Silk Road founder Ross Ulbricht pens column on DeFi platform Maker and March debt crisis

Ross Ulbricht, the Silk Road dark marketplace founder who is currently serving a double life sentence following a 2015 conviction, published an article on Friday about Maker, the Open Finance credit protocol.

His comments centered around the problematic debt situation Maker encountered back in March, when a plunging ETH price left a significant number of loans below their collateralization threshold, as The Block previously reported. This resulted in a wave of liquidations and led to an auction of MKR governance tokens to cover the shortfall. MakerDAO's problems resulted from the wider market event known as "Black Thursday."

In a Medium post, Ulbricht called Maker "a cool concept" and, in regards to the March event, wrote that "I believe I can contribute some ideas that will help keep this kind of crisis from happening again." 

In essence, his suggestions center around a single point: making it so that holders of DAI pay the owners of Vaults, which hold locked-up ETH for the creation of DAI tokens.

One approach would be a change by which the protocol's savings rate would be set to zero and the stability fee dropped to a negative number. On this point, per Ulbricht's post: "This would have to be done such that DAI would simply disappear at a rate of 1% per year, leaving that much more collateral unencumbered than would be otherwise."

Another approach would involve Vault owners setting their own fees, effectively enabling them to compete with one another.

 As he notes:

"A better solution would be to set up a system whereby vault owners set their own rates and compete with each other for the interest from DAI holders, with the lowest rates winning. This would keep rates low generally, but when there is a serious collateral shortage, rates will automatically rise via market forces, encouraging more collateral to come in and discouraging DAI hoarding. This is exactly the opposite of what we saw during the crisis of mid-March."

In his conclusion, Ulbricht noted his concern that Maker "will meet with the kind of crisis we saw in mid-March 2020 again if these fundamental issues are not addressed."

"The crisis should be a wake-up call that reform is needed or new protocols need to be tried. I just hope the ideas above can help point that reform in the right direction," he concluded.