Maker: The Decentralized Platform Behind the Dai Stablecoin and DeFi Revolution

Maker: Everything You Need to Know

Cryptocurrencies are known for their high volatility, which can pose challenges for users who want to use them as a medium of exchange, store of value, or unit of account. To address this issue, some projects have developed stablecoins, which are cryptocurrencies that aim to maintain a stable value relative to a reference asset, such as the US dollar, gold, or another cryptocurrency. One of the most prominent projects in this field is Maker, a decentralized platform that allows users to create and manage their own stablecoins and access various lending services.

What is Maker?

Maker (MKR) is an Ethereum-based governance and utility token of the Maker system. Maker aims to unlock the potential of decentralized finance (DeFi) by building an inclusive platform for economic empowerment that gives everyone equal access to the global financial marketplace. Notably, the Maker Platform consists of the following components:

MakerDAO: MakerDAO is an open-source community project on the Ethereum blockchain and a decentralized autonomous organization. The project is administered by people all over the world who own MKR, the project’s governance token. MKR holders regulate the Maker Protocol and Dai’s financial risks using a scientific governance mechanism that includes executive voting and governance polling. The MKR voting weight is proportional to the number of MKR tokens staked by a voter in the voting contract. In simple words, the more MKR tokens are locked into the contract, the more decision-making power the voter has. MakerDAO as a group is devoted to improving the stability of the crypto economy.

Maker Protocol: The Maker Protocol, developed on the Ethereum blockchain, allows users to create their own currency, the Dai stablecoin. Dai is a decentralized, collateral-backed cryptocurrency that seeks to maintain a 1:1 peg with the US dollar4. Users can generate Dai by locking up collateral assets, such as ETH or other ERC-20 tokens, in smart contracts called Vaults. The amount of Dai that can be generated depends on the value and type of the collateral, as well as the collateralization ratio and stability fee set by the Maker Protocol. The collateralization ratio is the minimum percentage of collateral value required to back each Dai, while the stability fee is the annual interest rate charged on Dai generation. Users can repay their Dai debt and unlock their collateral at any time, as long as they maintain the required collateralization ratio5. Dai holders can also earn passive income by depositing their Dai into the Dai Savings Rate (DSR) smart contract, which pays a variable interest rate set by the Maker Protocol.

Oasis: Oasis is a web interface that allows users to interact with the Maker Platform. Users can access various features and services through Oasis, such as generating Dai from Vaults, saving Dai in DSR, swapping tokens on Oasis Trade, or borrowing tokens on Oasis Borrow.

How does Maker work?

Maker works by using a system of smart contracts, incentives, and feedback mechanisms to ensure that Dai maintains its peg to the US dollar. The main components of this system are:

Collateral: Collateral is the backbone of Dai’s stability and security. Collateral assets are locked in Vaults and serve as a guarantee for Dai generation. The Maker Protocol supports multiple types of collateral assets, each with its own risk parameters determined by MKR holders. These parameters include the collateralization ratio, stability fee, liquidation ratio, liquidation penalty, debt ceiling, and auction duration. The Maker Protocol also uses oracles to provide reliable and up-to-date price feeds for collateral assets.

Liquidation: Liquidation is a process that ensures that undercollateralized Vaults are closed and their debt is repaid. When the value of a Vault’s collateral falls below its liquidation ratio, it becomes vulnerable to liquidation. Liquidation can be triggered by anyone who pays a small fee and sends a liquidation transaction to the Maker Protocol. The liquidated Vault’s collateral is then auctioned off for Dai in order to cover its outstanding debt and liquidation penalty. Any remaining collateral is returned to the original Vault owner.

MKR: MKR is the governance and utility token of the Maker system. MKR holders have the power to vote on changes to the Maker Protocol’s parameters and policies, such as adding new collateral types, adjusting risk parameters, changing DSR or stability fees, choosing oracles or emergency shutdown modules. MKR also plays a role in stabilizing Dai’s peg through two mechanisms: MKR burning and MKR minting. MKR burning occurs when stability fees or liquidation penalties are paid in MKR instead of Dai. This reduces the total supply of MKR and increases its value. MKR minting occurs when there is not enough Dai in the system to cover bad debt (i.e., when Vault collateral is not sufficient to repay Dai debt). This increases the total supply of MKR and dilutes its value. MKR holders are therefore incentivized to govern the Maker Protocol responsibly and prevent bad debt from occurring.

Who is the team behind Maker?

Maker is developed by Maker Foundation, a non-profit organization based in Copenhagen, Denmark. The Maker Foundation’s mission is to bootstrap the Maker Protocol and MakerDAO until they become fully decentralized and self-sustainable. The Maker Foundation’s team consists of experts in various fields, such as engineering, design, business development, legal, marketing, and community. Some of the key members of the Maker Foundation are:

Rune Christensen: He is the founder and CEO of the Maker Foundation. He is also the co-founder of MakerDAO and the visionary behind the Dai stablecoin. He has a background in biochemistry and international business.

Steven Becker: He is the president and COO of the Maker Foundation. He is also the head of risk at MakerDAO. He has over 20 years of experience in financial markets, risk management, and trading.

Wouter Kampmann: He is the CTO of the Maker Foundation. He is also the head of engineering at MakerDAO. He has over 15 years of experience in software development, architecture, and leadership.

Mariano Conti: He is the head of smart contracts at the Maker Foundation. He is also a core developer at MakerDAO. He has a background in computer science and web development.

What are the use cases of Maker?

Maker aims to provide a scalable and secure platform for stablecoins and lending services on the Ethereum blockchain. Some of the use cases of Maker are:

Decentralized finance (DeFi): Maker enables users to access various DeFi applications and protocols that offer financial products and services, such as lending, borrowing, trading, investing, saving, etc. Users can benefit from lower fees, higher efficiency, greater transparency, and more innovation compared to traditional finance.

Global payments: Maker allows users to send and receive payments across borders and currencies using Dai as a medium of exchange. Users can benefit from faster transactions, lower costs, and more stability compared to other cryptocurrencies or fiat currencies.

Digital commerce: Maker enables users to buy and sell goods and services online using Dai as a unit of account. Users can benefit from more convenience, security, and privacy compared to other payment methods.

Social impact: Maker empowers users to participate in the global economy and access financial inclusion using Dai as a store of value. Users can benefit from more opportunities, freedom, and dignity compared to being excluded or exploited by traditional financial systems.