Maker DAO

Development history

The Maker ecosystem’s technical documentation was released in December 2017, and a platform for smart contracts was launched on Ethereum in early 2018.

On November 18, 2019, significant changes to the Maker project were made. As of that date, ETH was no longer the only and permanent collateral available for obtaining new Dai. Dai virtual assets could now be backed by several other collaterals, introducing Multi-Collateral Dai (MCD).

The Maker system’s smart contracts are called “Vaults” and facilitate the generation of Dai against locked up collateral. All Dai coins that are available in circulation right now, these coins were created by Vaults.

Users are able to produce Dai by generating new tokens against their collateral. In turn, they can burn Dai when repaying their generated Dai balance. This occurs on-chain, enabling full auditability of circulating Dai and the collateral that backs it.

Vaults come with fees and inherent risks. To generate Dai, participants have to pay Stability Fees (SF), the size of which is subject to change based on decisions made by MKR investors via voting. To reclaim collateral, users have to repay the previously generated Dai and accumulated SF.

Dai stablecoin

Dai is a stable ERC-20 token on the Ethereum network. It is issued through smart contracts (or Vaults). Currently, the maximum Dai limit that can be created is 100 mln, although an increase from 10 mln to 20 mln is being discussed. Dai is a stablecoin pegged to the US dollar at a 1:1 ratio.

Thanks to Dai, the Compound project allows users to take out loans or use remuneration rates as a lender, and this is completely decentralized using a smart contract system.

Projects, including Next or Celsius, also enable users to use Dai as collateral for borrowing or receiving interest on deposited stablecoins.

MKR virtual coin

Maker’s other token, MKR, is used to govern and recapitalize the protocol. As a governance token, MKR is utilized by its investors to vote on various matters to help shape the future of the company. In particular, voting is utilized to execute changes to parameters of the Maker Protocol, such as Stability Fees or Debt Ceilings. In addition, voting can be utilized for making decisions on the protocol’s non-tech aspects, such as asset priority lists, governance processes, role mandates and electing candidates for specific roles.

MKR also acts as a source of recapitalization when the Maker Protocol incurs a deficit. The possibility of diluting MKR supply offers holders a strong incentive to govern the system in a fair way. On the other hand, destruction of MKR via the auctioning of Dai from the system’s excess surplus provides further incentives for fair governance.

Prospects

Although the Maker ecosystem may appear too complicated to some users, this is an important project in the sphere of decentralized finance, which is likely to stay prominent. Since the protocol’s management is also distributed in the form of DAO, MKR investors independently vote and make decisions on the development of the system. The fact that there are several mechanisms guaranteeing the value of Dai against the US dollar is also a major plus of the project.