MakerDAO releases plans to recapitalize the protocol through MKR auction

Last week, a rapid price decline coinciding with congestion on the Ethereum network led to ETH collateral being sold for free and a $4 million shortfall on MakerDAO. In order to bring the system back to a healthy state, MKR will be created and auctioned off to make up for the lost collateral value. Starting on March 19th at 10:25 UTC, anyone will be able to participate by running an Auction Keeper to bid for the newly minted MKR. The tokens will be auctioned off in lots for 50,000 Dai starting at a price of 250 MKR ($200) and then Keepers can place bids of smaller amounts of MKR for the same 50,000 Dai thus increasing the price. If no one bids for the first lot, then the auction will begin again in three days, offering 20% more MKR for the Dai lot translating to a price of $166.

Why it matters

• The Debt Auction exists in case a highly improbable event is able to undercapitalize what many believe to be a relatively safe system. The confluence of events last week did exactly that and now the last resort measure needs to be taken. Similar to a follow-on equity offering where shareholders are diluted, MKR holders lose value on a per-token basis but the capital acquired in the sale is thought of as necessary to increase the long-term value of the network.
• In order to prevent the price from tanking further, various ecosystem participants led by the founder of Dharma, have pledged to participate in the auction. In addition to this list, prior round investor Paradigm announced plans to add to their existing position by participating in the auction.