With the upgraded liquidation engine, users can have more predictability and security. MakerDAO, decentralized lending, and stablecoin protocol are now taking tokens as collateral in its governance voting.
Several types of collateral have been proposed for voting, which will increase the number of digital coins that can mint Dai, its stablecoin. The voting process officially started on Monday and is running for two weeks.
The seven tokens that have been suggested as collaterals include Moss Carbon Credit (MCO2), BadgerDAO Sett token (bBADGER), Rocket Pool’s staked Ethereum (rETH), and the 1inch decentralized exchange token (1INCH).
Three other tokens are yet to be considered prospective collateral, and they are SushiSwap’s DAI-USDC LP token, Uniswap’s DAI-PAX LP token, and Uniswap’s GUSD-DAI LP token. Once they get approval, they can be deposited as collateral for the creation of a new Dai.
Things are heated up in the MakerDAO community as there is currently a governance vote for the upgrade of its liquidation system, MIP-45. Maker was executing the liquidations to ensure Dai is linked to the US dollar. This also ensures that all stable tokens made by Maker’s vaults have a backing of collateral, of which the ratio depends on the asset.
The upgrade of the system is in response to the Black Thursday crash in March 2020, which resulted in liquidation worth millions of dollars when the price Ether crashed by about 50% in 30 hours.
New Liquidation Engine
According to Maker, liquidation is better as it increases the predictability and security of the protocol. It will also contribute to decentralization as it facilitates broad participation by the Maker community and the DeFi sector in general.
Once the proposal is passed, there will be modifications to its smart contracts, including the increase of its emergency shutdown threshold from 50,000 to 75,000MKR. This is an important security component that will help the system shut down and make any underlying collateral available if any Dai and Vaul users need to redeem it.
The company also plans to modify its auction model for liquidating the vault collateral. It plans to integrate its DeFi aggregator to increase competition between bidders and increase market liquidity and flash loan support.
The new proposal has garnered a lot of support as there is already 26000MKR pledged to support the proposal. From a report done by Cointelegraph, MKR prices have increased by $4000 in mid-April. There is also a surge by 200% of the total amount of Dai in circulation, pushing it to 3.4 billion.