Flipper - Detailed Documentation

The Maker Protocol's Collateral Auction House

1. Introduction (Summary)

Summary: Collateral Auctions are used to sell collateral from Vaults that have become undercollateralized in order to preserve the collateralization of the system. The Cat sends bitten collateral to the Flip module to be auctioned off to keepers. The collateral auction has two phases: tend and dent.

2. Contract Details

Flipper (Glossary)

  • wards [usr: address], rely/deny/auth - Auth mechanisms

  • Bid - State of a specific Auction {bid, lot, guy, tic, end, usr, gal, tab}

    • bid - Bid amount (DAI)/ DAI paid

    • lot - quantity up for auction / collateral gems for sale

    • guy - high bidder (address)

    • tic - Bid expiry

    • end - when the auction will finish / max auction duration

    • usr - address of the Vault being auctioned. Receives gems during the dent phase

    • gal - recipient of auction income / receives dai income (this is the Vow contract)

    • tab - total dai wanted from the auction / total dai to be raised (in flip auction)

  • bids[id: uint] - storage of all bids

  • vat - storage of the Vat's address

  • ilk - id of the Ilk for which the Flipper is responsible

  • beg - minimum bid increase (default: 5%)

  • ttl - bid duration (default: 3 hours)

  • tau - auction length (default: 2 days)

  • kicks - Total auction count, used to track auction ids

  • kick - function used by Cat to start an auction / Put collateral up for auction

  • tick - restart an auction if there have been 0 bids and the end has passed

  • tend - first phase of an auction. Increasing Dai bids for a set lot of Gems

  • dent - second phase of an auction. Set Dai bid for a decreasing lot of Gems

  • file - function used by governance to set beg, ttl, and tau

  • deal - claim a winning bid / settles a completed auction

  • yank - used during Global Settlement to move tend phase auctions to the End by retrieving the collateral and repaying dai to the highest bidder.

  • claw: reduces the amount of litter in the Cat's box

Parameters Set By Governance (through file)

  • beg

  • ttl

  • tau

Also, Cat's dunk and chop also inform how Flip works as the dunk becomes the Bid.lot and influences, along with the chop, the Bid.tab.

Parameters Not Set By Governance

  • vat

  • ilk

Both of these are set in the constructor and cannot be changed. If the Vat address is changed and each time a new collateral is added to the system, a new Flip will need to be deployed.


The Flipper must be Vat.wish'ed on by the Cat in order to flux during kick.

The End must be rely'ed on by the Flipper to allow for yank.

The Cat must be rely'ed on by the Flipper to allow for kick.

3. Key Mechanisms & Concepts

The Flip auction process begins with Maker Governance voters determining the collateral's minimum collateralization ratio (Spot.Ilk.mat) which is then tested against the Vault's state (collateral price, total debt owed) to determine whether the Vault is safe (See Cat documentation for more information on the bite process). The last step of a bite is to kick a Flip auction for that specific collateral. Note that the liquidation penalty gets added to the tab when the Flip auction gets kicked. This only determines when the auction switches from tend to dent. However, this amount is not added to the total debt amount (only to the part that is being partially liquidated) unless everything has in fact been liquidated.

Governance also determines the size of the lot (where a lot is the quantity of collateral gems up for auction in a flip auction) when a Vault gets bitten. This allows for partial liquidations of large Vaults. Partial liquidations make auctions more flexible and less likely to impact the base collateral price by creating a single large auction. They also allow large Vaults to become safe again if the price recovers before the Vault is fully liquidated. Keepers will want to keep this in mind when biting unsafe Vaults as well since they will have a choice to start one or many partial liquidation auctions.

Starting in the tend-phase, bidders compete for a fixed lot amount of Gem with increasing bid amounts of Dai. Once tab amount of Dai has been raised, the auction moves to the dent-phase. The point of the tend phase is to raise Dai to cover the system's debt.

During the dent-phase bidders compete for decreasing lot amounts of Gem for the fixed tab amount of Dai. Forfeited Gem is returned to the liquidated Urn for the owner to retrieve. The point of the dent phase is to return as much collateral to the Vault holder as the market will allow.

Once the auction's last bid has expired or the auction itself has reached the end anyone can call deal to payout the highest bidder (Bid.guy). This moves Gem's from the Flipper's balance in the Vat to the bidder's balance.

4. Gotchas (Potential Source of User Error)


In the context of running a keeper (more info here) to perform bids within an auction, a primary failure mode would occur when a keeper specifies an unprofitable price for the collateral.

  • This failure mode is due to the fact that there is nothing the system can do to stop a user from paying significantly more than the fair market value for the token in an auction (this goes for all auction types, flip, flop, and flap).

  • Keepers that are performing badly are primarily at risk during the dent phase since they could return too much collateral to the original Vault and end up overpaying (i.e. pay too much Dai (bid) for too few gems (lot)).

Bidding Requirements during an auction

During tend, bid amounts will increase by a beg percentage with each new tend. The bidder must know the auction's id, specify the right amount of lot for the auction, bid at least beg% more than the last bid but not more than tab and must have a sufficient Vat.dai balance.

During dent, lot amounts will decrease by a beg percentage with each new dent. The bidder must know the auction's id, specify the right amount of bid for the auction and offer to take beg% less lot than the last bid.

Placing Bids

When a tend bid is beaten out by another bidder, the new winner's internal DAI balance is used to refund the previous winning bidder. When a dent bid is beaten out by another bidder, the Flipper's gem balance is used to refund the Vault holder. Once placed, bids cannot be canceled.

Illustration of the bidding flow:

  1. Cat kicks a new Flip Auction. The Cat emits a bite event with the Flipper's address and the auction id. The Flipper emits a kick event with the id and other auction details.

Start tend auction:

  1. Bidder 1 makes a bid that increases the bid size by beg. Bidder 1's DAI balance in the Vat is decreased by bid and the Vow's DAI balance in the Vat is increased by bid.

  2. Bidder 2 makes a bid that increases Bidder 1's bid by at least beg. Bidder 2's DAI balance in the Vat is decreased by bid and Bidder 1's DAI balance in the Vat is increased by bid (thereby refunding Bidder 1 for their now-losing bid). Bidder 2's DAI balance in the Vat is decreased by bid - Bidder 1's bid and the Vow's DAI balance is increased by the same number. tic is reset to now + ttl

  3. Bidder 1 makes a bid that increases Bidder 2's bid by at least beg. Bidder 1's DAI = Vat.dai[bidder1] - Bidder 2's previous bid; Bidder 2's DAI = Vat.dai[bidder2] + Bidder 2's previous bid. Then Bidder 1's DAI = Vat.dai[bidder1] - (bid - Bidder 2's bid) and Vow's DAI = Vat.dai[bidder1] + (bid - Bidder 2's bid). tic is reset to now + ttl

  4. Once a new bid comes in that is equal to the tab the tend phase is complete.

Start dent auction:

Note: This phase must start before tic expires and before bid.end is passed.

  1. Bidder 2 (and all the other bidders within the auction) decide it is no longer worth it to continue to increase their bids, so they stop bidding. Once the Bid.tic expires, Bidder 1 calls deal and the gem tokens are sent to their Vat balance.

Note: An auction can also end in the tend phase by not reaching tab before the tic or end are reached. If this happens, then the winning bidder is awarded using the deal function and the difference between the final bid and the tab stays as bad debt in the Vow to be dealt with during a Flop auction.

The End

In the case of Global Settlement, the End is able to call yank on the Flipper. Yank closes a tend-phase auction by returning the guy's Dai bid and moving the Gems from the Flipper to the End. dent-phase auctions can continue to the deal phase as they have already raised the necessary Dai and are in the process of returning Gems to the original Vault holder.

5. Failure Modes (Bounds on Operating Conditions & External Risk Factors)

Bounds on Operating Conditions

Because Flip.tend compares the bidder's bid with the previous bid * beg, it will compare the two numbers at 10^63 precision (rad * wad). This means that any bid that is greater than 115,792,089,237,316 will cause an overflow. Governance should endeavour to not set beg or lot (via Cat.ilks[ilk].dunk) so that it is likely that an auction keeper would end up bid'ding that much DAI during the tend phase. This is very unlikely so long as the target price of Dai remains 1 USD, but is included here for awareness.

2. Last Minute Auction/Low Keeper Participation Risks

Auction Grinding

Auction grinding allows an attacker to generate debt, allow their Vault to be bitten, win their own auction to get their collateral back at a discount. This type of failure is most possible when the liquidation penalty is set too low.

For the full details about this risk, reference @livnev's Paper here.

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