MakerDao from DeFi Protocols Index
DeFi Protocols Index includes projects that are key to the infrastructure of this new market. Most projects in this portfolio are among the top 15 DeFi projects by TVL (Total Blocked Value is the total value of crypto-assets deposited into the protocol)
Today we will take a look at a popular project called MakerDao
What is Maker?
Maker (MKR) is a MakerDAO and Maker Protocol governance token, respectively, a decentralized organization and software platform based on the Ethereum blockchain that allows users to issue and manage stable DAI coin.
Dai’s stability is achieved through a dynamic system of collateralized debt obligations, autonomous feedback mechanisms and incentives for external actors. Once created, Dai can be freely sent to others, used as payment for goods and services, or stored as long-term savings.
A key component of the Maker protocol and the method by which Dai is created is known as Vault. Vault is created by making a deposit into a smart contract, which then mints the amount of Dai specified by the user. The dollar value of the collateral must exceed 150% of the value of the Dai (the current collateral ratio). The user is free to transact with their Dai. If they want their original collateral, they must pay back both the Dai they withdraw plus the interest rate on the loan (stability fee). If at any point the value of the collateral falls below the collateral ratio, their position is subject to liquidation, and anyone can come in and buy the underlying collateral to repay the debt.
Maker has made tremendous progress in bridging the gap with traditional finance by introducing the first “real” asset as collateral with Centrifuge. On April 21, 2021, the company successfully originated its first MakerDAO loan for $181,000 with a house as collateral, effectively creating one of the first blockchain-based mortgages.
Unlike other lending protocols, users cannot lend assets to Maker. They can only borrow DAI by posting collateral. DAI is the largest decentralized stablecoin, and the DeFi ecosystem has seen growing borrowing. It is currently capitalized at $10 billion
MKR tokens act as a sort of voting stock for the organization that manages DAI; while they do not pay dividends to their holders, they give holders a say in the development of the Maker protocol, and their value is expected to grow in line with the success of DAI itself.
MKR’s unique offering is that it allows its holders to participate directly in the DAI governance process. Each Maker token holder has the right to vote on a number of changes to the Maker protocol, with their voting rights depending on the size of their MKR share.
Here are some of the aspects of the protocol that holders can vote on:
- Add new collateral asset types to the protocol, allowing users to send new cryptocurrencies to create more DAI;
- Change the risk parameters of existing collateral asset types;
- Change the DAI savings rate: DAI token holders can earn savings by entering them into a special contract, and the savings rate affects the profitability of that contract;
- Oracle Selection: organizations whose goal is to provide credible off-blockchain data to the Maker ecosystem;
- Platform upgrades.
The opportunity to participate in the management of one of the largest stable coins on the market, in part, stimulates demand for MKR tokens and, accordingly, affects their value.