Maker is a peer-to-contract lending platform enabling over-collateralized loans by locking Ether in a smart contract and minting $2, a stablecoin pegged to the US dollar. Dai's stability is achieved through a dynamic system of collateralized debt positions, autonomous feedback mechanisms and incentives for external actors. Once generated, Dai can be freely sent to others, used as payments for goods and services, or held as long term savings.
MKR tokens act as a kind of voting share for the organization that manages DAI; while they do not pay dividends to their holders, they do give the holders voting rights over the development of Maker Protocol and are expected to appreciate in value in accordance with the success of DAI itself.
The Maker protocol is an open-source project started in 2014 with the goal of creating a permissionless credit system that would allow users to take out loans collateralized by cryptocurrency. These loans are created by smart contracts that mint $2, a stablecoin with a soft peg to the US dollar. The protocol was built by the Maker Foundation along with a number of outside parties and over time the foundation has worked to reduce its level of control. They have gradually ceded control to a decentralized autonomous organization (DAO) known as MakerDAO which governs the protocol. The DAO is comprised of individuals across the globe that own the MKR token which affords holders the right to vote on important changes.
Single Collateral Dai
The first iteration was known as Single Collateral Dai (SCD) because Ethereum was the only asset used as collateral to take out a loan. It launched in December 2017 and grew to support $100 million worth of debt. Despite a 94% decrease in the value of collateral over that time, the system remained healthy and Dai maintained a close peg to $1. Since Dai was the only widespread stablecoin that did not require a company to back it by holding US dollars, it became an integral piece of the growing decentralized finance ecosystem. While SCD proved to be effective, the intended goal was to transition to Multi Collateral Dai (MCD) that could accept collateral other than Dai as well as implement other key design changes.
Transition to Multi Collateral Dai
In November 2019 MakerDAO $2 the protocol to MCD with Basic Attention Token ($2) being voted as the first additional collateral available. The existing single collateral system continues to function as is while users are encouraged to migrate to the new Dai. Eventually, the single collateral system will be phased out altogether. In addition to the new collateral, MCD made other important design changes such as the introduction of the Dai Savings Rate (DSR) which allows Dai holders to earn yield and collateral auctions that create a competitive market for liquidations.