I’ve been asking a bunch of questions as I learn about Maker and appreciate your patience with me!
I was wondering if the scenario below is possible to do on Maker. It creates significant risk for the borrower, but don’t know if it creates any unforeseen risk for DAI/MKR/the protocol too.
Say required collateral ratio is 150%. I deposit $150 worth of ETH in a vault and withdraw $100 in DAI. I then buy $100 in ETH and deposit that back in a vault to withdraw $66.67 in DAI, and so on. If I keep doing this, I would have built up a $450 position in ETH (so 2X leverage on my initial $150). Including stability fees and liquidation penalty, this would be disastrous for me if ETH price swings downwards significantly (a ~30% downward swing wipes out my capital). Does this create any additional risk for DAI (or MKR holders), though?