How did Defi ETH and EOS weather the market volatility storm?


On March 11 at 4:30 pm UTC, Tedros Adhanom Ghebreyesus, director of the World Health Organization, declared that COVID-19 was considered a pandemic. Industry experts regard the global uncertainty surrounding this respiratory disease - from travel bans imposed by governments across the globe to ongoing global market turmoil - as The agent that caused the collapse of the cryptocurrency market.



"We have assessed that COVID19 can be described as a pandemic."


Most cryptocurrencies suffered massive losses within 24 hours. They begin around 6:00 am UTC March 12 and continue until the morning of March 13. Etherereum lost a whopping 33% (~ $ 60) at 1:30 pm UTC, reducing the total 46.6% in these two days. EOS suffered the same loss, losing 42.42% of its value. Charts of both cryptocurrencies Price movements are similar.


How EOS and ETH Defi created it through market volatility


The continuous market decline has a clear impact on the decentralized financial sector (Defi), which often relies on excessive collateral digital assets (overcollateralized) to support the value of the new currency. The next hurdles of liquidated excess collateral have covered DeFi protocols and even touched on investors who didn't like its risk. These cases have become a stress test for the biggest projects in the industry, revealing their weaknesses as well as their strengths.


Here is an analysis of what happened to MakerDAO (MKR), the largest DeFi project on ETH and compared to the Equilibrium EOSDT, the largest DeFi project on EOS.


How have two different projects weathered the storm?


Bad situations


As soon as the cryptocurrency market entered a panic sell-off, the number of transactions in blockchain networks increased. The Bitcoin blockchain usually fluctuates around less than 0.7 transactions per second, but it processed 5.76 transactions per second at its peak on March 13. These cases are prone to congestion in the network and images. Severe influence on its normal operation.


The number of pending transactions on the Ethereum network increased significantly. The average amount of time to confirm a block increased from 15 seconds to 2,680 seconds (44 minutes), while the gas charge skyrocketed to an absurd amount of about 110 Gwei (compared to the average Ethereum transaction price of 16 Gwei).


How EOS and ETH Defi created it through market volatility


As a result, most online transactions are congested, affecting the normal functioning of any DApps running on it (unless their users pay very high transaction fees - keep in mind this section) . This large amount of pending transactions has become one of the reasons for MakerDAO's price feed problem. Obviously, 14 anonymous price providers did not raise Gas, but simply stopped pushing actual prices onto the blockchain. Or, their transaction simply failed.


At the same time, EOS did not encounter these issues in the same way (see chart below). Compared to Ethereum, EOS is not sensitive to the increase in concurrent transactions due to its architectural characteristics. Unlike Ethereum, EOS is designed for a capacity of 250 transactions per second and can potentially be scaled down to 4,000. Ethereum processes 15 transactions per second.


How EOS and ETH Defi created it through market volatility


More, EOSDT pricing sources (provided by public oracles: Provable, DelphiOracle, and LiquidApps) operate at full capacity throughout the time frame. We can see that the on-chain price curve almost copies the market price. The maximum deviation is 15% and lasts for about 10 minutes.


How EOS and ETH Defi created it through market volatility


Note: Price feed graph is based on blockchain data


The difference in feed accuracy also comes from the average refresh rate, once per minute for EOSDT and once per hour with MakerDAO. That is obviously too slow for such a rapidly changing landscape, as we have seen recently (even if MakerDAO's pricing sources, working well). The question of whether or not Ethereum can support fast and cost-effective sources of funding still exists.


MakerDAO smart contract prices are outdated. The price of Ethereum on-chain in particular is $ 126.69 at 2:04 am UTC on March 13, while the market price is only $ 95.69. This huge 32% deviation is actually a market premium for the liquidated Ethereum collateral, which is instead supposed to be offered at a discounted auction.


According to the study, there were two periods when the on-chain price was significantly more than 10% off the market price - between 10:44 am and 5:04 pm UST on March 12 and between 11:29 Afternoon and 3:04 am UTC the same day.


These periods are perfectly suited to two waves of market collapse and Ethereum network chaos.


Let the program begin


Margin (call) orders fell to the first bearish wave. At this time, the on-chain prices of both systems have been synchronized with the market and both the EOS and Ethereum networks are working properly. But as soon as MakerDAO's on-chain price began to lose, the intensity of margin buying and liquidation orders began to decline, even though the market continued to collapse.


How EOS and ETH Defi created it through market volatility


Note: Based on blockchain data


The sudden increase in margin buy orders on the Equilibrium EOSDT decreased at the right of the dump price, but in MakerDAO, the dynamic of margin buying orders seems to be late. The basic principle of this issue lies in the main difference between the liquidation mechanism of EOSDT and MakerDAO.


MakerDAO relies entirely on the actions of a third-party player (known as the manager), who is supposed to track existing vaults and trigger a "bite" to buy margin if that happens. overprotective. The system verifies that the buy order is legal and releases the collateral for the auction smart contract.


However, the Equilibrium EOSDT does not require any third-party involvement, as the system automatically identifies excessive user mortgage locations on each price update.


Due to network congestion, most MakerDAO holders are unable to activate methods to maintain a firm position. At the same time, some vaults are not considered excessive mortgages, due to the over-chain prices being overvalued.


Worth mentioning is that the liquidation in Equilibrium EOSDT is as simple as transferring ordinary assets to smart contracts (compared to MakerDAO, where sophisticated managers are needed). Simplifying the liquidation interface makes it available to a wider audience and can minimize potential inefficiencies.


How EOS and ETH Defi created it through market volatility


Note: Based on blockchain data


This is how liquidation dynamics search for a certain time frame. Equilibrium EOSDT ended with a prominent $ 0.00 "bad" debt. Are you wondering, "Wait, why has the outstanding" bad debt "in MakerDAO increased over time?".


MakerDAO is in turmoil


As described above, the initial offer of Ethereum collateral was liquidated at auctions higher than its market price. This is because the on-chain price is 32% obsolete compared to the market price at the highest deviation during congestion. We can assume that it can deceive the holder in the middle of a gas boom. It seems that some of them have declined to bid to avoid being overcharged or even losing money (due to high transaction costs and unpredictable system behavior). Also, they simply cannot broadcast a transaction.


But one market agent decided to try their luck and jump into the auction, despite the potential loss. It seems that person did not want to take such a risk or just wanted to make a test of fate. They added a bit of Gas (150 gwei - ten times the standard) and made a bet at ID 823 (50 Ethereum) at 12:49 pm UTC on the day of the incident. This Pandora Box opened: They won the auction at 1:16 pm UTC and we only know their Ethereum address: 0x43559e88e1bf4594cfa2cb100f325219fa1c0349. A person's bet actually means 10 ^ -18 DAI, according to the accuracy of ERC-20 tokens - it's a number so small that it works out to zero.


There have been 1,369 auctions won with prices nearing zero. While the price of Ethereum is falling, there is still a shortage of natural buyers for bad debt and the imbalance in the MakerDAO system continues to increase.


The distribution of auctions of "0" over time matches both wave of market crash and Ethereum network disorder.



Note: Based on blockchain data


The final "0" auction was completed at 3:14 am UTC March 13, right after the end of the second wave of the storm. The average auction price of this type is 50 Ethereum and MakerDAO users have lost over $ 5.6 million.


At least 8 Ethereum addresses have competed in these auctions:


0x9c05a05893ada984fc20d0da0c046de5cc0e8273


0x9631a838a81d4050c43c66bc03a0cf414243f661


0xb00b6d69822da235a99d2242376066507c9a97b7


0xb400cd43dc25db30c07e665903a052ac120c30ad


0x6066be9369b4eaf5847c9f01eb52ae1e81f2d6b0


0xb8bbf36ba36fc78f3f137c514af33709fffba604


0xcdef772ca4f12c4fe23c09a3961186d065a6a4ca


0xc2f61a6eeec48d686901d325cde9233b81c793f3


Next step


Some argue that there is nothing wrong with bidding more technically at a bid than zero. According to another argument, auction is the fairest liquidation model - if no one wants to buy for an asset, the price for zero is fair. We know where they come from. People do not win $ 6,000 auction in the real world by bidding 10 ^ -18 dollars. And there are certainly people who want to get involved with a more reasonable bid, but they can't because the network is stuck.


Without any doubt, it was a mistake of system logic. This is a clear flaw discovered by bad actors who extracted more than 66,476 Ethereum (about $ 7.64 million when writing this article) from MakerDAO's smart contracts.


It seems that the developers do not account for any excessive accumulation on the underlying platform. This is why the market should not eliminate the value of highly scalable systems such as EOS - it provides a smooth experience for DeFi projects such as the Equilibrium EOSDT during the latest chaos.


The MakerDAO Foundation recently proposed a number of next steps to address this situation. One of them is an auction (a controversial decision) and an increase in auction time to 6 hours (no need to extend overtime on each bid). Hopefully the industry will learn lessons, and parameters like "10 ^ -18 are more than zero" and "You better ask Vitalik", which is no longer relevant.


Mr. Teacher


According to Cointelegraph


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Nguyen Diep

My name is Nguyen Manh Cuong. I was born in a poor village in Ba Vi district, HA NOI province - windy and sunny land. Currently

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