  The StableSims project set out to determine optimal parameters for the new
auction mechanism, Liquidations 2.0, used by MakerDAO, a protocol built on
Ethereum offering a decentralized, collateralized stablecoin called Dai. We
developed an agent-based simulation that emulates both the Maker protocol smart
contract logic, and how profit-motivated agents ("keepers") will act in the
real world when faced with decisions such as liquidating "vaults"
(collateralized debt positions) and bidding on collateral auctions. This
research focuses on the incentive structure introduced in Liquidations 2.0,
which implements both a constant fee (tip) and a fee proportional to vault size
(chip) paid to keepers that liquidate vaults or restart stale collateral
auctions. We sought to minimize the amount paid in incentives while maximizing
the speed with which undercollateralized vaults were liquidated. Our findings
indicate that it is more cost-effective to increase the constant fee, as
opposed to the proportional fee, in order to decrease the time it takes for
keepers to liquidate vaults.
