Update the "How would a flash crash affect the Liquidation of Vaults?" Section

I think it’s fair to say the “How would a flash crash affect the Liquidation of Vaults?” should probably be updated to include a historical reference for when the “flash crashes” do effect the Vault system.

https://community-development.makerdao.com/makerdao-mcd-faqs/faqs/vault#how-would-a-flash-crash-affect-the-liquidation-of-vaults

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Flash crash in the context of that questions means a price crash on a single exchange due to a market participant fat fingering a market order and clearing the book.

So that question remains correctly answered imo.
Perhaps a better thing to do is better explain the term Flash Crash, since it can be confused with a general market-wide crash of an asset like what happened during Black Thursday.

Will think about how to reword, we have a maintenance cycle coming up at the end of June to look all of the FAQs over.

If you have the time, you’re more than welcome to submit a PR with your own version of the answer.

Github Vault FAQ edit page

Nevertheless, thank you for this feedback Kames!

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Fair enough if that’s the context scoped in “How would a flash crash affect the Liquidation of Vaults?” meaning a single exchange. But I would hypothesize that the average user would correlate “flash crash” with the ETH price crashing across all exchanges and not a single exchange.

I could do a Twitter poll if we wanted to collect some data?

If you have the time, you’re more than welcome to submit a PR with your own version of the answer.

Have some free time on my hands. Happy to submit a PR if there is a reasonable likelihood of getting merged (obviously within reason/quality) and would be reviewed.

If eth price collapses (let’s say 90 percent in a day), it’s game over.

I don’t think you can really provide an answer to your question. We should just focus on explaining what are the assumptions that keepers can liquidate:

  • enough keepers willing and being able to bid
  • keepers biding have enough dai liquidity
  • etc.

Why keepers could not be willing to bid:

  • potential complete loss of confidence in collateral
  • (crypto) collateral type “floor” prices don’t really exist, there is no widely shared consensus about metrics (at least at this point in time) for long term value.
  • waiting on/expecting further vicious cycle of liquidations (preserving capital) based on known distribution of vault collateralization ratios
  • etc.

Can we sell collateral somehow on centralized exchanges if there’s not enough liquidity on auctions and DEX-es?

If not, then maybe we can assume that if there’s a serious crash and we cannot get the good price on auctions - do not sell. Stay undercollateralized and don’t do flops also. ETH will recover or DAI is dead anyway.

Kames, For now I am updating the question to be:

“How would a flash crash on a single exchange affect the Liquidation of Vaults?”

instead of how it was previously,
“How would a flash crash affect the Liquidation of Vaults?”