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DeFi Saver, a project aiming to be a one-stop-shop for decentralized finance, has failed to honor some of its processes due to problems with the Ethereum network. The network, still congested by a lottery game smart contract that hogs 59% of all gas, was too congested to allow the transactions for the smart contracts of DeFi Saver.
Falling ETH Prices Caused Liquidations
In addition to the technological difficulties, DeFi Saver announced its financial operations were hurt by the drop in the Ethereum market prices. ETH is down to $167.43, after sliding from a recent peak at $220.
Due to the heavy drop in ETH price coinciding with network congestion and a spike in gas prices today, our automation system struggled to execute all needed CDP ratio adjustments in time. (1/4)
— DeFi Saver (@DeFiSaver) September 24, 2019
DeFi Saver relied on an automated process of monitoring for liquidations. But due to data congestion, the monitoring mechanism failed and led to multiple liquidations, based on volatility. The event underlines the risk of using Ethereum and the ETH token as a basis for decentralized financial operations.
DeFi Saver allows for easier interaction with Compound and Maker DAO, two of the biggest decentralized finance operations. DeFi Saver also allows investment in the dy/dx decentralized exchange and the Fulcrum financial scheme. Its app and wallets allow for links to decentralized exchanges, affording DAI liquidity, as well as tracking multiple portfolios for DeFi and crypto-based lending.
DAI Shaken Down, Supply Down by Nearly 10%
After the market-wide flash crash, DAI has suddenly dropped its supply, from around 89 million coins to just 80 million. Collateralization also fell, though it remains robust at 313%. The rules of Maker DAO hold that if the price of the underlying asset drops, the collateral is sold. The sudden drop in crypto prices caused precisely this type of liquidation, as ETH tanked suddenly, with no possibility to stop the CDP function from taking its cut of the users’ collaterals.
A total of 1.49 million ETH is locked with the Maker DAO stablecoin generation scheme, down from 2 million a few months ago.
Decentralized finance uses various forms of lending to leverage the value of existing assets. Maker also intends to include other altcoins beyond ETH as collateral, and in the future, to add collateral in traditional assets.
Maker also intends to add KYC to adding new customers, in a bid to turn DeFi into a mainstream activity. Maker DAO remains among the top gas burners, but even with high fees, it cannot compete with the Fair Win FOMO game, which hires out entire blocks and freezes the work of other smart contracts.
What do you think about the risks of DeFi? Share your thoughts in the comments section below!
Images via Bitcoinist Image Library, Twitter: @DeFiSaver