However, there are risks to borrowing against yourself. If the price of ETH falls and the CDP becomes under-collateralized, Maker automatically sells the collateral to repay the debt.

This post shows how to lower the risk of a CDP liquidation by over 40%.

When does liquidation happen?

Liquidation is when the Maker automatically sells your ETH collateral to repay the DAI debt. Liquidation happens when the value of the ETH collateral is less than 150% of the DAI borrowed.

Let’s walk through an example:

1. Opening a CDP — Alice opens a CDP with 1 ETH and borrows $75 worth of DAI.
2. Initial price — The price of ETH is $150 and Alice is 200% collateralized (USD value of ETH collateral / DAI borrowed).
3. Liquidation conditions — If the price of ETH falls to $112.5, the CDP will be liquidated and the ETH sold to repay Alice’s $75 DAI debt.

Reduce the liquidation risk by increasing collateral

Increasing the collateral value of CDPs by adding ETH is usually discussed in the context of getting access to more leverage and purchasing additional ETH (link). The overlooked benefit of adding collateral to your CDP with purchased ETH is lowering the liquidation price and making the CDP more resilient to drops in ETH prices.

Options A and B both allow users to borrow $100 worth of DAI. Option B allows users to borrow the same amount of DAI but lowers the liquidation risk without additional cost.

Walking through a detailed example, here’s how Alice could have made her CDP safer by re-collateralizing:

1. Opening a CDP — Alice opens a CDP with 1 ETH as collateral. The price of ETH is $150 and Alice’s collateral is worth $150.
2. Withdrawing DAI — Using her ETH as collateral, Alice decides to withdraw the maximum amount of 100 DAI. Alice is in a dangerous situation. If ETH prices drop by just $1, Alice’s collateral will be liquidated.
3. Purchasing ETH — Alice is an ETH HODL’er and uses the $100 DAI to purchase 0.66 ETH
4. Reducing liquidation risk by adding collateral — Alice can reduce her liquidation risk by adding the 0.66 ETH she just purchased back into her CDP as collateral. Alice’s CDP is now backed by 1.66 ETH.
5. Reduced liquidation price — The CDP now has 1.66 ETH to repay the same $100 DAI debt. Since there is more collateral backing the $100 loan, Alice has lowered her liquidation price from $150 to just $90.

The benefit of re-locking the ETH in the CDP grows as more DAI is borrowed.

What are the downsides?

Even though adding collateral lowers your liquidation risk in Maker, there is no free lunch. The downsides of this approach are:

1. Liquidation is still a risk — Adding collateral reduces the liquidation price. However, if ETH prices collapse quickly, you could lose more collateral.
2. Great exposure to Maker systemic risk — In the event Maker has bugs in the smart contract and gets hacked, you would lose more ETH.
3. Higher gas fees — Adding the collateral back into the CDP costs gas. This transaction can be expensive if the network is congested.

The safest bet is to purchase crypto and hold without additional leverage. However, if you plan to borrow from Maker, adding that newly purchased ETH back into the CDP is one of the best ways to lower your risk.

Pro users on MakerDao always add collateral into their CDPs

Re-collateralizing CDPs is a smart move already made by many high-value CDPs. Our team analyzed hundreds of CDPs on MakerScan and found a common pattern: every DRAW is followed by a LOCK. A DRAW withdraws DAI and increases debt. A LOCK adds ETH collateral and increases the collateral ratio.

Taking a look at CDP #1162 below, the user starts by locking ETH to draw DAI. The user then takes this DAI to purchase ETH. This action follows a LOCK where the user adds the newly purchased ETH back into the same CDP.

How do I create a safer CDP?

If you are borrowing DAI to go long on ETH, adding the purchased ETH back into the CDP is a free way to lower risk. By adding additional collateral into the CDP, you lower the liquidation price and protect the CDP against drops in the price of ETH.

About me: I work at OpenMarketCap. Check out the price of DAI here.

DISCLAIMER: This is not financial advice. It is intended only as an educational resource meant to aid the community. Always do your own research.

How To Reduce Your Liquidation Price On MakerDAO By 40% was originally published in DIRT Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

A recent analysis by Bitwise shows that > 95% of Bitcoin’s reported trading volume is fake (https://www.bitcointradevolume.com/). The report finds that widespread stats on sites like CoinMarketCap and other price trackers significantly overstate the true size of the cryptocurrency markets.

OpenMarketCap shows prices and volumes from only trusted exchanges

We built OpenMarketCap (https://openmarketcap.com) because we could not find an accurate source for cryptocurrency stats. OpenMarketCap calculates average price and total volume from data reported by the trusted exchanges identified in the Bitwise report.

Out of the 80+ exchanges on CoinMarketCap (CMC), Bitwise found ten exchanges with actual volume. By tracking data from these exchanges, OMC removes data from exchanges with fake volume and is the only price tracker that gives an accurate impression of trading volume and prices.

Compared to other trackers, OMC shows a very different picture of the cryptocurrency market (data from 3/25/2019):

1. Bitcoin trading volume is 95% lower
2. Bitcoin volume dominates—Bitcoin has 6x not 2x the trading volume of ETH

Many smaller cap tokens have very low trading volume.

1. Ethereum Classic trading volume drops by >97%, from $200M -> $5M
2. NEO trading volume drops from $129M -> $11M
3. Litecoin trading volume drops from $2B -> $48M

Visit our comparison tool to show how data changes when calculated from trusted exchanges: https://openmarketcap.com/exchanges/difference.

Does this undercount trading volume for some tokens?

Not all coins are equally represented on these trusted exchanges. Certain coins may have volumes under reported. For example, Monero is not heavily represented on the exchanges in this set. Counting Monero volume based on this methodology may not be indicative of Monero’s true trading volume.

Why is OMC’s total volume higher than the Bitwise report?

Bitwise calculates trading volume based on Bitcoin to USD / stable coin markets. OMC calculates trading volume that includes trades between cryptocurrencies pairs and as such show a higher volume count.

Why do exchanges report fake volumes?

Exchanges report false data for short term visibility gains at the cost of long term trust in the whole crypto space. CoinMarketCap is the most widely cited price tracker for cryptocurrency prices. Since CoinMarketCap ranks exchanges by trading volume, exchanges are incentivized to report false numbers to climb price tracker listings (and thus be featured more prominently to users).

As shown in the screenshot from CoinMarketCap, the higher the trading volume, the higher the rank.

Source: https://coinmarketcap.com

Why does this matter?

Even when factoring out wash trading, the daily trading volume for Bitcoin on trusted exchanges is large enough to sustain a healthy market. For most small cap coins, this is not the case. A 95% drop in trading volume means the market for most alts is extremely illiquid / non-existent.

Trading volume is critical for liquidity and the overinflation of stats on widely cited trackers gives a mistaken impression of the entire market. OpenMarketCap is the first tracker that removes the fake volume and gives users an accurate representation of the crypto markets.

How much are cryptocurrency volumes overstated? was originally published in DIRT Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

— —

In 2018, the blockchain story and the promise of a decentralized future fell apart. The most widely used dApps have a few thousand daily users and a study of 43 blockchain applications found a 0% success rate. With so much funding and talent in the space, why do we have so little success to show?

There is a broken process for building and launching blockchains applications today. Rather than working within an low-risk environment that supports iterations and learning, blockchain companies follow a playbook that stacks the odds against their success. By pre-selling a product before it is built, projects set themselves up to failure with unrealistically high user expectations on their v1.

Moving forward, this approach to building creates three problems: 1/ to appease an early adopter crowd of crypto-enthusiasts, projects preach to the choir and build with the assumption that decentralization is the answer (rather than a means to an end), 2/ with vocal supporters, projects make suboptimal decisions by committee, and 3/ with a market emphasis on ideas and theory, projects follow the whitepaper as if it is the final product plan rather than the starting point.

With so little to show from 2018, we have to change how products are incubated and tested. For a better 2019, we can take lessons from how successful technology companies are built and apply them to the blockchain space.

1/ Build a product not a protocol — Many blockchain projects that pitched a future of decentralization just a year ago are realizing you cannot find mass market success by preaching a philosophy alone. Open source projects as an alternative to closed, centralized networks are nothing new. It has been tried before with Diaspora vs Facebook, Mastodon vs Twitter, and DuckDuckGo vs Google. The takeaway from these projects is the same: openness and decentralization only matter to developers.

Blockchain applications need to go back to basics and ask the question of who is the user and what is their problem. Bitcoin created a way for darknet users to exchange funds online. Ethereum allows developers to run a script on a decentralized computer. IPFS is a way to store censorship data. No crypto-economic incentive is strong enough to overcome a missing use-case.

2/ Listen to your users, but don’t let them tell you what to do. — Facebook released the newsfeed to overwhelming negative public response. Apple product launches are all been met with the same media reaction: too expensive to succeed. Netflix moved to streaming and lost over a million customers in the transition. Some of the most important product decisions that seem obvious in hindsight were controversial at the time. For crypto projects, a vocal community can be the biggest asset or biggest liability. Listen to your users but filter the feedback. Don’t give your users what they ask for; give them what they want.

3/ Focus on iteration over the idea — There is an mistaken perception in crypto that the idea is the most important part of success. So we see teams focusing on whitepapers and delaying the launch for years. But what we have learned from how successful technology startups are built is that a good idea is only the beginning.

If the goal is to solve the customer problem of getting from point A to point B, the MVP is a skateboard. When startups promise the car in the first release, they can’t meet customer expectations.

Two markets with runaway success in 2018 were exchanges (ex: Binance) and mining hardware (Bitmain). Binance went from 0 to over $1billion in revenue in under a year (https://news.bitcoin.com/crypto-exchange-binance-expects-up-to-1-billion-profit-in-2018/). ASIC mining efficiency for bitcoin has increased by over 10x. In the same year, no decentralized application has seen mainstream success. The product development cycle for building smart contracts and decentralized networks is excessively slow because the high risks of mistakes are too high (ex: Parity wallet hacks). Rather than launching and learning from user feedback, teams iterate in isolation and delay the valuable learnings that come from real users. Moving forward, projects should launch earlier and smaller. Test the product with a small group of users, get feedback, and iterate.

Blockchain apps have a 0% success rate. How can we build better products? was originally published in DIRT Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

We are excited to announce the developer portal for DIRT! We started DIRT with a mission to make data openly available and editable. At a time where there are questions around bias, fake news, and questionable data sources, we need a way for communities to edit the data they rely on.

How DIRT works

DIRT allows anyone to deploy a datastore on Ethereum that is openly editable. We call this a Community Moderated Datastore (CMD) because there is no single owner. All the data is community owned and managed, and any service or application can use the data in a CMD.

DIRT protocol helps communities maintain their CMD quality as follows:

• Write data: To write to a CMD, users stake tokens. The required token stake is unique to each datastore and set at the time of creation. As long as the data is saved in the datastore, the tokens are staked with the data. This prevents spam by requiring every writer to have skin in the game.
• Edit data: If someone comes across an error while using DIRT, they can flag the error and earn staked tokens for incorrect data as a bounty. Changes on DIRT are decided by token weighted votes. Any DIRT token holders can vote to accept or reject the proposal. After the vote ends, voters in the majority earn tokens while those in the minority are penalized.

DIRT built on the ideas of a token curated registry (TCR) to create an economy for trusted data. With DIRT, communities can self-organize and build high quality datasets anyone can use.

Building CMDs with DIRT

The wiki-nature of a CMD enables instant and continuous quality control by allowing anyone to participate. There are many ways to use DIRT:

• Secure data on the blockchain — Storing data on-chain provides an additional level of security against scammers and against censorship. For example, if you are running an initial coin offering, create a CMD and record the official contribution address on-chain. Even if your website is hacked, you can prevent your users from being scammed.
• Trust as a service — A differentiator for any service is now trust. Because anyone can verify the data and have an economic incentive to fix bad data, users can trust the data stored in a CMD. For example, if there is a list of exchanges and their reputation scores, exchanges have a high incentive to bribe the curators to have a higher ranking. With a black box methodology, it is hard to know if the data is reliable. A CMD removes the likelihood of single party manipulation by allowing a community of users vested in the data’s accuracy to collectively keep the data up-to-date.
• Create self-maintaining datasets — Maintaining data with a CMD engages your community to keep data evergreen. For example, keeping a list of coins and their white papers is challenging because new coins are launched and new versions are released. Porting this information to a CMD is a better alternative to keeping the data fresh because it allows the users of the data to contribute to its maintenance.

Get started!

Developers can deploy a CMD and store data on Ethereum network without needing to know solidity or how to deploy a smart contract. Visit the DIRT developer portal to read the full documentation and create a dataset on Ethereum in under five minutes. You can also visit the DIRT faucet to get test tokens and try DIRT on Ropsten.

DIRT is open sourced and we welcome your pull requests!

Tweet at us at @dirtprotocol or email hello@dirtprotocol.com if you have any questions.

We’d love to see what you build!

Releasing the DIRT developer portal (alpha release) was originally published in DIRT Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.

We are excited to announce that DIRT Protocol has raised a $3M seed round with participation from General Catalyst, Greylock Partners, Lightspeed Venture Partners, Pantera Capital, Digital Currency Group, SV Angel, HustleFund, Village Global, DDC, #Angels, Elad Gil, Fred Ehrsam, Linda Xie, and others.

What is DIRT Protocol?

DIRT is a protocol for decentralized information curation. Our mission is to organize the world’s information and to make it freely accessible.

Data in the 21st century is like oil in the 20th century — an immensely valuable asset that is critical to the economy. Unfortunately most data is privately held and expensive to access. These data silos limit competition and stifle creativity. We believe that structured data about the world needs to be freely available for new applications and services to emerge.

Why do we need DIRT?

In many domains, information sources are biased or dishonest. For example, companies pay for positive product reviews. In unregulated markets, financial data may be purposely misrepresented. While crowd-based curation removes the dependency on a single source, this approach struggles to maintain quality because there are no incentives for moderation.

DIRT is a new approach to crowdsourcing

With DIRT, we propose a new way to crowdsource trusted information at scale. DIRT is a protocol to curate information using token staking to incentivize honesty.

Similar to Wikipedia, DIRT allows anyone to contribute information. DIRT maintains accuracy because every contributor needs to deposit tokens to write data. If the data is correct, it is freely shared. If the data is incorrect, anyone can challenge the data and earn tokens for identifying these inaccurate facts. Our protocol and platform makes it economically irrational for misinformation to persist in a data set.

DIRT is not a Token Curated Registry (TCR). DIRT is a protocol to build TCRs.

What’s next

We are working with partners to build the first applications for DIRT. If you are interested in being on our early partners and using DIRT, please reach out at hello@dirtprotocol.com. We will release our whitepaper in the coming weeks. Join our mailing list to stay updated.

Join us

We are a team of engineers and serial entrepreneurs. We design and build our protocol with clear use cases in mind. If you want to join us on our mission to make data freely available, please apply to work with the DIRT team.

DIRT Protocol raises $3M from General Catalyst, Greylock, Lightspeed, and Pantera to build a… was originally published in DIRT Protocol on Medium, where people are continuing the conversation by highlighting and responding to this story.