How MakerDAO's Stablecoin Survived the Crash, Smart Contract Bugs and Full Decentralization

How do DeFi stablecoins actually work and what happened during the sudden, precipitous drop in crypto prices earlier this month? On today's show Andreas M. Antonopoulos leads us through a very interesting system and how it survived 'Black Thursday'.

Mar 29, 2020 at 2:16 p.m. UTC
Updated Sep 14, 2021 at 8:23 a.m. UTC

The best Sundays are for long reads and deep conversations. Last week the Let's Talk Bitcoin! Show gathered to discuss how the MakerDAO DeFi stablecoin actually works and what happened during the sudden, precipitous drop in crypto prices earlier this month.

Listen/subscribe to the CoinDesk Podcast feed for unique perspectives and fresh daily insight with Apple PodcastsSpotifyPocketcastsGoogle PodcastsCastboxStitcherRadioPublicaIHeartRadio or RSS.

In the aftermath of the so-called "Black Thursday" crash from several weeks ago, MakerDAO's "DAI" ethereum-backed dollar-pegged stablecoin came untethered and was, for a time at least, functionally insolvent. In the aftermath, holders of the MKR token, which allows holders to participate in governance decisions opted to do a couple of things, including adding the centralized stablecoin USDC to the list of acceptable collateral, which drew both condemnations mostly around centralized risk being added to the system and praise for making the system more robust against sudden ETH collateral price crashes.

And now most recently, the Maker Foundation, which had held some centralized control over the protocol completed their long-planned exit with all authorities now transferred to the holders of MKR tokens, removing both a point of control that had been used as a safety check and a point of risk in that centralized control can be co-opted and used to disrupt a system as we've seen in other examples.

On today's show we're digging into:

  • What is Decentralized Finance (DeFi)?
  • How does decentralized finance differ from traditional banking?
  • Fractional reserve versus over-collateralized loans 
  • Liberty Dollars’s missing collateral and USDC’s risky name
  • MakerDAO, DAI dollar-pegged stablecoins and how this DeFi stablecoin actually works
  • SDAI (Single Collateral DAI) vs. DAI (Multi Collateral DAI)
  • Smart contract "vaults"
  • Lending money to yourself: 150 percent, 300 percent, insurance and auctions
  • What happened on "Black Thursday" as the price of ether dropped more than 50 percent
  • What happened when transaction fees went through the roof
  • A bug in the collateral auction smart contract
  • A surprising crash: As the system became functionally insolvent the price of the dollar-pegged stablecoin actually went up
  • Oasis.app vaults are transparent and pretty interesting, take a look!
  • Loaning yourself money using your ether (at interest)
  • How MakerDAO’s approach differs from SALT Lending
  • The other half of the DAI system: saving vault smart contracts
  • DAI Saving Rate (DSR) and the new certificate of deposit
  • The reward for using MKR tokens to administer a good system
  • Can savings vaults be liquidated?
  • Smart contract risks, consensus risks, systemic risks and response time risks
  • Sponsors: eToro.com and Purse.io
  • What specifically went wrong with the auction smart contracts?
  • Recapitalizing the system by diluting MKR governance stakeholders
  • Even with bugs, market mechanisms to fill the solvency hole seemed to work better than government bailout equivalents
  • Completing the transition from foundation-overseen to full tokenized governance
  • Decentralization transition - A necessary step or a natural one?
  • Single-collateral vs. Multi-collateral stablecoins
  • Why would a decentralized stablecoin want to allow a centralized stablecoin for collateral?
  • External political risks vs. internal technological risks
  • “Life finds a way” and DeFi’s natural circuit breakers (also Mt. Gox)
  • Whats the point of putting USDC in to get DAI out?
  • How does DeFi stablecoin insurance work?
  • A modular ecosystem 
  • How DeFi and traditional finance are similar
  • DeFi vs. 2nd layer protocols

Credits

Hosts: Adam B. Levine, Andreas M. Antonopoulos, Jonathan Mohan & Stephanie Murphy

Sponsors: eToro.com and Purse.io

Music: Jared Rubens and GurtyBeats

Editing: Jonas

Listen/subscribe to the CoinDesk Podcast feed for unique perspectives and fresh daily insight with Apple PodcastsSpotifyPocketcastsGoogle PodcastsCastboxStitcherRadioPublicaIHeartRadio or RSS.

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
First Mover Asia: USDC Hasn’t ‘Flippened’ USDT, but Trader Preferences Are Changing; Cryptos Rise Despite Bearishness

A Glassnode analyst suggests the collapse of the UST token has triggered a change in investors' stablecoin preferences; bitcoin holds above $30,000.

A Glassnode analyst suggests the collapse of the UST token has triggered a change in investors' stablecoin preferences; bitcoin holds above $30,000.

2
Musk Sets New Condition for Twitter, Citi Says Terra’s Fallout Unlikely to Hit Wider Financial System

The most valuable crypto stories for Tuesday, May 17, 2022.

The most valuable crypto stories for Tuesday, May 17, 2022.

3
Market Wrap: Cryptos and Stocks Mixed Amid Bearish Sentiment

BTC is stabilizing around $30K while stock market volatility begins to fade.

BTC is stabilizing around $30K while stock market volatility begins to fade.

4
New Data Shows Underground Bitcoin Mining Thriving in China

The U.S. has also expanded its lead in the global hashrate competition.

The U.S. has also expanded its lead in the global hashrate competition.