What happened
On 12 March 2020 ('Black Thursday'), ETH fell from about $193 to about $100 and Ethereum became heavily congested. Many MakerDAO ETH vaults were liquidated. Gas prices spiked, MakerDAO's oracle price updates were delayed, and the Oracle Security Module added a further delay before prices took effect. Most keeper bots were running MakerDAO's open-source keeper scripts, which could not adjust to the high gas prices, so few bidders reached the collateral auctions.
Some keepers took advantage by bidding 0 DAI, or a tiny amount, and winning auctions that no one else bid on. White Rabbit's on-chain analysis found 1,462 of 3,994 liquidations on 12-13 March (36.6%) cleared at a 100% discount. Keepers using this approach took 62,892.93 ETH, worth about $8.32 million. Vault owners lost all their collateral, not just the part needed to cover their debt, and the system was left with 5.67 million DAI of uncollateralized debt. Blocknative later argued that some bidders deliberately clogged the mempool with low-gas transactions to keep competing keepers out.
MakerDAO chose debt auctions, minting and selling new MKR for DAI, rather than an emergency shutdown to cover the shortfall. It raised the maximum auction lot size from 50 to 500 ETH and lengthened auctions. Blocknative reports that auction duration went from 10 minutes to six hours.
How it happened
- ETH's price crash pushed many vaults below their collateral ratio, and the resulting network congestion drove gas prices sharply higher.
- Keepers using MakerDAO's standard scripts, which could not adjust to the gas prices, had their bids delayed or stuck, so auctions opened with little or no competition.
- Opportunistic keepers submitted 0 DAI bids and waited out the short auction timer, winning lots of up to 50 ETH for free. Other liquidators copied the strategy as the day went on.
- Across 12-13 March, zero-bid auctions transferred 62,892.93 ETH (about $8.32M) to a small group of addresses, which left 5.67M DAI of system debt that MakerDAO had to cover through MKR debt auctions.
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