The largest "air currency" in the industry is Ethereum?

Editor's Note: This article comes fromVernacular Blockchain (ID: hellobtc), Author: Five Fireball Leader, reprinted by Odaily with authorization.

Editor's Note: This article comes from

Vernacular Blockchain (ID: hellobtc)

Vernacular Blockchain (ID: hellobtc)

, Author: Five Fireball Leader, reprinted by Odaily with authorization.

March 2020 is destined to be a month that will be remembered by history.

During this month, the new crown epidemic began to break out around the world, and many countries closed their cities and even closed their countries.

U.S. stocks have plummeted, crude oil has plummeted, Bitcoin has plummeted, and even gold has also plummeted. All so-called safe-haven assets seem to have lost their meaning. Only cash, especially the US dollar, is king. However, the Fed followed up with unlimited QE (understood as unlimited printing of money) that "lived up to everyone's expectations", which made people wonder, what else should they hold?

And the blockchain has not been able to escape this catastrophe. The DAPP, public chain and other stories cannot be told for the time being, and the cross-chain is still difficult to produce. Now the only DeFi that can be sold is also on the day when the currency price plummets ( Black Thursday (known in history) ushered in a blow. The leading brother MakerDAO triggered large-scale liquidation due to the sharp drop of ETH, and because of the weak performance of ETH, a large amount of ETH was auctioned off at 0 yuan, forming a debt deficit of 5 million US dollars.

Ever since, Maker has made several decisions in the past few days:

1. Additional Maker issuance (equivalent to diluting the proportion of existing MKR holders to repay debts);

2. Add USDC as the third collateral that can mint Dai to enhance liquidity (this has triggered a big discussion about the purity of DAI's "decentralization", after all, the first two ETH and BAT are purely decentralized cryptocurrency);

4. The control of MKR tokens is completely transferred from the foundation to the governance community, and MKR tokens are now 100% controlled by MKR holders.

Well, this is not a problem. In my opinion, adding USDC or future BTC as collateral is an effective measure to strengthen the robustness of the system. However, the main collateral of MakerDAO is still ETH, and the system still runs on ETH , we shouldn't have too much hostility to USDC's possible "pollution" of the "purity" of DAI's decentralization.

However, what I want to say is that the biggest risk of MakerDAO is not here.

MakerDAO's biggest risk has always been ETH itself. Strictly speaking, it and ETH are both prosperous and mutually exclusive.

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What would happen if Bitmex did not unplug the network cable?

You may have heard that the reason why Bitcoin stopped at 3700 on the day and rebounded quickly was because Bitmex "unplugged the network cable". As for whether it is really like the official hardware failure and the DDOS that was later changed, we don’t know. We only know that after 24 minutes of downtime, the BTC futures price began to rebound rapidly from 3614.

Many senior people in the industry actually support Bitmex’s unplugging of the network cable openly and secretly, because this is equivalent to a “hidden circuit breaker”-timely brake the panic and alleviate the liquidity trap. Many people have begun to call for us to have a real "circuit breaker mechanism" like the stock market, otherwise the consequences will be disastrous.

If Bitmex hadn't been down, guess what would have happened?

Maybe the "return to zero" that many people often shout is not a dream, because there are too many BTCs locked up in Bitmex as collateral, and if they are allowed to spiral down like this, 1,2000 BTCs may also be seen.

3700 BTC corresponds to 86 ETH, 1,2000 BTC, ETH price falls to 2,30 is a sure thing

What will happen to MakerDao if it really reaches $20?

You know, if ETH falls to $56 that day, the $52 million ETH collateral will be liquidated. If it falls to $2.30... Maybe the Maker project will be completely cold.

Especially considering the automatic liquidation when it fell to 86 US dollars and the superimposed congestion on other Ethereum, the gas fee soared to a maximum of 30 US dollars, resulting in more than 5 million bad debts caused by more than 30% of zero-bid liquidation. When it reaches $2,30, the congestion on the Ethereum network, the proportion of 0 bid liquidation, and MakerDao's bad debt...it's unimaginable.

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What if MakerDao becomes more popular?

In the first year of DeFi, how much ETH is locked in Maker? - More than two million - accounting for about 2% of the entire ETH issuance.

Of course, MakerDAO’s liquidation mechanism will definitely start liquidation immediately when the threshold is reached, even if the performance problem of Ethereum (will be discussed later), when there are enough mortgaged ETH, can the market withstand a death spiral? ETH?

To use an extreme example, if the total amount of ETH with a market value of 10 billion is half, that is, ETH with a market value of 5 billion is in Maker, and 4 billion DAI is issued. When ETH began to experience a black swan plunge, according to MakerDao's mechanism, theoretically, it should be possible to start liquidation when the market value of ETH fell to seven or eight billion, and to clear it all when it was only 5 billion or 4 billion (sell all ETH)

But this is just an imaginary scenario. When a black swan of that level occurs, and it involves dozens of times the current volume, it is a question whether the market can hold so much ETH in a short time. The point may become very large, and the point of selling out ETH is much lower than the theoretical point. It is already less than 4 billion to support the 4 billion Dai issued outside. In this case, the value of Dai will be seriously affected. If there is not enough collateral support behind the stablecoin, the word "stable" will be out of the question.

Of course, MakerDao is so popular that it accounts for such a large share of ETH. At present, it only exists in imagination. It will take a long time to reach this volume, and it may never happen. Staked (staked). But since this possibility exists, it should be given more thought.

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One of the biggest problems exposed by this risk: ETH performance

In fact, strictly speaking, the mechanism design of MakerDao is still OK, with sufficient over-collateralization and a sufficient early liquidation mechanism. Although it faces a possible risk of slippage, it will not fail the liquidation.

However, the "culprit" for this 5 million debt is the poor performance of Ethereum.

So will ETH2.0 be the solution?

All I can say is - it's possible.

After all, the setting of the GAS model of ETH is extremely controversial in itself. The reason why Fomo3D was able to end back then was to use the "bug" in the Gas model and performance of Ethereum to force the game to end.

Furthermore, even if 2.0 is the solution, this solution can only be realized after a conservative estimate of 3 years and a pessimistic estimate of 5 years or more. During this period, ETH1.0 may still experience black swan events like 312 Black Thursday. This time, 5 million debts were replaced by additional issuance of MKR. What about next time? Especially when it happens next time, if the drop is even greater, as mentioned above, if tens of millions of ETH are mortgaged, ETH1.0, how to deal with the network congestion caused by such an automatic liquidation system?

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The bigger problem exposed by this risk: rootless trees

There is a circuit breaker in the U.S. stock market, but in fact, even if there is no circuit breaker, it will not continue to fall like this. After all, the revenue and profits of these companies are here. Even if the city is closed, everyone still has to go to Walmart to buy food and use Apple mobile phones. Driving a Ford car... The decline is nothing more than the expectations of the economic environment, the decline in corporate profits, changes in the price-earnings ratio, etc...

What about DeFi? Or let me put it another way, is it possible for ETH to return to zero?

ETH is indeed the current bottom-level public chain with the largest ecology, the largest number of developers, and the most success.

But that doesn't mean it can't be zeroed.

Want to know how the price of ETH has risen from a few dollars to thousands of dollars? - Is it because of some amazing application on it?

Really not, the reason is so simple that it is outrageous - because it is the most convenient to issue coins with ETH, and smart contracts such as NXT and Waves in the same period are relatively inflexible.

At that time, in 2017, many projects were accepted by BTC and ETH at the same time. Later, ICO became popular, and it was much more convenient to only use ETH. ETH became a hard currency, replacing the responsibility of the currency in the BTC circle to a certain extent.

Later, ICO was falsified, and the market value of ETH lost its support. From the original $1,500, it fell to a minimum of $80, a drop of nearly 95%.

However, the power of inertia is terrible. After all, there are thousands of projects on ETH. Although most of them are air, compared to other public chains, those public chains with few air, ETH, are still good. too much. Later, with DeFi, ETH grasped the new life-saving straw, and all narratives began to rely on DeFi.

But this is far from enough. If I ask you, where is the value of ETH, your answer may be - it is the infrastructure that can support DeFi.

Ask you again - what is the main collateral in DeFi? - Your answer is - ETH