Beyond the name, the project really isn’t only shock value. DAI daddy says that 14% of collateralized debt positions, (CDP) in which borrowers give Maker Ethereum in return for DAI and pay it off over time, become liquidated.
How DAI daddy (theoretically) works
DAI borrowers lock up more than what they are borrowing from Maker in the form of Ethereum. The position at which CDPs are liquidated are determined by Maker voters and can change depending on the size of the loan.
In order to keep things simple, we’ll say that the liquidation happens when the collateral decreases to 115% of the loans value. The extra ~15% of value is taken partly for maker’s insurance fund and also so the buyer of the liquidation can purchase at a discount.
DAI daddy lets borrowers in fear of liquidation take the sale of their CDP into their own hands. Rather than being forced to lose ~15% of their Ethereum for fees and insurance, they can sell the CDP before liquidation occurs while keeping a bit of that 15%.
Say the value of their CDP suddenly became worth only ~116% of their borrow. The borrower could then list their CDP on DAI daddy for a 5% discount. If a buyer decides that a 5% discount is enough of an incentive, then the borrower saves the 11% that maker would have charged them for handling the liquidation.
Maker should probably have a proprietary system for this
If enough borrowers take matters into their own hands, Maker’s emergency funds will take a hit. Their website already has an intuitive voting system for Maker holders, so they are definitely capable of making a user interface to allow this to happen.
Though, according to a Reddit user, the idea isn’t the first of its kind.
“We had a CDP marketplace live on DeFi saver for some 5 months with the exact same idea behind it (…) Truth is, no one ever used it.” – u/nikola_j