Liquidations have a major role to play when it comes to maintaining the Dai Peg.  For those who do not know, Dai is generated by users versus their crypto collateral assets which are deposited into the Maker Vaults on the Maker Protocol.

To ensure confidence in the liquidation system and to improve the system efficiency, it is important to improve the overall liquidation ecosystem.  Dai recently published about how liquidations will help the Dai Peg.

Liquidations 1.2 deals with liquidity issues by limiting the numbers of auctions which occurs simultaneously. Liquidations 1.2 thus permits keepers with the opportunity to recycle capital in exchanges by bidding on multiple auctions. Further the protocol also facilitates protection for vault owners where if a flash crash should occur only a part of the collateral will be sold.

The price of the Dai is determined by the Market supply and demand. The decentralized governance community will vote to change the incentives, which in turn will influence the Dai supply and demand to sustain price stability.

Sydney Ifergan, the crypto expert tweeted:  “Maker (MKR) well know the importance of liquidity and they are ensuring that they maintain the Liquidation Ratio (LR) per their governance.”

The voting process ensures that there is sufficient collateral in the Protocol to provide for the value of Dai which is generated versus it.  Every collateral asset is assigned a Liquidation Ratio (LR), which is determined by the Maker governance.  When the value of the collateral falls below the LR, the contents in the Vault will be further auctioned to recover the Dai for the Protocol. 

Effective Liquidation mechanism is important to sustain the Dai stability and it is very important to retain confidence in Dai, whether for the Vault owners or the Dai users.

The governance also ensures that the collateral auctions take place on time to avoid risk of collateral asset prices falling further leading to greater debt.  For the auction to happen, sufficient bidders need to be there to take the collateral that is auctioned to eventually recover the full amount for Dai to eventually fetch the best price for the Vault owners. Keepers are independent bots which participate in the auction.

Maker (MKR) (Dai) Hit Half a Billion Supply

Recently, Dai hit half a billion supply.  This is considered to be epic and further looks like the new vaults will serve a good purpose. Lot of good news to unfold soon about more use cases.  The latest being Async Art who stated that they were also using Dai for their Auction.