- Etherum’s Multi-Collateral Dai system within the MakerDAO Protocol is a smart contract platform that backs and stabilizes the value of their stablecoin, Dai.
- Surplus Auction is used to auction off a fixed amount of surplus Dai in the system in exchange for MKR.
- The Debt Auctions used to recapitalize the system by auctioning off MKR for a fixed amount of Dai.
Further elaborations on the mechanism and different aspects such as keepers involved in the system have elaborated by the same.
There will be three types of auctions which the bidders should be aware of-
Surplus Auction: In this type, the winning bidder will pay MKR for surplus Dai from the stability fees. The MKR received is thereafter burnt and therefore decreasing the amount of MKR in circulation.
Collateral Auction: In the second type, the winner will pay Dai for collateral from a liquidated Vault. Dai received is then used to cover the outstanding debt remaining in the liquidated Vault
Debt Auction: The final type constitutes that the winner pays Dai for MKR to cover the outstanding debt that Collateral Auctions haven’t been able to cover yet. MKR is therefore minted by the system, thereby increasing its amount in circulation. The actors that bid on these Auctions will be called Keepers.
To further elaborate for a better understanding, Surplus Auction is used to auction off a fixed amount of surplus Dai in the system in exchange for MKR. Thereafter this surplus Dai will generally come from the accumulated stability fees.
In conclusion, the bidders compete with increasing bids of MKR. Once the auction has reached its end, the auctioned Dai sent to the winning bidder. After that the MKR received from the winning bidder is burnt by the system.
The Collateral Auctions serve as a medium to recover the debt in the liquidated Vaults which liquidated when the standard required value of the Vault collateral falls below a specific limit which is set by the Maker Governance voters as a whole.
In the end, the Debt Auctions used to recapitalize the system by auctioning off MKR for a fixed amount of Dai. This involves them to compete with their willingness and also to accept decreasing amounts of MKR in exchange for fixed Dai they will have to pay.
In conclusion, Bidders will send DAI or MKR tokens from their respective addresses to the specific auction or system, and if another beats one bid, the losing bid is refunded back to that bidder’s address.
Although it’s important to note that however, once a bid is submitted, there is no way a bidder can cancel it. The only possible way to have that bid returned is if it outbid.