Maker Allies Form Syndicate, Unite MKR Buyers of Last Resort
The DeFi community has banded to together to save one of the sector's most prominent projects, Maker. Others suggest that such intervention in bearish market conditions is questionable.
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After Maker’s collateral auctions were gamed by opportunistic traders, MakerDAO will sell the platform’s governance token, MKR, to raise funds and correct its deficit.
Members of the DeFi community have already formed a backstop syndicate to assure the auction goes according to plan. Not everyone agrees with the initiative, however.
Syndicate Rallies to Save Maker
In the midst of historic network congestion on Ethereum, bidders exploited Maker’s auction system after acquiring ETH and BAT collateral for no cost.
Since loans were closed but no DAI was received in return, the Maker system is now running at a deficit, which currently sits at $5.67 million,
To restore the system, MakerDAO is auctioning roughly $4.5 million of MKR to cover this deficit. It is unknown whether they plan to raise this amount as the deficit piles up.
If confidence in Maker is lost, the project may not be able to auction off the MKR, causing further distress to the system.
To reduce this risk, members of the community, mostly comprising of existing MKR holders, are forming a backstop syndicate to buy any unsold MKR in the auction.
The co-founder of Dharma, Brendan Forster, told Crypto Briefing that the initiative began with two of Forster’s colleagues, Nadav Hollander and 0age.
“The idea for the syndicate emerged right when confidence in DeFi and Maker specifically was at its lowest,” Forster said. “We were hearing many concerning suggestions from community members, which did not align with our own confidence in the system.
The syndicate includes a number of well-known individuals and projects in the DeFi ecosystem, including Richard Burton, Ryan Sean Adams, PoolTogether, Aave, and Dharma amongst many others.
As the syndicate is in its formative stages, there is little clarity on how they plan to function and support the MKR auction.
According to the outline drafted by Brendan Forster, the syndicate will ensure that if the price of MKR hits a pre-determined price level during the auction, they will step in to buy the tokens.
Critics Question the Maker Auction
Critics of the syndicate have stated that the initiative falls outside the bounds of how Maker has defined “risk parameter.” These parameters have previously included adjusting fees and collateral types on the platform.
It should also be noted that the system’s governance mechanism has operated without intervention in times of profit.
And as these bullish times come to an end, Gabriel Shapiro, a prominent legal authority in the crypto space, said that “stepping in” to change these parameters to “reduce [MKR holders] punishment” isn’t necessarily good optics.
Shapiro told Crypto Briefing that:
“The mere act of offering support at unspecified prices, combined with a delay in the MKR auction by changing a little-advertised ‘Risk Parameter,’ likely propped up the price of MKR and invites speculation as to whether such activities may be hiding risks from the market and whether MakerDAO should be supervised by regulators.”
Capital raised to negate the DAI deficit will depend on the number of tokens MakerDAO auctions and the average auction price per MKR in dollars.
If the price of MKR suddenly collapses, the MakerDAO may have to consider a larger issuance of MKR.
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