MakerDAO gets stress tested as ETH price plummets

I seem to recall the proposed staking minimum being around $200,000...

Eth's administrators must have a kink for kidnapping.

It's far from clear that "PoS" can result in a system which is both secure and decentralized: https://download.wpsoftware.net/bitcoin/pos.pdf ... the limited academic work attempting to demonstrate such things have done things like assume that users were using a lossless ordered reliable broadcast medium (which is equivalent to assuming they were communicating over a consensus system). While the history of ethereum has demonstrated that in spite of claims to the contrary in their investment prospectus strong decentralization isn't a feature of the system, there are still many practical challenges even achieving faux-decentralization with PoS. Practically speaking this challenge is demonstrated by the fact that ETH's operators have continually pushed back their promised migration to PoS. Moreover, as was recently demonstrated with "steem" PoS can also easily be abused to rig outcomes just like that above concern with mining.

So I think its far from clear that this is a temporary issue. Instead, to me it looks like PoS has turned into a never-arriving panacea being used to excuse all sorts of serious flaws in the ethereum ecosystem in addition to ethereum itself.

I takes 32 ETH to run your own validator node, so at current prices $4,183.

Instead of having the collateral provider be the only one who can issue the stablecoin, you could build a system where anyone could acquire the stablecoin (Dai) by putting in an appropriate amount of Eth.

Any extra Eth that gets put into the pool will issue a volatile asset, which I'll call Vai here for simplicity. Where Dai has no exposure to volatility, Vai has increased exposure to volatility. As the Eth price rises, the amount of Eth that Vai can be redeemed for increases, and as the Eth price drops, the amount of Eth that Vai can be redeemed for decreases (this is the opposite of Dai).

At any time, Eth and Vai can be redeemed for Eth from the pool. As the price of Eth moves around, the pool becomes over-collateralized and under-collateralized.

If at any point the pool becomes under-collateralized, all Vai becomes worth zero, and all Dai can redeem Eth proportional to the amount of collateral that there is. Meaning, in a "black swan" scenario, Dai holders become exposed at 1x to the price volatility of Eth. This is much better than the whole system melting down, and the Dai holders do get to dodge a significant amount of the downtrend while the Vai evaporates. (Dai holders see no exposure until all the Vai is gone).

You can keep the pool balanced using interest rates. If you have a target collateralization level (say 150%), then any time the pool is under-collateralized, you can automatically drop the interest rate that Dai holders earn (going negative if necessary). If the pool is over-collateralized, you increase the interest rate.

A lower interest rate encourages Dai holders to withdraw and Vai holders to enter. A higher interest rate encourages Dai holders to enter and Vai holders to withdraw.

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The most important thing about the system above is that it is highly predictable. In all scenarios where the price of Eth moves, you can model what happens, and you have guarantees on how much Eth you can draw, and you can withdraw that Eth immediately (well, you'll need to pay blockchain fees and wait for a block, but you don't need a counterparty or any sort of system liquidity). The worst case for the stablecoin holders is that they get exposure to 1x Eth, but this only happens if Eth drops faster than people deposit Vai.

There are a bunch of math tricks you can use to allow people to select different exposure levels (you could have some Dai targeting 250% over-collateralization, meaning it's very robust to huge drops in Eth price, and other Dai only target 15% over-collateralization, and these two assets could be fully fungible against eachother) for Dai holders and Vai holders, but we are getting beyond the scope of a single HN comment.

I'm not saying I definitely think Dai is a good idea, but fundamentally the value isn't the only thing that matters. The ability to transfer that value is important and Dai offers something different to USD there.

Debt is an outdated concept and a dirty hack on the financial system, it allows one person to lend money to another person to run their business without owning any part of the business. In today's reality, there are two scenarios:

- The business succeeds and the borrower can afford to repay their debt. The lender only gets back their principal plus interest even if the business no matter how successful the business was. If the lender had invested in the business instead, would have gotten more out of it.

- The business fails and the borrower declares bankruptcy. The lender may lose all their principal; they may have gotten some interest payments if the business was running for some time but it typically doesn't come anywhere close to offsetting the loss of principal. Liquidating remaining assets likely won't cover it either. If the lender had invested in the business instead - In the event of business failure, they may still have been able to get similar returns because they could get a share of the value of remaining assets from liquidation. The only thing they would miss out on is preferential treatment in the event of liquidation... Which is the financial equivalent of travelling first class on the Titanic.

So debt as a concept doesn't make sense from the lender's perspective. As a lender, if you win, your upside is limited. If you lose, your downside is not limited (not any more than it would have been if you had owned the shares outright and could benefit from asset liquidation in case the business had to shut down). Not only that, but forcing the business to constantly make debt repayments only makes it more likely that they will fail. The lender is setting themselves up for failure from the beginning.

That's why only banks loan nowadays. It doesn't make sense. It just allows the Fed to keep giving free money to their cronies.