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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

#51

Post by nullc »

zeven7 wrote: post #44
nullc wrote: post #42

Earlier quoted context omitted.

> average person with a smartphone could realistically generate several blocks a day, 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…

> I seem to recall the proposed staking minimum being around $200,000... I takes 32 ETH to run your own validator node, so at current prices $4,183.

Ah. Indeed, when that was announced the price results in 32 ETH being ~$250k.

Why is the same number of ETH an appropriate amount now?

Re: MakerDAO gets stress tested as ETH price plummets

#53

Post by ForHackernews »

Latty wrote: post #48
ac29 wrote: post #43

Earlier quoted context omitted.

> Or you just don't understand how it works. Dai is a complicated solution to a complicated problem, but its not some trick. But the problem isn't complicated. If you need something worth 1USD, buy 1USD. It is by definition stable relative to 1USD. You don't need to understand complicated terminology or esoteric failure modes. DAI is effectively never worth exactly 1USD: https://coinmarketcap.com/currencies/multi-col…

People buy 1USD of Paypal account value for 1USD all the time, do you say the same thing to them? 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.

Yes, Paypal is also terrible[0] and you'd have to be pretty dumb to deliberately keep a large fraction of your savings "invested" in a paypal balance.

[0] http://paypalsucks.com/

Re: MakerDAO gets stress tested as ETH price plummets

#54

Post by lebed2045 »

Taek wrote: post #24

A lot of Ethereum DeFi (and cryptocurrency in general) has been pretty frustrating to watch, because it's a lot of people with big ideas and little understanding of how to build stable financial systems. In the case of Maker, what's interesting is that a stablecoin is actually possible. Maker has a really good core idea, several great elements to it: 1. The stablecoin is backed by collateral, typically a significant…

this was my exact thoughts at the end of 2017 when Maker released their first version. Why instead of CDPs just don't use one big liquidy pool which initially funded with sufficient resources? If it is big enough - it would initially overcollateralized the system (when the cap is small) and can be used as a stabilization reserve, i.e. everyone would able to redeem their $1 stablecoin for $1 of ETH at any moment of time. I even try to design such a system https://stableunit.org/StableUnit-whitepaper.pdf

The main assumption that stablecoin with collateral/reserve has two values:

1) "redeemability value", i.e. the token without demand is worth $1 because you can redeem it for $1 of another asset with demand such as ETH.

2) network/native value: more people use the coin, higher the value. In the same manner as Dogecoin worth anything at all, like Metcalfe's law but for cryptocurrency. With an empirical estimation of growth asymptotic higher than NlogN.

The important part here that as the system grows bigger 1) grows linear but 2) grows to faster than linear which means there are some sizes of then system when 2) > 1). This practically means that you can back part of stablecoin with less liquid assets because they won't be used often (if all). It's one way to explain why USDT can function even with partially collateralized.

The problem with all of this, that one thing is to have system design (I'm convinced that there are many different decentralized stablecoin systems that can work) and another to build a working project with user adoption. I've spoken with many people at MakerDAO and they all know about the limitations/imperfection of the system. For oracles, they chose that expensive design because it was an "engineering approach which just works security". And as we see right now at stablecoins market cap, they were right to do so.

Re: MakerDAO gets stress tested as ETH price plummets

#55

Post by polyomino »

nootropicat wrote: post #41
nullc wrote: post #28

Earlier quoted context omitted.

> never going to repeat again So now it just needs a little help from miners to actively exclude all other bidders. My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas.

>So now it just needs a little help from miners to actively exclude all other bidders. A mining cartel that censors transactions is indeed a real risk. Fortunately, ethereum is switching to PoS where even an average person with a smartphone could realistically generate several blocks a day, as opposed to multiple megawatt (or even giga) mining farms, so it's only a temporary issue. >My understanding is that in this c…

You don't need a mining cartel, infura runs all the working nodes.

Re: MakerDAO gets stress tested as ETH price plummets

#56

Post by alphast0rm »

nullc wrote: post #51
zeven7 wrote: post #44

Earlier quoted context omitted.

> I seem to recall the proposed staking minimum being around $200,000... I takes 32 ETH to run your own validator node, so at current prices $4,183.

Ah. Indeed, when that was announced the price results in 32 ETH being ~$250k. Why is the same number of ETH an appropriate amount now?

ETH's all time high is $1,432.88 [1], so 32 ETH has only ever been worth $45,852.16 max.

[1] https://coinmarketcap.com/currencies/ethereum/

Re: MakerDAO gets stress tested as ETH price plummets

#57

Post by TheOtherHobbes »

nullc wrote: post #28
nootropicat wrote: post #5

Earlier quoted context omitted.

It's more complicated. Their collateral ratio has dropped below the liquidation level of 150%. So at best they would only get a fraction of their collateral back (any liquidation has a discount and a 13% penalty) - fundamentally they lost because their speculative bet didn't pay off. So yes, they lost more than they should, but describing it like they lost everything because of the liquidation problem alone is mislea…

> never going to repeat again So now it just needs a little help from miners to actively exclude all other bidders. My understanding is that in this case there were other bidders but they were drowned out by the winning bidder paying much more gas.

Maybe I'm missing something, but I suspect the odds of building a non-gameable system for people whose primary interest is speculative gaming are not going to be good.

Re: MakerDAO gets stress tested as ETH price plummets

#58

Post by SilasX »

ac29 wrote: post #43
Acrobatic_Road wrote: post #40

Earlier quoted context omitted.

>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 i…

> Or you just don't understand how it works. Dai is a complicated solution to a complicated problem, but its not some trick. But the problem isn't complicated. If you need something worth 1USD, buy 1USD. It is by definition stable relative to 1USD. You don't need to understand complicated terminology or esoteric failure modes. DAI is effectively never worth exactly 1USD: https://coinmarketcap.com/currencies/multi-col…

It looks like it stays pretty close though, never more than a few percent away. Another tracker:

https://www.coinbase.com/price/dai

Re: MakerDAO gets stress tested as ETH price plummets

#59

Post by daveytea »

Taek wrote: post #24

A lot of Ethereum DeFi (and cryptocurrency in general) has been pretty frustrating to watch, because it's a lot of people with big ideas and little understanding of how to build stable financial systems. In the case of Maker, what's interesting is that a stablecoin is actually possible. Maker has a really good core idea, several great elements to it: 1. The stablecoin is backed by collateral, typically a significant…

> There's no way to instantly convert the stablecoin back into the collateral asset, you have to find someone with a CDP who is willing to buy the stablecoin from you.

This is incorrect and actually doesn't make sense. An important part of DeFi are DEXes (decentralised exchanges) such as Uniswap and Kyber. There is a liquidity pool where you can instantly buy/sell assets. There is no 'waiting' to find someone (i.e. no problems with coincidence of wants). You definitely do not need to find someone with a CDP. You can hold DAI without opening a CDP. Contracts can hold DAI (as DEXes do).

> Similarly, there's no way to unlock your collateralized asset, you have to find someone who is willing to sell you the stablecoin in order to open up your vault and get your eth out.

Also incorrect. You need to pay back the debt of your CDP with DAI. You can do this easily by buying DAI on a DEX, paying back the debt, then releasing your collateral. Some services exist to do this in 1 transaction, so you don't need to actually 'buy' any other asset. You just send the transaction to a contract and they take care of the details.

The DeFi, specifically the Ethereum space, has moved very quickly in a short amount of time, so there are a lot of new concepts and instruments out there. I think a more traditional finance person will have trouble understanding it all as in some cases, there are no analogies to the traditional finance system (e.g. flashloans).

Re: MakerDAO gets stress tested as ETH price plummets

#60

Post by ppf »

vinniejames wrote: post #33
Acrobatic_Road wrote: post #25

Earlier quoted context omitted.

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

That's not the complete story. They have lost one asset with a certain set of liquidity characteristics, and unexpectedly gained one with another set.
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