 billion.

Earlier in 2020, the head of B.Protocol Yaron Velner discovered in the MakerDAO protocol an exploit that allows avoiding forced liquidation.

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