MakerDAO Vulnerability: $0 traded ETH - Tokenview blockchain Explorer

On March 12, due to the sharp drop in the price of Ethereum, MakerDAO’s large number of mortgage debt warehouses fell below the liquidation threshold, triggering the execution of the liquidation process.

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The mortgage bill liquidation process is as follows:

  • 1. The user's loan mortgage slip will be closed;
  • 2. The system calculates the liquidation penalty and stablecoin fee to be deducted;
  • 3. The smart contract LPC (Liquidity Providing Contract) responsible for liquidation deducts the cost (also called debt) from the PETH collateral pledged by the user, and the price is based on the ETH price at the time of liquidation;
  • 4. Users can get back their remaining assets;
  • 5. The PETH deducted from the clearing contract is sold at a preferential price (3% discount) on the DAI market(dai.makerdao.com). The liquidators participating in the auction continue to bid, with a starting price of 0 DAI, and the final winner can get a 3% discount;
  • 6. The DAI obtained from the sale of PETH will be destroyed to offset the debt generated by the user's CDP pledge in the system;
  • 7. If ETH rises back a little when DAI is sold, DAI will be more, and the system will sell the excess DAI in exchange for PETH, return it to the PETH pool, and the value of PETH will expand;
  • 8. If ETH falls again when DAI is sold and DAI is not enough to repay the debt, the system will draw some from the PETH pool to make up the difference, and the value of PETH will be diluted.

During the execution of this liquidation process, due to the dramatic increase in the gas cost of the Ethereum network, the liquidation process of MakerDAO was completely lack of competition. The liquidation robot (Keeperbot) that should have participated in the liquidation process set a lower gas value, resulting in bidding Obstructed, a Keeper won the auction with a bid of 0 DAI without a competitor. The auction totaled $7,900,000.