Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

MakerDAO gets stress tested as ETH price plummets

messari.io

Post reply on HN
Print view View original

71–80 of 95 posts

Re: MakerDAO gets stress tested as ETH price plummets

#71

Post by dboreham »

ForHackernews wrote: post #66
fastball wrote: post #61

Earlier quoted context omitted.

Who is using DAI as an investment instrument?

Elsewhere in this thread posters are talking about users losing their "life's savings", but you're right perhaps they weren't investing. Maybe they just wanted to park money someplace they viewed as safer than a traditional savings account or treasury bonds.

Presumably this is because there's a trade that promises one side something (stable value coin vs USD) that has another side that offers something different (profits if everything works out, losses if it doesn't?). Kind of like Lloyds of London?

Re: MakerDAO gets stress tested as ETH price plummets

#72

Post by wayoutthere »

daveytea wrote: post #59
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. n…

> 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).

All "cryptocurrencies" are, in effect, complex securities that are derivatives of greater market factors. The crisis of 2007 showed the risk of using complex investment vehicles that were poorly understood by investors -- and the CDOs that were sold in the mid 00s were far more transparent and predictable than cryptocurrency. Given that crypto will always be one asset class among many, if the traditional finance system (which already operates outside any single fiat currency) can't understand it, they won't use it for anything more than speculation.

Using crypto as an investment vehicle requires a reasonably accurate assessment of risk. In the case of fiat currencies, central banks manage that risk so that investors can rely on the liquidity of the overall system without wiping out deposits. DeFi has no such mechanism, and no central bank to absorb a big hit temporarily in the case of a black swan event.

I still feel that cryptocurrency is just the 21st century version of penny stocks and junk bonds. Fiat currency works because its power as currency is secured by a government able to mobilize military and industrial power to solve market problems. The most heavily traded currencies (RMB, USD, EUR) are those backed by large industrial and military powers because those countries have the scale and political power to manage market risk. Centralized governance is a feature, not a bug.

Re: MakerDAO gets stress tested as ETH price plummets

#73

Post by Taek »

daveytea wrote: post #59
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. n…

> You can hold DAI without opening a CDP

If you hold Dai without opening a CDP, the only way to convert that Dai back to Eth is to find someone who opened a CDP and is willing to buy from you.

Similarly, if you opened a CDP and then sold the Dai, the only way to get your Eth back out of the CDP is to find someone who is willing to sell you Dai. The Maker liquidity crisis yesterday happened because there were more people trying to scoop up Dai and get their Eth out of their CDPs than there were people selling Dai, which meant that a lot of people were stuck holding leveraged positions on Eth that they couldn't exit. Even worse, the auction system was malfunctioning, so it appeared as though those people may not even get a fair value for their Eth if they did get liquidated (not to mention, they'd also have to pay the 13% fee for being liquidated, even if they got a fair price in the auction).

> 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.

This only works if the total number of buyers and sellers are balanced. The way Maker is set up right now, its possible for a large percentage of your Eth pool (or Dai pool) to be completely unavailable because the holders have not listed the Dai on an exchange. Simply having a decentralized exchange does not automatically guarantee liquidity - people have to agree to sell their assets on that exchange.

> You can do this easily by buying DAI on a DEX

The entire problem yesterday is that all of the Dai was scooped up from all of the Dexes. There was a period yesterday where the Dai price was >$1.11, meaning that CDP holders were paying an 11% premium to exit their positions. The Maker system had no exit valve for people stuck in this position.

> 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.

There are also a lot of old concepts and well understood financial relationships that are being ignored, and a lot of highly predictable failure modes that are being forecasted as "black swans". The best team is likely composed both of people who have a very solid background in cryptocurrency as well as people who have a very solid background in traditional finance.

Re: MakerDAO gets stress tested as ETH price plummets

#74

Post by Sargos »

Taek wrote: post #73
daveytea wrote: post #59

Earlier quoted context omitted.

> 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. n…

> You can hold DAI without opening a CDP If you hold Dai without opening a CDP, the only way to convert that Dai back to Eth is to find someone who opened a CDP and is willing to buy from you. Similarly, if you opened a CDP and then sold the Dai, the only way to get your Eth back out of the CDP is to find someone who is willing to sell you Dai. The Maker liquidity crisis yesterday happened because there were more peo…

It's important to note that the vast majority of people who will own and use Dai have never and will never interact with the Maker protocol or CDP holders. You trade ETH to Dai on Uniswap and go about your day. You trade the Dai to ETH on Uniswap later. I'd expect most people just to go from fiat straight to Dai and back as well.

Maker itself is a system for the professionals and most users won't even know it exists and won't have to.

Re: MakerDAO gets stress tested as ETH price plummets

#75

Post by nullc »

alphast0rm wrote: post #56
nullc wrote: post #51

Earlier quoted context omitted.

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/

Thanks for the correction.

Re: MakerDAO gets stress tested as ETH price plummets

#76

Post by cryptica »

perl4ever wrote: post #65
cryptica wrote: post #50

One of the main purposes of cryptocurrency IMO is to replace the concept of debt. So I find the idea of using blockchain to implement debt to be ridiculous. Why do you need debt if any group of people can create a cryptocurrency and raise money that way? 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 p…

If there were no debt, how would that work for individuals? Would you sell a share of your income to pay for a car, instead of borrowing?

No, you would save up to buy a car. Same for a house, you would save up to buy it. The average house price would be lower because demand would be lower because only people who could afford it would be able to make an offer. Same supply, lower demand means lower price. You won't have to compete with over-leveraged fools who are on their 20th credit card as is the case today.

Re: MakerDAO gets stress tested as ETH price plummets

#78

Post by ppf »

vinniejames wrote: post #68
ppf wrote: post #60

Earlier quoted context omitted.

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.

There was nothing unexpected here. Users traded their eth X days ago for dai, with the full intention of adjusting their liquidity characteristics What happened here simply precluded the possibility of the reverse trade when the loan became under collateralized, this was not unclear to anyone involved

Traded? You mean loaned. That was always the wording that was used to promote DAI, whatever the underlying transaction might be.

Re: MakerDAO gets stress tested as ETH price plummets

#79

Post by arcticbull »

rhlsthrm wrote: post #45
lalaland1125 wrote: post #39

Earlier quoted context omitted.

> 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…

The real idea here is even beyond going long on ETH. It's multi collateral DAI. The idea that you can (eventually) lock up any collateralized asset and mint DAI. Need to take out a mortgage on a property you own? You can do it automatically and atomically through smart contracts without any middlemen. Eventually people could tokenize things like their future earnings and take out a loan against that now. As dystopian…

> mortgage...

Where on earth are you going to get accurate price data for a house when you allow this? What if the foundation is crumbling and there are termites? The process of getting a mortgage involves a ton of inspections, background checks and paperwork. No amount of magic blockchain dust will change that.

> Eventually people could tokenize things like their future earnings and take out a loan against that now. As dystopian as that last point sounds, it illustrates the point.

Yeah that’s just called an unsecured loan, you can get one online now in minutes.

Re: MakerDAO gets stress tested as ETH price plummets

#80

Post by perl4ever »

cryptica wrote: post #76
perl4ever wrote: post #65

Earlier quoted context omitted.

If there were no debt, how would that work for individuals? Would you sell a share of your income to pay for a car, instead of borrowing?

No, you would save up to buy a car. Same for a house, you would save up to buy it. The average house price would be lower because demand would be lower because only people who could afford it would be able to make an offer. Same supply, lower demand means lower price. You won't have to compete with over-leveraged fools who are on their 20th credit card as is the case today.

Saving is fine, as long as you know what your needs will be ahead of time and can wait.

But the social purpose of loans is to help people who have an urgent need, or an unexpected one.

Living beyond your means isn't inherently part of borrowing money.

If you can't get a loan to buy a house, having to save for 30 years is in some sense, making you a lot poorer. You only have so long to live, and for 30 years, you don't get to live in the house.

And if you can't get a loan when something unexpected happens, then bad things could happen, that are really unnecessary. People don't have to prepare independently for all possible disasters because we live in a society.

If you think borrowing money is bad, what about borrowing things? Should rental cars be eliminated? Is it only that borrowing things should be free? Is borrowing a cup of sugar from your neighbor ok?

Edit: I should say, urgent, unexpected, or short term.

Post reply on HN