DeFi Saver, a project aiming to be a one-stop-shop for decentralized finance, has failed to honor some of its processes due to congestion and high gas prices on the Ethereum network as of September 24.
Falling ETH Prices Caused Liquidations
The Ethereum network, still congested by a lottery game smart contract that hogs 59% of all gas, was too congested to allow automated transactions to go through and manage the required CDP adjustments. This, unfortunately, let some of the Collateral Debt Positions (CDP) otherwise protected by automation, to slip below the minimum 150% collateralization, and to be liquidated.
Due to the heavy drop in ETH price coinciding with network congestion and a spike in gas prices today, our automation system struggled to execute all needed CDP ratio adjustments in time. (1/4)
— DeFi Saver (@DeFiSaver) September 24, 2019
In addition to the technological difficulties, DeFi Saver announced its financial operations were hurt by the drop in the Ethereum market prices. ETH is down to $176.43, after sliding from a recent peak at $220. This price swing also caused an estimated $6 million in ETH collateral liquidated outside the DeFi Saver user base.
DeFi Saver relied on an automated system that monitors and prevents CDP liquidations. But due to data congestion, the monitoring mechanism failed and led to multiple liquidations, based on volatility. The event underlines the risk of using Ethereum and the ETH token as a basis for decentralized financial operations.
DeFi Saver allows easier interaction with MakerDAO and Compound, two of the biggest decentralized finance operations. DeFi Saver also fosters connections to the less popular dy/dx decentralized exchange and the Fulcrum financial scheme. A built-in ETH-DAI exchange in the app and wallets makes for easier crypto-based borrowing and lending.
DAI Shaken Down, Supply Down by Nearly 10%
After the market-wide flash crash, DAI has suddenly dropped its supply, from around 89 million coins to just 80 million. Collateralization also fell, though it remains robust at 313%. The rules of Maker DAO hold that if the price of the underlying asset drops, the collateral is sold. The sudden drop in crypto prices caused precisely this type of liquidation, as ETH tanked suddenly, with no possibility to stop the CDP function from taking its cut of the users’ collaterals.
A total of 1.49 million ETH is locked with the Maker DAO stablecoin generation scheme, down from 2 million a few months ago.
Decentralized finance uses various forms of lending to leverage the value of existing assets. Maker also intends to include other altcoins beyond ETH as collateral, and in the future, to add collateral in traditional assets.
Maker also intends to add KYC to adding new customers, in a bid to turn DeFi into a mainstream activity. Maker DAO remains among the top gas burners, but even with high fees, it cannot compete with the Fair Win FOMO game, which hires out entire blocks and freezes the work of other smart contracts.
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Images via Bitcoinist Image Library, Twitter: @DeFiSaver