Some loans on Maker are never liquidated, prompting debt auction overhaul

Some loans on Maker are never liquidated, prompting debt auction overhaul


The Maker community is looking for solutions after an analysis by B.Protocol suggests that it is possible to exploit the liquidation system to create under-collateralized debt. 

The researchers created small vaults for $128, just above Maker’s “dust” parameter that defines the minimum size for new vaults. As Maker’s oracles updated to new prices that made these vaults eligible for liquidation, B.Protocol found that the debt remained unclaimed for several hours.

While the researchers later closed the bad debt loans on their own, the mechanism could be abused to create a Dai position that would never be liquidated. Splitting a $1 million loan in small tranches of slightly more than $100 would cost about $5,000 in gas — a small price to pay for the possibility of completely avoiding liquidation, the analysts assert.

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The reason why these vaults are not liquidated likely has to do with gas prices. Each liquidation process costs approximately 500,000 gas, about 10 times higher than

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