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MakerDAO expects $1.5M bad debt after FTX’s liquidity crisis!

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MakerDAO expects .5M bad debt after FTX’s liquidity crisis!

MakerDAO, the largest decentralized finance protocol, has announced plans to liquidate heavily leveraged vaults to prevent excessive bad debt. They tweeted:  

“Due to liquidations being previously disabled on the mentioned vault types, some positions accrued interest above their collateral value, resulting in being undercollateralized.”

They expect $1.5M worth of bad debts, which will be a ‘Negligible’ 2% of the current positive system surplus, so it is not a threat to their financial health. MakerDAO tweeted:

“The negligible DAI bad debt mentioned in this thread doesn’t represent any threat or deficiency to the Maker Protocol’s financial health, nor its solvency.” 

MakerDAO is popular because borrowers use the facilities by depositing the same amount of collateral assets in the smart contracts, so it is an overcollateralized debt protocol, which is fundamentally strong and secure.

In November, the holders of MKR (governance token) voted for parameter changes that might result in the liquidation of USDP, GUSD, and USDC vaults that represent a collateralization ratio of less than 101%. The changes are expected after the Executive vote on November 30.

In a tweet, they announced:-