MakerDAO, a leading house in the burgeoning sector of decentralized finance (DeFI) built on the Ethereum (ETH) network, has hastily called for a community vote on March 13 alee of the project'south first-ever Debt Auction.

According to Maker (MKR), the vote volition decide on needed modifications that were identified during the fallout from the recent crypto market bloodbath — which saw the price of ETH collapse roughly 30% in 24 hours.

Ether crash triggers Maker loan failures

MakerDAO is the DeFi protocol that creates the stablecoin Dai (DAI).

Dai are minted by users taking on collateralized debt positions, where collateral — typically comprising ETH — is deposited in an Ethereum smart-contract, and a portion of the collateralized assets' value beingness paid out in the form of Dai. The collateral is released back to users when the outstanding tokens are repaid — destroying the Dai in turn.

The collateral is also used to bulldoze the stabilization of Dai's value, with the network incentivizing either the creation or devastation of Dai depending on whether the token is trading higher up or beneath $i.

Loans that can no longer exist supported by their collateral enter into liquidation proceedings — where the collateral is auctioned in exchange for Dai to repay outstanding debts.

However, a lack of contest amid plummeting crypto prices meant that some bidders were able to win liquidation auctions in exchange for 0 DAI — intensifying Maker's debt crisis.

Maker to conduct start-always debt sale

For the outset time in Maker'due south history, the project will see a Debt Sale — where a systemwide failure in the value of collateralized loans to support circulating DAI triggers a programmatic printing of MKR tokens which are auctioned in commutation for Dai to residuum outstanding debts.

As a result of crumbling cryptocurrency prices, MakerDAO currently has $4 million worth of outstanding under-collateralized debt. The auction will result in MKR token holders beingness inflated. A blog mail from Maker states:

"The MakerDAO had a +500k$ surplus earlier the price drop, and at present has a -4M$ surplus that needs to be filled. The protocol covers this issue, the solution being to trigger an MKR mint and auction, the DAI raised existence used to fill the surplus debt. During normal operation, MKR is burned when debt from vaults is reimbursed, this would exist the opposite mechanism."

Possible modifications intended to prevent 0 DAI bids from winning future liquidation auctions volition be voted on by the customs on March 13.