Hi all, this post explains the sequential process for shutting down Single Collateral Dai. The process involves two executive spells; one to protect MCD and the other to shutdown SCD. I will outline what these steps are and why they are important. As of April the 19th you will notice that the section in (B) Executive Spell 2, now includes updated steps, a timeline and request Governance Vote support.
A) Executive Spell 1 - Set the SAI Debt Ceiling to 0 in MCD
- This action will protect MCD by preventing SAI from being swapped for DAI. This is necessary to prevent exposing MCD to SAI liquidity and/or peg fluctuations.
- We will continue to allow DAI to be swapped for SAI. This will allow individuals to push DAI through the Migration Contract to drain it of all the SAI, which will be burnt into ETH at shutdown.
SCD is now isolated from MCD, the Migration Contract has been drained, and SCD can be safely shut down…
B) Executive Spell 2 - SCD Global Settlement
- The action of calling cage is the final and definitive step to shutting down Single Collateral Dai.
-> New Information: Proposed SCD shutdown steps once the SAI Debt Ceiling has been set to 0:
24th April: Governance community vote on SCD Shutdown. The community has signalled to introduce a ‘pause’ which we are calling the grace period between when this vote passes and the time at which SCD is actually shutdown. This gives the community time to carry out the following steps.
24th April: MKR Oracle is deactivated. Following community approval of the Governance poll (link tbd 20th April), The Oracle Team with their existing mandate will deactivate the individual price feed providers thereby invalidating the MKR price feed. This will have the effect of eliminating the MKR stability fees for all remaining CDPs (more information below).
24th April - 10th May: CDP holders migrate to MCD. This will be possible through the Migration Portal and will not require the payment of stability fees. This will have the positive effect of encouraging people to (1) migrate their CDPs and (2) help reduce the amount of Sai in the migration contract.
10th/11th May: Liquidity providers drain the migration contract. Liquidity providers will work with the Foundation to drain the migration contract, which will involve:
- Depositing USDC into MCD to mint enough DAI to cover the remaining balance of SAI in the migration contract
- This DAI will be converted into SAI which will be deposited into the migration contract
- The migration contract at 0 will now be unable to introduce unbacked debt into MCD once shutdown occurs
12th May: Actual SCD shutdown occurs. As planned in the SCD shutdown spell, the end of the grace period marks actual SCD shutdown, this is currently scheduled for the 12th of May. Upon which point, SCD will be irreversibly shutdown and one SAI will become fixed to $1 of ETH.
Governance Poll Support for Oracle Deactivation Vote Here
By deactivating the MKR Oracle for SCD in order to forgive Stability Fees, it will be necessary to post an active Governance Poll requesting Maker Community support. As can be seen from the above process, the action of deactivating the Oracle will eliminate stability fees and incentivize users to migrate their CDPs. This process helps the community of CDP holders work together to drain the migration contract. The end state for CDP holders migrating is no different than if they had waited for actual shutdown, yet it has the benefit of allowing instant migration, and no need to wait for actual shutdown with the ensuing cool down period (6hrs). It also reduces the burden and exposure of liquidity providers needing to source large amounts of Sai for the migration contract.
Implications: There is a risk that unknown ecosystem participants may be using the MKR Oracle feed, in which case deactivating it would disrupt their feed ingestion. We will be doing a blockchain block analysis of who is using the feed as well as reaching out to partners to mitigate this risk as much as possible.
SAI Liquidity Providers:
In the above, you may have noticed that liquidity providers will be depositing USDC to mint DAI which will be converted into SAI to drain the migration contract. Once shutdown occurs they will be left holding anywhere up to 20k ETH depending on the amount of SAI they needed to purchase. To complete the trade and eliminate exposure on the original USDC position, this ETH will incrementally be wound back into DAI and the original USDC position closed.
SCD has now been globally settled and Sai owners (including the liquidity providers that purchased SAI) can claim their ETH collateral while CDP holders must wait for the cool down period to end…
C) Sai Owners Redeem Collateral While Bite Keepers Bite CDPs
- Sai owners will be able to immediately redeem their ETH collateral from the Migration App. (Draft UI to be shared in a follow-up post)
- Bite keepers will be required to bite all CDPs to ensure that the maximum PETH:WETH ratio has been reached before CDP holders claim their collateral. The Migration App will not allow CDP collateral redemption before this time has elapsed. (Please see note below)
Now that the bite keepers have bitten all CDPs and a maximum amount of ETH can be claimed for each unit of PETH that a CDP holds, the CDP holder can now claim their collateral…
D) CDP Holders Redeem Collateral
- CDP holders can go to the Migration App to redeem their ETH. (Draft UI to be share in follow-up post)
The End - Success!
Note: PETH:WETH Ratio - This will be covered in our shutdown guide, however I would like to give it mention here too. Please observe the cool down period before redeeming your collateral - this is currently estimated to be 6hrs yet may be much longer, and will be determined at the time of shutdown as a result of how many outstanding CDPs exist. This waiting period is necessary in order for the system debt to be accounted for by bite keepers, thereby allowing users to receive a maximum amount of WETH for every unit of PETH in their CDP. If they do not wait, the exchange rate may not yet be favourable due to debt in the system. Although the Migrate.makerdao.com site will not allow users to claim their collateral during this cool down period, interacting through the command line will still be possible, so again, users should pay close attention to the PETH:WETH exchange rate applied.
Immediate Next Steps
A) The Maker Foundation Interim Risk Team and the Interim Oracle Team have placed a Governance Poll into the voting system for the community to signal their support for the Oracle team to deactivate the MKR Oracle in Single Collateral Dai. Link to Governance Poll.