For the first time in the protocol’s history, decentralized finance (DeFi) credit facility MakerDAO will begin a MKR governance token auction in two days. The MKR auction, known as the Debt Auction, triggered after the systemwide under-collateralized debt reached over $4 million, will programmatically mint and sell MKR tokens in 50,000 DAI increments and use the funds raised to cover outstanding bad debt.
MakerDAO borrowers mint stablecoin DAI, which has a soft peg to the dollar, by depositing ETH and BAT as collateral. However due to the ETH price crash, a large volume of loans dropped below their collateralization threshold, triggering liquidation proceedings.
“Some vaults were liquidated with 0 DAI coming back in the system, resulting in a net loss for the system. The MakerDAO had a +500k$ surplus before the price drop and now has a -4M$ surplus that needs to be filled,” a MakerDAO community member summarized.
