I see that incognito is trying adopt the same strategy as makerdao with the btc trustless custodian, but however we saw the flaw in makerdao where with the brutal sudden dump of eth some collaterals value were under the dai amount minted before the liquidation but fortunately they had coinbase to bail them out with some USDC. So what will happen in incognito case if with a sudden brutal dump happens where the custodian’s collateral value become less than the btc amount value held in custody right before the all liquidation???
Do you have a link on this, I want to read up more about the bailout and stuff with MakerDao? I’ve personally never heard of them.
hey @ELDAD, this is really great (and tough) question Either Incognito or MakerDAO is using an over-collateralized mechanism (150% value of original/public coins, say btc & bnb in our case) to eliminate the situation you mentioned and protect user’s assets. Specifically, in Incognito’s mechanism, when the value of collaterals drops significantly to 120%, liquidation would be kicked in then users can take the liquidated collaterals and sell them immediately in order to avoid any losses. We’re figuring the %(s) above out, maybe those will be adjusted a bit to be able to have a fair & safe protocol for all participants (i mean not only users but also custodians)
The same question as @Revolve’s, we’ve studied to MakerDAO’s mechanism before but didn’t know about the bailout from coinbase yet. Probably our research was outdated so could you please provide us any links or things like that so that we can learn, thanks.
Maker wasn’t bailed out with coinbase.
Here’s what happened:
-dai was above the peg
-they added usdc as a collateral type to help drive dai minting, which increased the supply
-this worked somewhat, but dai was still above the peg
-they added wbtc as another collateral type
Now dai is about on peg
Some usdc were injected into the makerdao system to help stabilize Dai and to recover the $4millions hole created by the drop. The press release won’t tell you everything. This wasn’t only just approving a collateral type. In reality usdc was meant to act as the fed of makerdao so their can print USDC and back any unbacked dai out there.
I follow maker pretty closely, beyond the press release.
It was 2 separate issues:
-above the peg
-under backed debt
Both are interrelated.
Bottom line is that using liquidation penalties and over collateralization to maintain systems is common, but problematic, as you mentioned.
Another issue is oracle attacks and hidden economic vulnerabilities.
I’m looking forward to seeing how the team handles these issues.