In June, the Maker Foundation published Multi-Collateral Dai (MCD): Milestones Roadmap, in which we not only listed the milestones that must be achieved before MCD goes live, but also promised to provide materials that will help everyone in the Maker community better understand MCD system operations. Today, we provide users of the Maker Protocol with an overview of the Emergency Shutdown process, including what Emergency Shutdown is, how it is initiated, and when. We also provide information regarding how CDP owners and Dai holders can withdraw collateral from the system after shutdown.
What is Emergency Shutdown?
The Maker Protocol, which powers MCD, is a smart-contract system that backs and stabilizes the value of Dai through a dynamic combination of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and appropriately incentivized external actors. The Dai Target Price is 1 US Dollar, translating to a 1:1 US Dollar soft peg.
Emergency Shutdown is a process that can be used as a last resort to directly enforce the Target Price to holders of Dai and CDPs, and protect the Maker Protocol against attacks on its infrastructure.' Emergency Shutdown stops and gracefully settles the Maker Protocol while ensuring that all users, both Dai holders and CDP holders, receive the net value of assets they are entitled to.
Effectively, it allows Dai holders to directly redeem Dai for collateral after an Emergency Shutdown processing period.
What Can Cause Emergency Shutdown?
Emergency Shutdown is the last resort to protect the system against a serious threat, such as long-term market irrationality, hacks, and security breaches.
Security is the first priority for the Maker Foundation, and the robustness of the CDP liquidation mechanism to keep the system solvent has been battle-tested with Single-Collateral Dai. We anticipate that the likelihood of a serious threat is low; nonetheless...