Ethereum has fallen by about 10% from $280 to $250, seemingly dragging other cryptos down with it after numerous Collateralized Debt Positions (CDP) were closed at MakerDAO’s DAI.
As can be seen above eth deposits have fallen from circa 2.5 million eth to now just ◊2 million, a quick drop mostly yesterday of some ◊500,000 in total, worth about $130 million.
That has seemingly slightly affected dai’s dollar peg which has dropped by 2.57% to now $0.98 from the usual circa $1.
The reason for these movements appears to be due to concerns that available MKR liquidity could rise to a sufficient level to flashloan attack the system.
Such concerns currently seem to be unfounded as only 16,000 MKR is available in the orderless book exchange Uniswap – which doesn’t even have flashloans as far as we are aware unlike DyDx and Aave – when 80,000 MKR is needed.
As you might be aware Micah Zoltu of Augur pointed out in December an oversight of sorts that can potentially game MKR’s governance system.
In short rules in this dapp are decided by which smart contract has most MKR “staked” in it, so making it a direct democracy of sorts.
To guard from potential attacks there are fail safe mechanisms that delay the enforcement of the new rules, but apparently they’ve set such delay at zero seconds.
So to steal all the eth in MKR all you need to do is to code a new smart contract that basically says send all the eth deposits in dai to 0xhaxor. Then you need to find more MKR than in the current active smart contract, so about 80,000 MKR ($52 million).
That’s a considerable amount so it seems Makers were not very concerned, but with flashloans where you insta-borrow permissionlessly without collateral or credit checks from a liquidity pool, there could be the potential for gaming MKR’s governance system.
An emergency vote is to take place tomorrow to increase that delay from 0 seconds to 24 hours, making flashloans ineffective in addition to that period acting as a fail safe mechanism.
Another defense may also be an increase in staked MKR on the current active contract, which in this fairly concentrated token should be somewhat easy.
So on the surface it seems there isn’t much reason for concern not least because it appears the available MKR for borrowing is far lower than 80,000, but some overcautious traders seem to have reacted and so have affected the price presumably because they were leveraged – “borrowed” eth – and therefore had to pay down the cost when closing the CDP, meaning in effect had to sell the eth.
Longs and shorts in other exchanges seem to have not moved much, so the recent price action seems to be just a temporary reaction to very specific and particular possibilities that may have inadvertently or otherwise been exaggerated.