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MakerDAO gets stress tested as ETH price plummets

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Re: MakerDAO gets stress tested as ETH price plummets

#31

Post by Itsdijital »

9nGQluzmnq3M wrote: post #6
nootropicat wrote: post #2

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.

Quite the opposite actually. At least to me it means that institutions actually have been holding crypto reserves, which I'd say gives it a fair amount of legitimacy.

Crypto didn't sell off in a vacuum this time, it sold off with the market at a time when it should be selling off.

I know what you're thinking, but that's not the case. Right now, same as in 2008, institutions are liquidating "store of value" assets to open up more liquidity. That $1.5T in fed repo? Well the fed doesn't take BTC as collateral. And since they don't nobody else is right now. Same with gold. Cash and T-bills are king, so liquidate everything else.

Really this shows that crypto is at least starting to be folded into the main financial world. It actually for once has some degree of beta.

TL;DR: This is good for bitcoin.

Re: MakerDAO gets stress tested as ETH price plummets

#32

Post by vinniejames »

bitcoinbutter wrote: post #12
9nGQluzmnq3M wrote: post #6

Earlier quoted context omitted.

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.

Well the solution is to have some sort of emergency fund which activates in black swan events to rebalance the portfolio. It's just something to factor in. Adds some costs to operations but only fractions of a percent.

There is an emergency fund, the governance allows the Maker token to be printed and sold to cover losses, diluting existing token holders

Re: MakerDAO gets stress tested as ETH price plummets

#33

Post by vinniejames »

Acrobatic_Road wrote: post #25
cortesoft wrote: post #17

Earlier quoted context omitted.

Returns are always the inverse of risk. If you are getting "pretty good" returns, then you have pretty high risk.

They thought they were risking 13% of their collateral in the event of a liquidation - not 100%. They were risking way more than they thought.

No one lost 100% They lost their collateral and got to keep the loan the took out against it.

If I stake $2000 of Ethereum, and in return get $1500 in a stablecoin, when my $2000 in collateral gets liquidated I still have 75% of that in the loan I took out and can walk away.

The people with the 100% loss story are being deceptive

Re: MakerDAO gets stress tested as ETH price plummets

#34

Post by barkingcat »

legionof7 wrote: post #7
ComputerGuru wrote: post #4

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.

No such thing... better the return, higher the risk. Fact of life.

Re: MakerDAO gets stress tested as ETH price plummets

#35

Post by vinniejames »

baby wrote: post #22

> leading to oracle’s price updates not going through with the gas price they chose wait so the thing relies on oracles? I always thought that MakerDAO was a decentralized stablecoin. Does this mean that it is centralized then? > This put the system in a $4 million deficit So is this proof that MakerDAO does not work in practice?

The oracles are decentralized

No

Re: MakerDAO gets stress tested as ETH price plummets

#36

Post by mwill »

roywiggins wrote: post #19
seibelj wrote: post #9

Earlier quoted context omitted.

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.

I don't know if it's true, but my impression is that the same people who got really into complicated crypto trades also got into complicated option trades once it became accessible via app.

My impression of /r/wallstreetbets in particular is that they seem to think particularly highly of crypto.

There might be an overlap elsewhere but I don't think I've seen it on wsb personally

Re: MakerDAO gets stress tested as ETH price plummets

#37

Post by [deleted] »

baby wrote: post #22

> leading to oracle’s price updates not going through with the gas price they chose wait so the thing relies on oracles? I always thought that MakerDAO was a decentralized stablecoin. Does this mean that it is centralized then? > This put the system in a $4 million deficit So is this proof that MakerDAO does not work in practice?

[deleted]

Re: MakerDAO gets stress tested as ETH price plummets

#38

Post by _7fvc »

When you are involved long enough with crypto, you'll see a lot of stupid ideas. DAI is one of them.

For those who don't have time to get into the weeds, DAI is a "digital native" stable coin. It wants to create a 1-1 peg to USD using an underlying volatile asset, Ethereum. If you want to use USD, it's probably most efficient to go get USD. :) But for some ideological reasons (decentralization), DAI wants to be USD but also digital native. So they "lock" the underlying asset, Ethereum, and issue DAI coins. The premise is with intelligent computer algorithms, we can maintain 1-1 peg between a digital asset (Ethereum) and a real-world asset (USD).

Digital assets are digital. Humans are the arbitrageurs. Humans are emotional. DAI is trying to create stability on top of Ethereum volatility. It's kinda like building a stable house on a shaky foundation. Your building will either collapse or you spend so much money patching the flaws of your shaky foundation. This is a laughable idea for those who live in reality. But I guess some computer programmers/investors live in alternative realities too long. They forget about reality.

Whatever your algorithms are, you need to arbitrage risks. So you will always need to lock up more USD-ETH to account for risks. To be safe, maybe, you need 1.5 USD-ETH for a DAI USD. However, with digital scarce and volatile assets like Ethereum, there's a chance that 1.5 USD-ETH will drop to 0.9 USD-ETH. At that point, you will be underwater. Yesterday, it did. If you need to lock up 1.5 USD for 1 USD, you may as well go get 1 USD. It's a dumb idea to use 1.5 USD to get 1 USD.

DAI has a lot of jargon and technology (more layers on top of the shaky foundation). These things make it look sophisticated and fool people. The basic problem is very simple. You only need elementary school arithmetic and logic to know its flaws and inefficiency.

Re: MakerDAO gets stress tested as ETH price plummets

#39

Post by lalaland1125 »

_7fvc wrote: post #38

When you are involved long enough with crypto, you'll see a lot of stupid ideas. DAI is one of them. For those who don't have time to get into the weeds, DAI is a "digital native" stable coin. It wants to create a 1-1 peg to USD using an underlying volatile asset, Ethereum. If you want to use USD, it's probably most efficient to go get USD. :) But for some ideological reasons (decentralization), DAI wants to be USD b…

> If you need to lock up 1.5 USD for 1 USD, you may as well go get 1 USD. It's a dumb idea to use 1.5 USD to get 1 USD.

DAI locks up 1.5 USD of ETH, not 1.5 USD. There is an important difference. The main benefit/use of DAI is that it effectively lets you increase your leverage when you are betting long on ETH. The trick is that when you lock ETH in the contract you can then use the resulting DAI to purchase more ETH, lock up that ETH/etc. The end result is about 3X leverage for relatively minimal fees.

Re: MakerDAO gets stress tested as ETH price plummets

#40

Post by Acrobatic_Road »

_7fvc wrote: post #38

When you are involved long enough with crypto, you'll see a lot of stupid ideas. DAI is one of them. For those who don't have time to get into the weeds, DAI is a "digital native" stable coin. It wants to create a 1-1 peg to USD using an underlying volatile asset, Ethereum. If you want to use USD, it's probably most efficient to go get USD. :) But for some ideological reasons (decentralization), DAI wants to be USD b…

>Digital assets are digital. Humans are the arbitrageurs. Humans are emotional. DAI is trying to create stability on top of Ethereum volatility. It's kinda like building a stable house on a shaky foundation.

And yet it works. Dai has practical results; it has weathered massive volatility in the price of Ether over the past 2 years.

>If you need to lock up 1.5 USD for 1 USD, you may as well go get 1 USD. It's a dumb idea to use 1.5 USD to get 1 USD.

If it's such a stupid idea then nobody would do it. Yet, there is now 350 million dollars worth of collateral people have put up of their own volition just to generate some Dai for themselves in this fashion. stats: https://defipulse.com/maker

>DAI has a lot of jargon and technology. These things make it look sophisticated and fool people.

Or you just don't understand how it works. Dai is a complicated solution to a complicated problem, but its not some trick.

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