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MakerDAO is somewhat more sophisticated and holds way more capital but the fundamental problem is that you can't exclusively collateralize a dollar peg from a highly volatile unit of account with elastic demand or black swan events can wipe it out.
Given that this was a black swan event and the actual damage is minimal, DeFi has proven to be extremely durable.
Black swans happen once a decade or so: dotcom bust, 9/11, GFC, now coronavirus. If the crypto can't deal with it, it's not much of an investment or a store of value.
There were a few products prior to MakerDAO that failed when their collateralized peg collapsed, most notably BitUSD and NuShares. MakerDAO is somewhat more sophisticated and holds way more capital but the fundamental problem is that you can't exclusively collateralize a dollar peg from a highly volatile unit of account with elastic demand or black swan events can wipe it out.
Given that this was a black swan event and the actual damage is minimal, DeFi has proven to be extremely durable.
Minimal? My understanding is someone was able to pull ETH out at near zero DAI. Nothing the contract didn't allow, but unforseen use of it which caused some people who had invested that ETH to essentially lose their life savings!
The very foreseen problem was that people dont show up to governance decision in crypto. Yes you can use a blockchain for voting but nobody shows up.
The real problem is that there are no alert protocols built into wallets and client side defi apps.
Now people are discussing it.
The bigger gamble was whether liquidation and auction could occur fast enough to prevent emergency shutdown. They did, one person showed up to the auction and bid $0.
System worked.
Everyone with dollar signs now is going to research that and bid $1 until the order book is populated and it never happens again.
Software updates to overfit for this possibility would be worse.
Given that this was a black swan event and the actual damage is minimal, DeFi has proven to be extremely durable.
Given that this was a black swan event and the actual damage is minimal, DeFi has proven to be extremely durable.
Black swans happen once a decade or so: dotcom bust, 9/11, GFC, now coronavirus. If the crypto can't deal with it, it's not much of an investment or a store of value.
Earlier quoted context omitted.
If there really are people that literally put their entire life savings into a single, unproven vessel then they almost certainly did so because they were gambling it would make them (an order of magnitude+) more money than a more reliable stable alternative. They won’t find much pity.
I work in the crypto industry and I think this a failure of our community to properly inform people of the risks. These people weren't gambling for massive returns. They thought it would be a safe way of getting pretty good ones.
There were a few products prior to MakerDAO that failed when their collateralized peg collapsed, most notably BitUSD and NuShares. MakerDAO is somewhat more sophisticated and holds way more capital but the fundamental problem is that you can't exclusively collateralize a dollar peg from a highly volatile unit of account with elastic demand or black swan events can wipe it out.
Why not? DAI survived the bear market of 2018 and 2019 that saw ETH plunge from $1400 to $85. And it held with no more than 5% variance from $1 USD.
Earlier quoted context omitted.
Really? I've never seen a hive of more rampant unchecked greed.
You mean r/WallStreetBets and how they play with options in the traditional market? Don’t clutch your pearls too hard - greed is everywhere, not just crypto.
There were a few products prior to MakerDAO that failed when their collateralized peg collapsed, most notably BitUSD and NuShares. MakerDAO is somewhat more sophisticated and holds way more capital but the fundamental problem is that you can't exclusively collateralize a dollar peg from a highly volatile unit of account with elastic demand or black swan events can wipe it out.
The Maker protocol doesn't use MKR as collateral, instead it serves as an efficient debt engine for other liquid assets and its holders collects fees on these debt positions almost like a bank. The interest fees collected stream in real-time from those who take debt(yes, this is possible on a blockchain) and a large portion is sent to depositors who hold on to the dollar stablecoin a savings rate in real time too.
Ether is just the first asset being used to perfect the mechanisms needed for fully autonomous banking. Any real world asset can be tokenized to take advantage of this efficient lending protocol right now.