What Is MakerDAO (MKR)?
MakerDAO is the decentralized protocol responsible for stabilizing the DAI stablecoin (a 1:1 USD-pegged stablecoin). Unlike traditional stablecoins backed by fiat reserves, DAI is collateralized by Ethereum (ETH), introducing unique challenges due to ETH's volatility.
How Does MakerDAO Work?
MakerDAO incentivizes a distributed network of computers to maintain DAI's stability. As part of the broader Maker Protocol, it operates without intermediaries like banks or governments, leveraging two key tokens:
DAI:
- Generated when users lock crypto assets (e.g., ETH) as collateral to borrow DAI.
- Collateral must remain above a threshold to avoid automatic liquidation.
MKR:
- The governance token enabling voting on protocol upgrades (e.g., approved collateral types, liquidation ratios).
- Holders decide via Executive Votes (binding) and Proposal Polls (non-binding).
- Voting power scales with MKR staked—not the number of voters.
👉 Explore DeFi governance tokens like MKR
DAI Savings Rate (DSR)
MKR holders set the DAI Savings Rate, rewarding users for depositing DAI into the protocol. Historically ranging from 0% to 8.75% APY, this rate adjusts to balance DAI demand and peg stability.
Why Does MKR Have Value?
MKR’s value derives from the Maker Protocol’s performance:
- Surplus Auctions: Excess fees buy and burn MKR, reducing supply and increasing price.
- Debt Auctions: New MKR is minted to cover deficits, increasing supply and diluting value.
No hard cap exists—MKR supply fluctuates based on governance efficiency, incentivizing responsible voting.
Who Created MakerDAO?
- Founded in 2015 by Rune Christensen and later formalized under the Cayman Islands-based Maker Foundation.
- Raised $12M in 2017 from Andreessen Horowitz, Polychain Capital, and others.
- Expanded with $27.5M in 2019 (Paradigm, Dragonfly Capital) for Asian market growth.
FAQ
Q: How is DAI different from other stablecoins?
A: DAI is decentralized and crypto-collateralized, unlike fiat-backed alternatives like USDC.
Q: Can anyone participate in MakerDAO governance?
A: Only MKR holders can vote, though proposal discussions are open to all.
Q: What happens if ETH collateral drops too much?
A: Positions are liquidated automatically to maintain system solvency.
👉 Learn more about decentralized finance (DeFi)
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