MakerDAO’s Community Set to Conduct Debt Auction And Vote On UpgradesAuthor: Ali RazaLast Updated: 14 June 2020 MakerDAO stands as one of the leaders within the rapidly developing sector of decentralized finance or DeFi. Ethereum (ETH) stands as the leading network in regards to DeFi but has been hit by the CORVID-19 scare just as much as the global market. As a result of the unique design of its Dai coins, MakerDAO was forced to make a hasty community vote on the 13th of March, as its first-ever Debt Auction is set to occur shortly after.Unexpected Market CollapseAccording to Maker, this vote will help decide on a necessary modification to its network to fix a flaw that was discovered during the recent bloodbath that was the crypto market. ETH’s price had dropped a staggering 30% in 24 hours. This caused MakerDAO, which was built on ETH, to suffer immensely.MakerDAO is the DeFi protocol that creates the Dai (DAI) stablecoin. This stablecoin is rather famous for the fact that it uses crypto to keep itself stable, mainly, ETH. Dai has minted through users themselves, taking on collateralized debt positions. These debt positions typically take on the form of ETH and are deposited within an Ethereum smart contract. A portion of the value of these collateralized assets is paid out in the form of Dai. When the outstanding tokens are repaid, the collateral is released back to its users, which in turn burns Dai in the process.Countermeasures ExploitedDai relies on the collateral to keep its value stable. The network itself incentivizes either the destruction or the creation of Dai. This depends on whether or not the token is trading above or below the $1 mark.The crippling error came in how it handles loans; it can no longer support through its collateral. These loans enter a liquidation proceeding, where the collateral is auctioned off in exchange for Dai in a bid to repay outstanding debts.0 Dai Asset LiquidationHowever, thanks to a lack of competition and the overall spiral of the crypto market, some bidders were capable of winning these liquidation auctions for the staggering price of 0 Dai. Staggering, yes, but for all the wrong reasons, and Maker’s debt could only rise because of it.This had a very compounding effect, and the project has been forced to set a Debt Auction to counteract it, the very first in MakerDAO’s history. This Debt Auction is a result of a failure in the value of collateralized loans supporting the circulation of DAI across the entire system. This, in turn, triggers a programmed printing of the MKR token, which is auctioned in exchange for Dai to try and balance out the outstanding debts.