Liquidity needed: Covid19 brings USDC to MakerDAO protocol
Liquidity needed: Covid19 brings USDC to MakerDAO protocol
Defi

Liquidity needed: Covid19 brings USDC to MakerDAO protocol

By Lorenzo Dalvit - 17 Mar 2020

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After a vote on the Maker protocol, holders of MKRMakerDAO tokens – decided to add a new collateral to the system: USDC.

A strategic move that will increase DAI’s liquidity by facilitating its return to the stability of one dollar.

A simple mechanism that will rebalance the system. It was certainly a choice taken quickly, the panic selling caused by Covid19 has increased the demand for liquidity.

It will now be possible to open USDC vaults with a Liquidation Ratio of 125% and a Stability Fee of 20%. The aim is to attract liquidity providers to generate DAI and bring them to market by acquiring 7%.

At this time it is possible to take advantage of the opportunity to sell DAI at an additional 7% and trade them for USDC.

The main advantages of placing USDC as collateral are:

  • Increased liquidity of DAI for participants in FLIP and FLOP auctions;
  • Increased liquidity of DAI so that its price is closer to $1.

USDC Risk Parameters:

Stability fee: 20% (annually)

  • Collateralization ratio: 125%
  • Debt ceiling: 20 million
  • Liquidation penalty: 13%
  • Collateral auction lot size:: 50,000 USDC
  • Collateral auction minimum price change:: 3%
  • Collateral auction bid challenge window: 6 hours
  • Collateral auction maximum duration:: 3 days
  • Dust: 20 (Dai)

Liquidations are currently disabled for USDC and the Oracle price has been set at $1.

The crash experienced has put the DeFi world to the test. The road is hard and bumpy but the MakerDAO team, as well as the community, have quickly moved the pawns to win the game against the current low liquidity.

What had happened to the Maker protocol?

On Thursday, March 12th, 2020, the price of Ether (ETH) dropped 30% in about 24 hours

The fall generated a chain reaction that, across DeFi, is linked to an event that will be remembered in time

DeFi users rushed to perform operations such as trading on DEXs, paying debts and strengthening collaterals

The increase of activity on Ethereum has led to gas price records at times higher than 200 Gwei and generated some problems in the management of oracles and auctions in MakerDAO.

Despite this, the DeFi system held up, but not without taking a few hits. The players in the game are now recovering from their wounds and progressing with the challenge.

Proposals for solving the technical problems that arose during the panic selling are under discussion, but liquidity has now become a priority.

This explains the introduction of USDC as collateral, as the token under discussion is a stablecoin backed by the US dollar. A stable token pegged to the dollar that uses the Ethereum protocol as its circulation.

Circle and Coinbase, two of the leading trading platforms, introduced this stablecoin in the fourth quarter of 2018.

USDC is based on an open-source stablecoin IOU model developed by CENTER, an open-source initiative created by Circle in late 2017. 

Before the vote took place, all the risks and benefits of this choice were assessed.

On Maker’s forum, there was a wide debate and discussion among the community. 

The addition of a collateral involves a process of analysis by MakerDAO described in this document. USDC is certainly among the most secure centralized stablecoins.

Both Circle and Coinbase operate within the US regulatory framework and foreign money transmission laws and work with established banks and auditors; they are registered with FinCEN as licensed money issuers and actively seek appropriate licenses from various state banking departments and international regulatory authorities. 

In the United States, money transmitter licenses are operated at the state level and Circle and Coinbase have already obtained licenses from all required states.

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Lorenzo Dalvit

Blockchain enthusiast tutor, expert in sales and marketing, social community manager, artistic director, musician, lover of disruptive paradigms and life. All my skill are about human interaction and connection

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