MakerDAO Review: One Of The Most Powerful DeFi Platforms Currently
MakerDAO was among the first lending platform. This platform’s offering is the stablecoin DAI, which has been popular in DeFi, with several projects employing DAI. Let’s learn details about this project with Coincu through this MakerDAO Review article.
What is MakerDAO?
MakerDAO is an organization that is building lending and savings technologies, as well as a stablecoin crypto asset called DAI on the Ethereum blockchain. MakerDAO has developed a system that allows anybody with ETH and a Metamask wallet to lend money in the form of the DAI stablecoin. Network members may produce DAI by locking up some ETH in MakerDAO’s smart contracts; the more ETH locked up, the more DAI created.
Additional information about how to operate:
- As users engage with MakerDAO, they construct CDPs (Collateralized Debt Position Smart Contracts), which are smart contracts for collateralized debt.
- Return DAI equivalent to a portion of the deposited asset value.
- To get collateral, pay the stability charge and borrow DAI.
The DAO’s two-token concept, which includes the collateral-backed DAI stablecoin and the governance token MKR, attempts to restore stability to the cryptocurrency ecosystem. Users may utilize the Maker Protocol to lock their ETH as collateral for a DAI loan. When customers wish to get their ETH back, they just refund the loan plus any costs.
The Maker Foundation launched MakerDAO in 2014. Its worldwide development team began constructing the Maker ecosystem in 2015, and in 2017, the whitepaper launched the Stablecoin System, or Sai, which was formerly known as Dai.
The Maker Foundation, in partnership with the MakerDAO community, thinks that a decentralized stablecoin such as DAI is required for people and blockchain enterprises to fully benefit from the digital asset.
Since the system only accepted Ethereum (ETH) as collateral, the full term was Single-Collateral Dai, or SCD. Participants could manufacture SCD using ETH in this way through a sophisticated system of smart contracts; however, the Maker protocol was upgraded in 2019, and it is now powered by DAI.
MakerDAO is part of a worldwide community and is used to lend DAI, a stablecoin. This is done when users deposit supported ETH into the Maker Vault, resulting in a loan represented in DAI that may later accumulate interest.
DAI, a stablecoin backed by collateral, is the initial component of Maker’s two-token scheme. Its value is fixed to a certain fiat currency, such as the US dollar. DAI may be used for a variety of reasons, including trading, remittances, and gaining access to decentralized finance (DeFi) apps.
The second component is MKR, the Maker Protocol’s governance token. MKR holders have voting rights in the MakerDAO governance. Members take part in voting and other governance activities to keep the system running and the DAI stablecoin running.
MakerDAO intends to allow anybody in the world to use its permissionless borrowing marketplace and trustless financial apps by building an inclusive infrastructure for individual economic empowerment. This creates an opportunity for users to profit from DeFi and use MakerDAO’s decentralized lending and borrowing services.
Ultimately, MakerDAO’s purpose is to maximize DeFi’s potential by offering a stablecoin and governance structure that delivers stability and accessibility to the cryptocurrency industry. Now, the MakerDAO Review article will explore how the project works.
How does it work?
We are all aware of the crypto market’s extreme volatility. As a result, the community is hoping for a cryptocurrency with a steady value to protect its holdings.
Stablecoins (USDT, USDC, TUSD…), on the other hand, are issued by a centralized organization with the promise that 1 issued stablecoin will be backed by 1 USD in the bank. But we don’t know whether that’s true or not.
As a result, Maker was built to address this issue. It generates a stablecoin whose value is tied to USD but collateralized by crypto; the unique feature is that it is a decentralized system, so everything is visible and under control.
Assume you’re visiting a farmer’s market and want to purchase some veggies. You don’t have any cash with you, and the farmer doesn’t take credit cards. Fortunately, you have a valuable object, such as a watch, that you can use as collateral to purchase veggies from another person at the market.
You are the borrower in this situation, the farmer is the lender, and the watch is the collateral. Let’s imagine you want to purchase some more veggies but don’t have any more collateral. Here is where MakerDAO enters the picture.
MakerDAO is analogous to a collection of individuals at the farmer’s market eager to lend you money in exchange for your collateral, in this instance, Ethereum. Rather than relying on a conventional bank to lend you money, MakerDAO enables you to borrow DAI by staking your ETH as collateral.
Similarly to how you may use your watch as collateral to borrow money from the farmer’s market, you can use your ETH as collateral to borrow DAI from MakerDAO.
Maker guarantees that when consumers invest ETH, they will get a comparable quantity of DAI. Simply explained, Maker will act as a credit lender, with ETH serving as security and DAI representing the amount borrowed by the user. The MKR token will be used by the protocol to guarantee that the price of one DAI is always equal to one USD.
When an incident threatens the whole system (such as hacking or collateral depreciation), a process known as “Global settlement” is implemented. Following then, CDP creation will be halted, and the stopper will be able to get collateral in their unpaid DAI or CDP. This approach was designed to boost confidence in the MakerDAO system.
MakerDAO was one of the first efforts to address the issue of capital use efficiency. Users may deposit current assets in order to borrow stablecoins for other purposes. This allows us to avoid selling assets while still having money.
MakerDAO is one of the biggest and most established dApps on the Ethereum blockchain, accounting for a considerable portion of overall liquidity in the DeFi ecosystem. In reality, when the Total Value Locked (TVL) of ETH in DeFi initially crossed the $1 billion mark in June 2020, the MakerDAO protocol owned almost 60% of the ETH.
When DeFi grows in popularity in 2021, consumers will want to not only acquire assets and wait for the price to rise before selling, but also keep stablecoins to engage in yield farming or just discover methods to boost capital efficiency. MakerDAO was the only answer at the time, thus it flourished. MakerDAO’s greatest TVL in 2021, according to Defi Llama, is more than $19.8 billion.
The market has received 4.6 billion DAI. As a result, DAI is presently the top-ranking stablecoin in the same sector. At the time of writing, Maker is third in Total Value Locked after Aave and Lido, with about $6.3 billion in assets locked on its platform.
- Token Name: Maker
- Ticker: MKR
- Blockchain: Ethereum.
- Token Standard: ERC-20
- Contract: 0x9f8f72aa9304c8b593d555f12ef6589cc3a579a2
- Token type: Governance
- Total Supply: 1,005,577 MKR
- Circulating Supply: 977,631 MKR
MakerDAO users pay the system cost with MKR Token, which is around 1%.
In the governance mechanism, MKR is employed as a vote. MKR holders have the right to vote on platform governance initiatives. The algorithm then chooses the suggestions with the most votes.
- Ticker: DAI
- Blockchain: Ethereum
- Smart contract: 0x89d24a6b4ccb1b6faa2625fe562bdd9a23260359
- Decimal: 18
- Token Standard: ERC-20
- Token type: Stablecoin
- Circulating Supply: 4,650,025,526 DAI
DAI is a stablecoin that is part of the MakerDAO ecosystem. After collateralizing crypto assets, users earn DAI, which they may spend for any purpose. Users may now pay the loan charge with DAI tokens rather than MKR tokens.
The project just announced 5 phases of Endgame. It is characterized as a software upgrade that uses AI technologies and open methods to improve efficiency, resilience, and involvement.
- Rune Christensen: Founder and CEO.
- Steven Becker: President and COO.
- Andy Milenius: CTO.
Investors and Partners
From 2017 through 2019, MakerDAO received funds from a number of famous investors, including Paradigm, a16z, Dragonfly Capital, and others.
MakerDAO has partnered with more than 400 dApps, and integration services such as MetaMaksk, Coinbase, Oasis, Opensea, DENT, Sandbox, League of Kingdoms, etc.
The potential of MakerDAO and DAI
MakerDAO is a large-scale initiative that aims to create a decentralized future for the crypto industry. According to the published timeline, the project might take three years to build the Ethereum mainnet.
MakerDAO is an excellent investment due to its decentralized system. Everyone with MKR tokens instantly joins the community and obtains governance privileges. This implies that if you invest in MKR, you will have the ability to shape the future of MakerDAO.
MakerDAO developers are optimistic about the project’s success because of the following remarkable features:
- Maker is a system that employs the ERC-20 tokens MKR and DAI, both of which utilize ETH as a trading pair.
- Maker utilizes MKR token and Smart Contract CDP to keep DAI token stable at 1 USD. It is tied to the USD and may be exchanged to another currency if the US economy fails and the USD falls in value.
- Maker is a decentralized platform that is backed by several of the world’s most prominent DEXs.
- MKR token holders have voting rights on the Maker platform, and as the final deciders for the DAI stablecoin, they are motivated to keep the platform functioning.
If you want to invest in the project, MKR Token is a good option. MKR Token is a Utility Token as well as a Governance Token. The value of MKR will rise as buyer demand rises.
MKR is, therefore, more advantageous for borrowers. This is due to the fact that as a user, you may lend yourself by securing ETH as collateral and establishing a Collateralized Debt Position.
Yet, owning MKR has its own set of hazards, the majority of which are speculative and have yet to materialize. The most serious danger is that the Ethereum price may plummet, leaving all collateral in the Maker ecosystem worthless.
Another danger is that the number of bad debts and defaults increases to the point that the price of MKR tokens falls.
Conclusion of MakerDAO Review
MakerDAO is a pretty fascinating protocol that has emerged in the DeFi area over the past 4 years or so, trying to marry both stablecoin creation as asset-backed collateral and decentralized lending and borrowing features.
Ultimately, MakerDAO provides a decentralized, transparent, and reliable lending and borrowing ecosystem. Its distinguishing characteristics, such as collateralization and cheap fees, make it a popular solution for people seeking liquidity without selling their crypto holdings. Hopefully the MakerDAO Review article has helped you understand more about the project.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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