[Action Required] State of the Peg

Turning on USDC liquidations anytime soon would definitely be counterproductive.

On the other hand, I’m against a USDC-A CR lower than 110%. As long as the sf is low, there will be demand to mint DAI with USDC collateral.

I agree that 10m DAI may need to be minted, but note that this is also a moving target. Shorting DAI using USDC vaults also adds demand for DAI. And there will be naturally more demand for DAI as we get closer to the peg. Also maker holders may not have the commitment to continuously raise the USDC debt ceiling to whet the appetite for DAI.

Maker holders should be committed to raising the debt ceiling for stablecoins further if needed. And onboarding additional stablecoins is important for risk and optics.

Stablecoin vaults can’t be the only solution to bring us back to the peg. The DAI supply shortfall must be met by minting from other sources. Adding new collateral that can be easily onboarded is key.

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Seems like Link holders have a special appreciation for Link that might make it attract more Dai minting at least in the medium term, which is all we need. I admit this is more anecdotal than data driven.

Michael from Curve here.
Probably the best emergency action here is, indeed, lowering stability fee. But not sure if it will be enough.

Here is some idea for a more long-term working solution:

  • Maker contract allows to mint unlimited uncollareralized DAI to a special trading contract T;
  • T can only dump that DAI for other stablecoins when DAI price is > 1. Or to deposit that DAI on Curve (which shifts DAI price down);
  • If DAI price is < 1, the only thing that contract is allowed to do is to buy that cheap DAI and burn;

The whole operation (since DAI is only allowed to be sold when expensive and bought when cheap) is profitable, and so doesn’t create the actual DAI being uncollateralized (although it may seem so on paper).

That said, contract T having unlimited (or time-limited) DAI minting powers is quite a serious thing for the system, so that couldn’t work as an emergency action.


I think the plan is to implement essentially the solution you propose except using the regular elements of the Maker protocol (i.e. vaults) and allow participants to profit from the arbitrage instead of the protocol.

Ah good. This’d be an “arbitrage in time” though (not immediate)

scott from DEX.AG

there is a very large long term problem for MakerDAO regarding the peg, CDP owners are more sophisticated than DAI holders.

To get a CDP you need to learn quite a bit about how ethereum works and then learn about how Maker works. To use DAI you need to understand almost nothing besides how to use metamask for tokens.

More sophisticated users lose their keys less often. So DAI wallets become dead quicker than CDP wallets. This mismatch is made quite a bit worse by the fact thatkeepers can close the CDPs held by dead wallets. As i have stated privately to various associated folks, this mismatch is a long term problem that will inevitably create as nasty DAI short squeeze if no solution is found.

A short term solution should be something like:

  1. Add $USDC as collateral.
  2. Set DAI pool cap at $10M
  3. Set USDC margin requirement to 1%
  4. Set USDC Stability Fee at 0%
  5. Set DSR at 2%
  6. Set ETH Stability Fee at 2%

A medium term solution is something like selling uncollateralized DAI on the market for 1.005, with a bid to buy this uncolleteralized DAI back at .995, vs USDC (or other stable coins).

The long term solution is the DAI depegs from dollars and runs its owning monetary policy based on stability of purchasing power vs a global inflation metric. the collateral in CDPs would become more like a foreign reserve, with the floating DAI being uncollateralized.

The long term solution requires nation-state size scale, so its prolly not that important to think about it too hard, as it is so far away.


Looks like Vault holder 3931 just came back for $2MM.


Earlier this week I was thinking about a medium term solution while dealing with some insomnia. Since insomnia ideas are the opposite of shower thoughts, it might be terrible with some obvious failing. What’s more, this idea probably wouldn’t work all that well unless places like DEX.AG integrated it. I’m still wrestling with it, and the full version is probably its own post if not its own MIP, but here’s the short version.

We create a kind-of flywheel module to the Maker Protocol that is similar to the migration contract in that it has exclusive access to a set of collaterals with ideal parameters; a dark vault. Sane DC limits, 0% stability fees, 100% collateral ratio, and no liquidations. To the outside world this module would behave like a simple market trade. Show up with ETH, BAT, or USDC, and get ETH, BAT, or USDC amount of DAI out, where DAI is minted at $1. Same in reverse, show up with DAI and get back ETH, BAT, or USDC again where DAI is burned at $1. The former service would be used when above peg, the later service used when below peg. The one additional constraint is that the amount of liquidity is rate limited by seconds, risk, peg deviation, and some desired time-box where we return to the peg. I’m waving my hands at this formula for now.

At the time, this seemed like a great idea:

  • For these time slices where DAI could be minted against collateral, we are no longer dependent on the fear/greed of market participants.
  • The right formula could have us returning to peg within that timebox.
  • More potent the further off-peg we get, and has very little liquidity when close to peg.
  • Solves the peg problem efficiently when DAI is over peg and collateral markets are bullish, and when DAI is under peg and markets are bearish. Both rare cases.
  • Felt cleaner than a TRFM solution or PID controller on rates, as we can side-step the rate and market incentivization problem.
|   t1   |   t2   |  ...  |  tn   |
| 12k DAI| 10k DAI|  ...  | 2k DAI|
|-------------1 week--------------|

Then, sweet sweet sleep came, and in the morning I started seeing all the failings:

I was trying to fit the solution too much to our existing problem. That is, it’s a reasonably elegant solution for a set of market conditions that are rare. Without going into detail on all the cases that could happen, it should be obvious that the underlying collateral is volatile and could leave those dark Vaults with either a surplus or debt.

The surplus case isn’t so hard to deal with as there are any number of things one could use the surplus for, burn MKR, buy DAI on the market, or just keep it around for a rainy day.

But the debt problem defeated me. The debt problem meant that the system would have unbacked DAI, and that we would probably need to accrue our losses to system debt, which could eventually result in flop auctions and dilute MKR holders. This might mean that the available liquidity should probably be proportional to system surplus, and since we burned that on Black Thursday, it doesn’t seem that helpful of a solution now.

Anyway, this is where I gave up on the idea, or at least pushed it to a more long-term consideration. I leave it here in case someone sees more failings or better yet, a way to make it work in the medium term. At very least, perhaps it will inspire other solutions. I don’t know, maybe there’s a way to integrate your idea for this failure case.

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I was thinking about this today as well. In the long term, I think an escheatment/abandonment procedure will be necessary. Operationally it could work like this:

DAI held in a wallet that has been inactive for “x” number of years becomes inactive, transforming from DAI to DIE. The DIE becomes redeemable for a basket of collateral assets based on the OSM price of the collateral pool at the time it becomes inactive (basically a personalized emergency shutdown). Concurrently, the system mints and auctions/sells new DAI in order to accumulate the collateral assets required to pay the claims on new DIE.

This would have the impact of recycling DAI from abandoned addresses and ensuring that lost keys/dust don’t precipitate a liquidity crisis. But I’m not sure if this would be possible technologically, and it would definitely pose unique risks as well.

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I don’t agree with your basic premise. My take:

  • it’s not existential threat, but threat to it’s market status and that’s a HUGE difference.
  • you could provide more detailed peg analysis then 1.02-1.03 (currently the peg is below 1.02)
  • you conveniently ignored that all (non-crypto) markets are not in normal conditions and we should acknowledge this important fact. (there is a difference of peg being off by 2p in “normal economy” vs now)
  • i think community should be cautious of “no matter what it takes” approaches (basically mirroring central banking mentality of pretending they are just “technocrats” and they can avoid questions of ethics/politics)

Additionally, i am disappointed that larger defi actors and institutional investors voice their opinions only in periods when peg is off or there is some crisis.

I am not saying that current situation does not warrant special attention or need to act, but i am very much against quickly onboarding multiple collateral we don’t understand, plus there won’t be much dai generated in any case. I think we should focus on stablecoins and all other collateral is off the table atm, unless their ceilings are very low.


I think the issue with this for the immediate future is that MKR governance doesn’t have this kinda of control over the DAI contract. Also that if the user/keys are “dead” then how would they redeem anything?

Taking a step back and looking at the broader crypto ecosystem reveals that ALL of the major stablecoin projects are currently trading above peg right now. Tether, Pax, BUSD, TUSD, and Dai are all priced at $1.01 on Coinmarketcap right now. I think it’s a little unfair to place this entirely on Dai.

In order to drop the peg down to $1.00, Maker participants would need to supply enough liquidity to flatten out the prices and remove the arb opportunities across all of the the other stablecoin projects. This is an amount many multiples higher than the $5-10 million predicted here. This is a flight to safety in the general market, and there’s a premium in all stablecoin projects as a result.

I agree that we need to add new collateral types, but we need to be deliberate about the process and acknowledge the risks. I strongly oppose the recent zeitgeist that catalogs everything as an emergency and demands unprecidented and uncalculated action.


True, dealing with inactive wallets is more of a long term problem/solution. Inactive wallets would probably never be recovered but the DAI would be able to recirculate and we would still be honoring the principal of DAI being fully backed by collateral.

I think passing the current executive would be a good start for the immediate peg issues, pulling the levers we already have

Tether, Pax, BUSD, TUSD, and Dai are all priced at $1.01 on Coinmarketcap right now. I think it’s a little unfair to place this entirely on Dai.

regardless of what CMC says, USDT been rougly inline with USDC on binance (minus someone’s weird fat finger recently). currently 0.08% over par.

USDC has been maintaining its peg exactly, bc of the infinite 1:1 creation redemption available to coinbase users.

This is an amount many multiples higher than the $5-10 million predicted here.

you only have to sell enough DAI such that the “DAI over par” bid is satiated. the imbalance between buyers and sellers at par (the net of the imbalance is the size of the “DAI over par” bid) is unlikely (by my own dead reckoning) to be more than 10% of all DAI outstanding.

I strongly oppose the recent zeitgeist that catalogs everything as an emergency and demands unprecidented and uncalculated action.

DAI has been simmering in this danger zone significantly over par for a month. doing nothing risks an actual emergency where there will be hours, not days to push a fix. the farther DAI gets from par, the less available DAI there will be for sale each 1% up. there could be a situation where borrowers are in a catch22, pay 20% over par to buyback their DAI to repay their loan or get liquidated for a cheaper penalty, even though they had the money to repay if DAI was fairly priced. The fallout from this scenario would likely permanently impede MakerDAO’s ability to pursue its vision for a decentralized stablecoin, and potentially make it impossible for any other decentralized stablecoin project to be taken seriously for years.

The primary risk that needs to be acknowledged is that MakerDAO is currently sitting on a precipice.


In reality, no. The Fed and the USD or CAD is cheating and can manage the actual value of the USD as they want, they can produce infinite supply. While is not the same with the DAI supply.

MakerDAO is not on a precipice, that is just an illusion that people think right now. The actual market is what is it right now, WE make a difference with DAI supply or Crypto in general.

MakerDAO has nothing to do with this either the MakerDAO Foundation. At the end, it’s on the shoulder of the community and what they actually do with the offer and demand of the DAI.

DAi is there to stay, there will have some change eventually i guess, but i am not thinking that way.

It’s just not possible, to keep the USD at a rate of 1,41USD for 1CAD with the crisis… there is something behind this…

Where is the transparency of the Government in that situation ? We will never see the real numbers, while here with the gouvernance and transparency of the MakerDAO, it’s all there, the numbers and the current holders. It’s not the same.


Dai borrow rate on compound has shot up to 10%- so its no longer an option there to get cheap dai using USDC as collateral. Lowering the USDC stability fee to 2-3% would be critical to getting about 10m new dai minted which could easily bring us back to the peg.


@paraficapital have you voted for the current executive?


I think it’s pretty clear the MKR system is at a tipping point and our governance decisions need to be decisive and targeted (and happen very quickly). I agree that in short order we should set SF’s to 0 and on-board new collateral types (LINK) and any others people feel are appropriate. We could also consider lowering the CR on USDC although at 0% SF not sure it will makes a huge difference (just need to manage the USDC ceiling).

Why are we at a tipping point? The community is losing faith in DAI which is the whole reason MKR exists in the first place. We need to get it on peg and quickly. It’s a virtuous/vicious cycle. The longer it trades above the peg and governance doesn’t adequately respond people will hesitate to use it and we will lose the network effects. If we can get it on peg and keep it there people will be more confident in using it for stablecoin purposes. Network effects are immensely vital to the success of DAI. Also, anyone who says DAI trading above the peg even at 1.02 is not a problem, I’m sorry but I vehemently disagree.

What do we need to do now? (and we should do this on an emergency basis) This multi-pronged approach of setting SF’s to 0 and on-boarding new collateral will create new DAI issuance from USDC, LINK and other new collateral. The fundamental problem is obviously that we can’t set SF’s < 0. That creates governance limitation that we need to solve through other means by on-boarding new collateral and using USDC on a temporary basis. We just need to maintain a lid on the USDC ceiling to manage concerns about how much USDC backs DAI for now. I understand that some people are uncomfortable with having USDC back dai in some capacity, but given we are at the lower bound of our rate limits we need to consider this as a temporary emergency solution to get the peg down to maintain the network effects. Regarding concerns about LINK or other assets being correlated it doesn’t really matter right now because if we only have ETH we are already running the same-way risk just scaling it and creating more DAI liquidity in the process.

Again to reiterate if we overshoot and end up with DAI below the peg it doesn’t matter as we can always raise SF and attract DAI demand from savers and USDC CDPs will unwind below 1.00. We all want MKR to succeed so let’s make it happen.


We have been trending down over the last 3 days and at time of writing are at 1.01 on Coinbase. I don’t think that this is crisis mode given the global economic situation. We have spent extended periods on both sides of the peg before.

Granted, for some anecdotal perspective, I sold all my DAI at that last bump to $1.045 and don’t plan to buy any until we’re back at peg. I otherwise would be holding and using DAI daily if we were at peg.

I don’t support rushing into new collateral types and especially not centralized coins. I do otherwise support properly vetted collateral.


Negative SF would help quite a lot, financed from positive collected SF.