Will DeFi pass with flying colors this semester? Data websites compile recent developments of major projects.

On March 12th, Ethereum (ETH) dropped more than 30% within 24 hours, putting significant pressure on DeFi and triggering a series of chain reactions. In response to this historic plunge, data platform DeFi Pulse released a "Status Report" that tracks the aftermath for various DeFi projects.

• MAKER will conduct MKR debt auction on March 19
• Most DeFi projects increase risk mechanisms for DAI

DeFi Passes Stress Test

The recent drop in Ether prices has prompted many DeFi users to engage in transactions such as trading on decentralized exchanges (DEXs), redeeming Ether, or increasing collateral ratios. The surge in on-chain activities has also led to Ethereum gas fees hitting new highs this year, sometimes exceeding 200 gwei.

Despite the increased transaction volume putting significant pressure on DeFi smart contracts and the entire Ethereum network, DeFi Pulse points out that DeFi remains one of the most exciting emerging sectors globally. Even though facing challenges, it will continue to grow and strengthen through these tests.

DeFi Pulse has highlighted some DeFi projects that have been impacted and closely monitored during this recent market downturn.

MAKER

As previously reported, the surge in on-chain transactions due to the drop in Ether prices caused a sharp increase in Gas Fees, resulting in MakerDAO's liquidation mechanism not functioning as expected. Network congestion led to many users' collateral being liquidated.

In response, Maker released a blog post mentioning various parameter changes to prevent such events in the future, including lowering debt ceilings, decreasing stability fees, and changing auction parameters.

Among the parameter changes that have been approved through voting is the delay of the MKR debt auction. The debt auction is due to defaults caused by the plummeting collateral value, and the delay is to provide Maker with more time to prepare for the auction. Currently, defaults have reached $5.68 million.

The auction is scheduled for 10:25 AM UTC on March 19, and the auction rules are as follows:

• The first bid will sell at a price of 50,000 Dai / 250 MKR, equivalent to a price of 200 Dai/MKR
• The second bid will be awarded at a price of 50,000 Dai / 230 MKR, approximately 217 Dai/MKR
• The number of MKR will decrease with each bid
• If no user bids on the initial 250 MKR, the auction will restart in three days at a price of 50,000 Dai / 300 MKR, equivalent to 166.66 Dai/MKR
• If at least one user bids, the auction will end within 6 hours if there are no higher bids

In addition, other DeFi projects including Dharma, bZx, and Ethereum developer ConsenSys have joined the DAI Backstop Syndicate established by the crypto community to assist MakerDAO in the upcoming auction as a backstop.

Link to full project list

Compound

Lending platform Compound has proposed preventive measures against potential mass liquidations of DAI by increasing the liquidation incentive from 5% to 15% in the Compound protocol to maintain market solvency (activating this mechanism only when necessary). There was a detailed report on "liquidators" previously.

Three changes have been queued in the Compound protocol timelock, as a precaution due to recent volatility:

A new price feed that allows DAI to become unpegged in a MakerDAO emergency shutdown;
Liquidation incentive 5% -> 8% -> 15%

These will only be activated if necessary.

— Compound Labs (@compoundfinance) March 13, 2020

Aave

Lending protocol Aave, in light of the unstable conditions in the MKR and DAI systems, has decided to reduce the Loan To Value (LTV) ratio to 1% to mitigate risks, with existing borrowers exempt from this limit.

Due to the current instability of the DAI stablecoin system, our risk assessment team has decided to lower the LTV for future borrowers of both MKR and DAI to 1% as a safety measure to prevent possible abuse. This doesn't affect current borrowers using these assets as collateral.

— Aave (@AaveAave) March 12, 2020

DDEX

Decentralized margin trading platform DDEX liquidated approximately $500,000 worth of collateral within minutes during the Ether crash, resulting in a loss of about $5,373. DDEX claims that the losses will be covered by an internal insurance fund, and no user will lose assets.

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In the last 24 hours the price of #ETH fluctuated by over 30%, and #DDEX liquidated ~$500,000 of collateral in minutes. Due to liquidity shortage, $5,373 (~1%) loss was incurred. By design, this amount will be covered by built in insurance. No lenders will lose assets.

— DDEX (@ddexio2018) March 12, 2020

DeFi Pulse notes that decentralized exchange Uniswap, DeFi lending platforms like dYdX, Nuo, and Dharma, as well as payment networks such as xDai and Connext, performed the best during this crisis.

DeFi Pulse concludes:

Such stress tests help identify flaws in DeFi smart contracts, allowing for corrections, improvements, and plans to address potential smart contract risks. DeFi is still a very young market, and when crises arise, don't forget what unites us: a bright future and an open decentralized financial system.

Related Reading

• 【Tracking】What did Twitter analysts say after the crash on March 12?
• Market crash tests DeFi resilience, MakerDAO faces defaults, platforms undergo high liquidations

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