Ethereum Declined: cause of Collateral Contracts Closure

Ethereum Declined: cause of Collateral Contracts Closure

DeFi Saver is Defi’s protocol management service. It recently announced that it faced heavy congestion on the Ethereum network.  Because of this, the system was struggling to execute all needed CDP (Collateralized Debt Position) ratio adjustments in scheduled time.  A so-called smart contract, a central to the working of the DAI stable coin, administers CDP loans.

MakerDAO has a plan to add support for other assets. However, only ETH is an acceptable option as collateral for opening CDPs.

CDPs facilitate the creation of Dai against collateral. As DeFi Saver explained, MakerDAO CPD has a systematic mechanism that automatically liquidates CDPs. This happens once the CPDs collateralization ratio has dropped below 150%. The company offers an independent service, that prevents the automatic CDP liquidation. However, this protection system “exists” on top of MakerDAO’s ecosystem.

However, the company admits that the system, unfortunately, failed to protect two monitored CDPs. In the end, those unprotected CPDs have been liquidated in the process. Also, the main reasons are network congestion and transaction fees.

Decentralized and fallen

Finally, Ethereum-collateralized decentralized stable coin DAI managed to maintain its fix to the USD. However, ETH has lost more than 18% of its value in under two hours.  It fell drastically from 190USD to 155USD on Tuesday.  For now, Ethereum holds a stable price of about 172USD. Also, the recent ETH price drop has shown all the existing weaknesses of the decentralized stable coin. Especially the ones built by MakerDAO, Dai (DAI), and the decentralized finance (DeFi) ecosystem built on top of it.

An optimistic look into the events

Also, the company noted that up to twenty unique CDPs were automatically protected by the system during the recent crash.

In addition, DeFi Saver adjusted the system to the current transaction fees, so automation is working properly.

In June Cointelegraph reported, that throughout May 2019, UK-based nonprofit organization Oxfam International executed a month-long trial. It saw MakerDAO’s DAI stable coin distributed as a means of exchange among citizens of Vanuatu (Oceania).

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