The Zero-Dollar Heist: How MakerDAO Keepers Won $8.32M in Free Ethereum on Black Thursday

The Global Margin Call and the Freefall of Ethereum

On Thursday, March 12, 2020, the dawn of the COVID-19 pandemic unleashed indiscriminate liquidation across worldwide capital markets. Traditional stock exchanges suffered circuit-breaker halts, oil plummeted, and institutional credit dried up. In the nascent world of decentralized finance, the shockwave struck with existential violence. Over thirty-six hours, the price of Ether went into freefall, collapsing from 195 dollars to a low of 88 dollars—a brutal fifty-five percent plunge that erased billions in speculative market value.^[1][4]

At the epicenter of this financial maelstrom was MakerDAO, the flagship lending protocol that underpinned the entire DeFi credit ecosystem. MakerDAO allowed borrowers to deposit Ether into smart contract vaults (known then as Collateralized Debt Positions) and mint the algorithmic stablecoin DAI against that collateral. To guarantee solvency, borrowers were required to maintain a minimum collateralization ratio of one hundred and fifty percent; if the collateral dropped below that line, the system triggered automated public auctions.^[1][3]

As Ether's spot price cratered, thousands of individual vaults breached their liquidation thresholds within minutes. What should have been an orderly debt-clearing procedure quickly mutated into a structural catastrophe. Borrowers rushed to deposit additional collateral to rescue their positions, arbitrageurs scrambled to rebalance liquidity across decentralized exchanges, and automated liquidation bots began spamming the Ethereum mempool with high-priority transactions.^[1][3]

This confluence of circumstances led to keepers either stoping their activity for fear of slippage and for lack of liquidity to absorb all those liquidations.^[1]

— MakerDAO Black Thursday response thread

The Mempool Gridlock and the Keeper Bot Blackout

The sheer volume of desperate transactions choked the Ethereum network to an absolute standstill. Gas prices, which historically averaged between ten and twenty Gwei, exploded past four hundred, then eight hundred, and eventually crossed one thousand Gwei. Block space became a scarce luxury reserved exclusively for whoever could pay staggering transaction fees. Because Ethereum miners prioritize transactions offering the highest fee-per-gas ratio, regular transactions sat unconfirmed for hours in the mempool.^[1][3]

This mempool paralysis exposed a fatal software dependency within MakerDAO's external keeper network. Keepers are independent, profit-seeking software bots that listen to smart contract events, trigger undercollateralized vaults, and bid in collateral auctions using DAI. In exchange for providing this vital solvency service, keepers purchase collateral at an attractive internal discount. However, the standard open-source keeper software distributed by the Maker Foundation had a critical configuration setting: a hardcoded maximum gas price cap.^[1][3]

Most keeper operators had configured their bots to reject any transaction requiring more than three hundred or five hundred Gwei. As network fees soared beyond their hardcoded ceilings, these bots quietly disconnected or stopped broadcasting transactions altogether. Simultaneously, widespread node infrastructure providers including Infura experienced severe delays under the crushing API request volume, leaving the vast majority of auction participants completely blind and disabled.^[1][4]

As a consequence, some vaults where liquidated with 0 DAI coming back in the system, resulting in a net loss for the system.^[1]

— MakerDAO Black Thursday response thread

The Zero-Dollar Windfall: Free Ethereum from Empty Queues

With ninety-nine percent of competing keeper bots sidelined, MakerDAO's collateral auctions became ghost towns. The protocol's collateral auction mechanics were governed by an English auction system called the 'Flip' auction. A liquidator would trigger an auction for a fifty-ETH batch of seized collateral, starting with a floor bid of zero DAI. Bidders were given a ten-minute countdown timer to submit higher bids. If no counterbid appeared within that window, the auction finalized and the collateral was awarded to the highest bidder.^[1][3]

A tiny handful of sophisticated bot operators—possessing private Ethereum nodes, unconstrained gas limits, and custom bidding algorithms—quickly realized what was happening. They observed that auctions were launching without any competing bidders. Seeing no opposition, these bots submitted the absolute minimum possible bid: zero DAI. They paid aggressive gas fees of several hundred dollars to guarantee their zero-DAI bids were included by miners, and then waited in silence.^[1][4]

Because no other bots could push transactions through the congested mempool before the ten-minute timer expired, the auctions cleared. Over the course of twelve terrifying hours, these fortunate bots won batch after batch of collateral, walking away with over 8.32 million dollars worth of Ether for an outlay of literally zero DAI. Borrowers who had deposited millions of dollars lost every cent of their collateral without having a single dollar of their underlying debt extinguished.^[1][4]

Maker governance discussions documented roughly five million DAI of system debt and responded by adjusting auction parameters and using debt auctions to recapitalize the protocol.^[1]

The Four-Million-Dollar Deficit and the Historic Flop Auction

The financial aftermath was catastrophic for MakerDAO's balance sheet. Under normal liquidation conditions, collateral sales recover enough DAI to burn the borrower's outstanding loan and charge a liquidation penalty, keeping the system fully backed. But because 8.32 million dollars in collateral had been handed away for zero DAI, the underlying debt remained stranded inside the protocol. MakerDAO suddenly found itself carrying over four million dollars in uncollateralized bad debt.^[1][2]

Compounding the crisis, the price of DAI violently unpegged to the upside, surging to one dollar and twelve cents. Desperate vault owners needing to repay loans and keepers attempting to lock in profits created massive, one-sided demand for DAI on Uniswap and Curve, choking liquidity and worsening the distress of underwater borrowers. For forty-eight hours, observers wondered whether the premier decentralized stablecoin was on the verge of an irrecoverable death spiral.^[1][4]

MakerDAO's governance activated its ultimate economic circuit breaker: the 'Flop Auction' (debt auction). Embedded deep within the system's architecture was a mechanism that had never been tested in production. If protocol bad debt exceeded a designated threshold, the smart contracts were programmed to automatically mint fresh MKR governance tokens and auction them off to the open market in exchange for DAI, using the proceeds to burn the protocol deficit.^[1][3]

Between March 19 and March 28, 2020, MakerDAO successfully executed 106 Flop Auctions, raising over 5.3 million DAI and retiring all bad debt. Venture capital firms and community members stepped up to buy the newly minted MKR, absorbing the dilution and restoring the protocol to one hundred percent solvency. The baptism of Black Thursday led to sweeping architectural reforms, including the introduction of centralized USDC collateral to stabilize liquidity and the overhaul of liquidation mechanics (Liquidation 2.0). It remains DeFi's definitive survival epic.^[1][2][4]