The great success that the MakerDAO project is enjoying, as a result of the use of both the DAI stablecoin and the Collateralized Debt Positions, has prompted the San Francisco team to develop a new platform to facilitate the opening of CDPs, making the process much more user-friendly.
For those who already know the https://dai.makerdao.com dashboard, the new system allows to shorten the procedure for opening and closing a CDP, thanks to a new smart contract which allows in a single operation to:
- Transform ETHs into WETHs
- Transform WETH into PETH
- Create a new CDP
- Block PETH as collateral
- Issue the required DAIs
- Transfer them to the CDP holder’s wallet
The same is true when the CDP is closed, as with just one go it is possible to make the whole path in reverse.
Let’s see together how the system works, by entering the new CDP Portal:
Clicking on the arrows, users can scroll through some information slides, made available to those who are using this tool for the first time, a sign of how the whole thing is meant to be used by a more widespread group of customers and no longer — as was the case before — by experienced users only.
Let’s now connect an address by using Metamask:
OPENING A NEW CDP
The system recognizes if the address has an existing CDP open with the previous dashboard, and then prompts the user to migrate the CDP to the new portal.
Later we will see how to do exactly that. However, at this time we’ll go on to open a new CDP and an integrated window will show the contents of the address — obviously only those that are useful for opening and managing the CDP. Therefore: ETH, DAI and MKR.
There is no indication, compared to the previous dashboard, of the available WETH and PETH because, as mentioned, these steps are carried out automatically.
In fact, only two pieces of information are requested: the quantity of ETH to be used as collateral and the number of DAIs to be generated.
By inserting 1 ETH, the system confirms that there will be 0.971 PETH and that up to 145.686 DAI could be generated, which is something we won’t do in order not to keep the collateralization ratio dangerously low.
What is going on behind the scenes of this simple page?
The Collateralized Debt Position is a tool with which anyone can block ETH as a collateral, obtaining the possibility of borrowing — by generating them from scratch — an amount of DAI to be used for their own purposes.
DAI is a stablecoin anchored to the USD, already accepted by several exchanges to allow the purchase of ETHs, BTCs and numerous other crypto currencies. Therefore, those who obtain DAIs from the ETH they have secured can use them to make further investments or speculations, with the aim — when the DAIs are reimbursed — of obtaining a profit greater than the interest costs.
Having requested to generate 100 DAIs, the following is calculated:
- Liquidation Price: the ETH price at which the guarantee would be enforced if the deposit were not integrated.
- Collateralization Ratio: the ratio between the value of the ETH deposited and the DAIs to be reimbursed. This ratio must be higher than the Minimum Ratio, which is currently set at 150%.
In addition, the value of ETH in USD (Current Price Information), derived from the average of the values provided by a number of reliable oracles, is provided.
Let’s go ahead and click on “Collateralize & Generate DAI”:
Let’s accept the ToS and click on “Finalize and Create CDP”. A Metamask window will open with the request to confirm the transaction: it is a rather burdensome tx but it must be taken into account that it allows the execution of several actions:
At this point the engine starts, and the creation of the CDP begins.
Let’s click on OK and enter the management section, where users can check the CDP state and arrange a series of tasks:
DEPOSIT: for depositing additional ETH as collateral in the event the collateralization ratio is close to the minimum percentage, or to increase the ETHs as collateral to issue additional DAIs on the same CDP that has already been opened.
WITHDRAW: for releasing from collateral and withdrawing any unnecessary amounts of ETH should the price of ETH/USD have soared, or should all or part of the DAIs have been repaid in the meantime.
PAYBACK: for repaying the borrowed DAIs and close the debt position (not the CDP, though — that remains operational and can be used again)
GENERATE: for generating new DAIs, provided that the Collateralization Ratio is high enough to allow it.
Below the CDP history can be seen, with all the operations performed up to a specific moment:
In the address users will now be able to see the amount of DAI generated, and 1 ETH has been removed as a guarantee in the CDP.
CLOSING A CDP
The same ease of operation with which the CDP was opened can be experienced during the closing process.
Users can in fact close directly a CDP and, in the same transaction, proceed to the repayment of the DAI and the payment of the Stability Fee (i.e. loan interest), currently set at an annual rate of 2.5%.
It should be noted that the Stability Fee can be paid in both MKR and DAI, whereas in the previous version it could only be paid in MKR.
MKR tokens can be purchased on a number of exchanges (but mainly on Oasis DEX) and are used — now on a non-exclusive basis — to pay the interests of CDP holders.
They also allow their owners to exercise certain governance functions in the MakerDAO environment.
By clicking on CLOSE, a series of actions are activated that lead to the liquidation of the debt position and the release of the ETH blocked as collateral, allowing them to be withdrawn.
TRANSFERRING AN ALREADY EXISTING CDP
A CDP that had been opened with the previous dashboard can be transferred to the new CDP Portal by connecting the address on which it was opened and clicking on CONTINUE.
Here, users will confirm that they want to transfer the highlighted CDP, which from that moment will no longer be accessible using the old dashboard.
Back to the portal, users will be able to find all of their CDPs on a menu on the right side of the screen, and by selecting one of them, they will be able to access the management page:
GENERATING ADDITIONAL DAIs
With those ETHs already deposited as collateral, it is possible to generate additional DAIs up to the maximum allowed amount.
By clicking on GENERATE in the administration page, users will be asked how many new DAIs they wish to produce.
It is pointed out that the issue of the additional DAI required would bring the Collateralization Ratio to a level dangerously close to the minimum allowed (150%) which would trigger the automatic liquidation and enforcement of those ETH deposited as collateral.
By proceeding, in fact the screen will show, highlighted in yellow, that the CDP is no longer completely safe (the warning will go off below a value of 200%).
TRANSFERRING A CDP TO ANOTHER ADDRESS
Finally, users can transfer the CDP to another address that they claim to control by clicking on “MOVE CDP” and entering said address:
For more information on Collateralized Debt Positions, please also refer to the following article which explains the functioning of the old dashboard, which is still operational at the moment:
Author: Mauro Baeli, COO @Deepit AG
