DeFi Protocol Maker Upgrades its Liquidations System so that it Can Handle Emergencies like Historic March 12, 2020 Market Crash

The Liquidations System of the Maker Protocol, which supports a leading Ethereum (ETH) based lending system, is a key element that has been developed to ensure that the stablecoin Dai generated in Maker Vaults “remains adequately collateralized.” The Maker Protocol is central or key to helping Dai with maintaining its “soft peg” to the US dollar.

The Maker community says it realized, after the historic market crash of March 12, 2020, that it needed to upgrade its platform. Maker governance had voted to make several important changes, such as making “risk parameter” adjustments. One of these adjustments had effectively increased the duration of collateral auctions to six hours. This had been done so that Keepers would have more time to turn in bids in case there’s heavy or unexpected network congestion.

(Note: In the Maker Protocol, Keepers are market participants that “help Dai maintain its Target Price of $1.” Keepers sell the Dai stablecoin when its market price goes above the Target Price, and they purchase more Dai if/when its market price falls below the Target Price.”)

As mentioned on MakerDAO’s blog:

“After those improvements, further changes were discussed to design and implement a more robust system that would enable the Protocol to better deal with a large volume of Vault liquidations when necessary. The complete system upgrade will continue to be released in stages.”

The first stage, called Liquidations 1.1, had gone live after a vote in August 2020 and it featured  a “minor” update. The most recent upgrade to the Maker Protocol, called Liquidations 1.2, was reportedly approved by Maker governance and initiated on August 31. It features several enhancements such as “throttling the number of auctions that can be held at any given time.”

The final and most important update, called Liquidations 2.0, will be presented to the Maker community and then “presumably” voted on later this year.

As reported in May 2020, MakerDAO had shut down its single collateral lending system, and was planning to move to a multi-collateral system. Also in May, Coinbase added the Maker (MKR) governance token, by supporting MKR-BTC and MKR-USD trading.

In July of this year, digital asset derivatives platform Delta Exchange began offering interest rate swaps for MakerDAO’s stablecoin Dai. More than $4 billion (now a lot more) had been locked into the nascent DeFi market by early August 2020, with MakerDAO leading the way, but it has been overtaken by other protocols since then.

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