Maker is a DAO (Decentralized Autonomous Organization) and smart contract platform on the Ethereum blockchain with a stablecoin system referred to as “Dai”. The Dai crypto coin is an ERC-20 stablecoin that is pegged to the US Dollar so that one Dai is worth one US Dollar, and most noteworthy, its value doesn’t change. Unlike other stablecoins, DAI is a decentralized asset that exists within the Ethereum blockchain via smart contracts.
What makes it Valuable?
- A decentralized stablecoin in a volatile market.
- Holders of the MKR token are able to vote on system actions
How the Maker Platform Works
Maker’s objective is to capacitate cryptocurrency holders to leverage their assets and garner increased exposure to the market. One is in a position to easily deposit their ETH tokens to a CDP and use the DAI issued to them to, for instance, purchase more ETH. Nonetheless, there are questions about DAI’s stability without the physical dollar backing, how the currency would react to abnormal movements in cryptocurrency trends, and the Maker coin’s greater role in the ecosystem.
Even without physical backing, DAI isn’t “free money”. When someone sends their ETH to a CDP, it is locked and as such no longer theirs up till they deposit the same amount of DAI that it originally issued. The amount of DAI that one is able to generate with ETH is constantly changing, which combats volatility in ETH itself. For example, one day you could deposit 1ETH and receive 66 DAI, while the same amount of ETH might create 75 DAI a day later. You will only get this ETH back the moment you deposit 66 or 75 DAI to the CDP, respectively. This is termed as the collateralization ratio, and it is one of the linchpins of the CDP smart contract. It is as well voted on periodically by holders of the MKR tokens, which makes a larger part of their role on the platform.
In addition, Dai’s price isn’t always $1.00 USD exactly. On a number of occasions it drops to as low as $0.98 USD and in others it rises to as high as $1.02 USD. It seemingly isn’t a wide spectrum, but even a few pips off the value of the Dollar can create havoc. To curb the inevitable reality of DAI being worth more than $1.00 USD, Maker has come up with an algorithm that calibrates fees and the collateralization ratio (independent of MKR holders) that make it more lucrative to generate DAI with ETH. Nevertheless, increasing ETH prices only further collateralizes DAI but doesn’t result to real problems other than the need to adjust the collateralization ratio.
An Enchanting Technology
A CDP (Collateralized Debt Position) is a smart contract that is distinctive to the Maker platform. The smart contract enables users on the platform to exchange ERC-20 tokens for DAI. Users who are holders of ERC-20 tokens are regarded as collateral assets that are locked into a collateral debt smart contract with the accordance that the collateral assets are bound to be unlocked and given back by paying back an analogous amount of DAI. To put it simply, ERC-20 tokens are exchanged for the DAI tokens, incurring a debt in a smart contract that is to be compulsorily paid back in an equivalent value of DAI tokens to recoup the original ERC-20 tokens.
- Mechanisms Employed to Stabilize the Coin:
The Maker platform implements three fundamental approaches in a bid to make the coin stable, as discussed below:
- Target Price:
The first approach, also referred to as the ‘target price’, is utilized to compute how much any particular ERC-20 tokens are in comparison to the US Dollar.
- Target Rate Feedback Mechanism:
The second mechanism, termed as the ‘TRFM’ (Target Rate Feedback Mechanism), is implemented in the case of severe market stability and not only breaks the USD peg to diminish the volatility of DAI, but changes the target price over time as well.
- Sensitivity Parameter:
The third mechanism, known as the ‘Sensitivity Parameter’, establishes the rate at which the price of DAI changes in relation to the USD movement. It is additionally utilized in the disengagement of the Target Rate Feedback Mechanism in the case that a market collapses.
- Global Settlement:
Global Settlement comes in as the last resort process that is activatable in the event of momentous emergencies to unwind the platform and give back holders of the DAI tokens the assets they are entitled to with utter decentralization.
- The MKR Token:
MKR capacitates its holders to vote on actions entailing risk management, for instance, the incorporation of new CDP types, sensitivity modifications, risk parameters, and to activate a global settlement. This kind of decentralized governance is realized via Active Proposal smart contracts which are vested by the votes of MKR token holders.
The Lead Team behind the MakerDAO Project
- Rune Christensen:
Rune Christensen is the organization’s Founder and Chief Executive Officer. He is based in Denmark and boasts a solid background in Biochemistry and International Business.
- Andy Milenius:
Andy Milenius is the organization’s Chief Technology Officer (CTO). He is as well a Software Engineer working at DappHub, a blockchain tools development suite.
- Shannon Wu:
Shannon Wu is MakerDAO’s Public Relations Consultant. Other than this, she is as well the Co-Founder of Bloom, the decentralized credit scoring project, as well as the Founder of Mr. Progress, a digital innovations shop for startups.
Swarm is a blockchain for private equity and has joined forces with Maker to enable its investors to lock in cryptocurrency prices.
OmiseGO, a blockchain project that is developing a decentralized cryptocurrency exchange platform, has formed an alliance with Maker to provide its users with a stablecoin option.
L4 is a venture project developing a decentralized web 3.0 platform that gets rid of third party interference and incentivizes users to contribute. It has partnered with Maker to help start-ups using the Dai stablecoin system with business development, financing, and strategic introductions.
Switchain is a program built to provide users with the best crypto prices. It has joined forces with Maker to hedge against volatility with the Dai stablecoin.
Product & Traction
In a majority of countries throughout the globe, the conventional central bank is accountable for raising or lessening interest rates of the national currency. Owing to the fact that these central banking systems are centralized, they are in a position to offer a variety of rates of loans to various individuals or business organizations. What’s more, the central bank of an abundance of countries covers the bad debt of lenders, which over time, is once again covered by loftier loan rates.
The Maker platform provides a number of improvements to the conventional central bank. In the Maker system, money does not come out of thin air, but is rather contrived by borrowing against extant assets. These assets in the Maker platform, in contrast to a traditional central bank, are a diversified pool of assets which is a more worthwhile guarantee. It is the hope of Maker that Dai be pegged to the Consumer Price Index (CPI) or other metric in the event the Federal Reserve (FR) ever loses credibility.
What’s more, the Maker platform enables individuals as well as businesses to receive loans straightforwardly from the platform, instead of a third-party involvement that receives a cut in the conventional banking system.
Users are in a position to generate Dai on the Maker platform via smart contracts that lock their collateral until they pay back the loan in entirety. These smart contracts are referred to as CDPs (Collateralized Debt Positions), in which case the interest rate is the Stability Fee.
Here is a step-by-step explanation regarding what happens in the event a user enters into a smart contract on the Maker platform, assuming a collateralization ratio of 150 percent and a 1 percent Stability Fee:
- User’s pledged collateral is accepted.
- Parameters are checked for lending against the specific collateral.
- Dai is created against the collateral.
- In the event the loan is repaid in full with interest, the collateral is released. Part of the interest payment is given to holders of MKR, the Maker utility token.
- In the event the loan falls below a given amount, the collateral is liquidated up to the loan’s value, and the Dai is destroyed.
- On the off the chance there isn’t sufficient collateral to cover the value of the loan in Dai, holders of the MKR token will print MKR and sell it for Dai up till it is able to indemnify the loan.
How DAI Maintains Price Stability
DAI is a stablecoin, the implication being, it will eternally be correspondent to $1 USD. Maker has the capacity to come up with an ecosystem that capacitates users on the platform to take volatile assets and borrow stable assets by engendering a variegated collateral portfolio to prop up each and every stable asset. Void of the diversified portfolio, Maker would have quite a number of outstanding loans and fall into momentous financial woe in the case of a black swan event.
Another mechanism implemented to retain the stability of Dai regards the Target Rate Feedback Mechanism, which an autonomous mechanism that adjusts the Dai market rate to maintain it closer to the target price stable to the US dollar. It kicks in in the case of a severe market instability event, incentivizing users to generate more Dai on the off the chance it trades at more than a dollar. On the assumption that the price of Dai drops, making the system susceptible to the risk of collapse, all Collateralized Debt Positions (CDPs) are liquidated, with the equivalent Ether being auctioned off until adequate DAI is available to reparate the CDP.
How to Buy DAI
OasisDEX is so far the primary option in so far as purchasing DAI is concerned. It’s as well the cryptocurrency exchange with the highest trading volume at more than $6 million USD.
DAI is additionally available for purchase or trade on the following cryptocurrency exchanges:
- HitBTC (Trade DAI with BTC on HitBTC)
- Ethfinex (Trade DAI with USD on Ethfinex)
- HitBTC (Trade DAI with ETH on HitBTC)
- RadarRelay (Trade DAI with WETH on RadarRelay)
- Kyber Network (Trade DAI with ETH on Kyber Network)
How to Store DAI
DAI can be stored in any wallet that supports ERC-20 tokens such as Coinomi, MetaMask and MyEtherWallet.
For optimal security, be that as it may be, users are strongly advised to hold their DAI on hardware wallets such as Ledger Nano S and Trezor.
MakerDAI Market & Future
Dai has the potential for a variety of use cases across various industries, being inclusive of, among others, prediction markets or gambling applications, leveraged trading for hedging, derivatives and financial markets, just to mention but a few. What’s more, governments and charities are in a position to witness significantly increased transparency via Dai’s accounting system.
- Maker is the first DAO ever; it even predates the Ethereum project.
- The Dai token has one of the most sort-after use-cases in the entire crypto market, as it is an extremely useful tool for partnering projects to incorporate and provide added value to their clients.
- As a decentralized stablecoin, it is a cornerstone in a decentralized economy.
- MKR tokens can be staked for decentralized governance.
Maker Review: The Not So Good
- Although it has the global settlement failsafe system in case of an emergency, there is no way of knowing if it will actually work until the emergency has happened.
- It is still a developing project. Not that this is a bad thing but just as a reminder, this technology is cutting-edge and breaking a previously unexplored territory that may have unexpected consequences.
Debatably, MakerDAO is a phenomenal innovation that is a lucrative addition to the Ethereum network as well as any projects that require a decentralized stablecoin. Stablecoins are among the most popular utilities in the most volatile market in the world, and Maker is a platform that is well underway in providing one.