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Difference between revisions of "MakerDAO"
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The Dai stablecoin is a decentralized, collateral-backed cryptocurrency soft-pegged to the US Dollar. Dai is created when users borrow against locked collateral, and it is destroyed when loans are repaid. If you deposit Ether or other cryptocurrencies accepted as collateral, you will create a new Dai. When you pay back the borrowed Dai, the locked collateral will be recovered. <ref>https://makerdao.com/en/whitepaper#dai-as-a-store-of-value</ref> | The Dai stablecoin is a decentralized, collateral-backed cryptocurrency soft-pegged to the US Dollar. Dai is created when users borrow against locked collateral, and it is destroyed when loans are repaid. If you deposit Ether or other cryptocurrencies accepted as collateral, you will create a new Dai. When you pay back the borrowed Dai, the locked collateral will be recovered. <ref>https://makerdao.com/en/whitepaper#dai-as-a-store-of-value</ref> | ||
Users generate Dai by depositing collateral assets into Maker Vaults within the Maker Protocol. To reduce volatility risk, crypto-backed stablecoins like Dai are usually over-collateralized. This | Users generate Dai by depositing collateral assets into Maker Vaults within the Maker Protocol. To reduce volatility risk, crypto-backed stablecoins like Dai are usually over-collateralized. This meant that instead of a 1:1 ratio backing, the ratio could be 1:2. Currently you could mint Dai for the value of up to 70% of your ETH. <ref>https://oasis.app/asset/eth</ref> | ||
Every Dai in circulation is directly backed by excess collateral, meaning that the value of the collateral is higher than the value of the Dai debt, and all Dai transactions are publicly viewable on the Ethereum blockchain. | Every Dai in circulation is directly backed by excess collateral, meaning that the value of the collateral is higher than the value of the Dai debt, and all Dai transactions are publicly viewable on the Ethereum blockchain. | ||
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In March 2020 the stability of Dai was questioned during extreme market volatility, to mitigate liquidity risk there was a [https://forum.makerdao.com/t/onboarding-usdc-as-collateral-to-mitigate-liquidity-risk/1570 proposal] drafted to onboard USDC as collateral. USDC is a stablecoin backed by dollars held in a bank account, and supported by several institutions including Coinbase and Circle. However critiques have questioned adding USDC as collateral as it would make Dai less decentralized with banks backing the Dai stablecoin.<ref>https://insights.deribit.com/market-research/dai-is-now-60-backed-by-centralized-assets-what-does-that-mean/</ref> | In March 2020 the stability of Dai was questioned during extreme market volatility, to mitigate liquidity risk there was a [https://forum.makerdao.com/t/onboarding-usdc-as-collateral-to-mitigate-liquidity-risk/1570 proposal] drafted to onboard USDC as collateral. USDC is a stablecoin backed by dollars held in a bank account, and supported by several institutions including Coinbase and Circle. However critiques have questioned adding USDC as collateral as it would make Dai less decentralized with banks backing the Dai stablecoin.<ref>https://insights.deribit.com/market-research/dai-is-now-60-backed-by-centralized-assets-what-does-that-mean/</ref> | ||
With the proposal to add USDC it opened the way for more fiat-backed stablecoins to be added. In July 2020, an upgrade to the Compound lending protocol caused Dai to come of its peg again. This was already [https://forum.makerdao.com/t/upcoming-comp-farming-change-could-impact-the-dai-peg/2965 | With the proposal to add USDC it opened the way for more fiat-backed stablecoins to be added. In July 2020, an upgrade to the Compound lending protocol caused Dai to come of its peg again. This was already [https://forum.makerdao.com/t/upcoming-comp-farming-change-could-impact-the-dai-peg/2965 anticipated] but resulted in a [https://vote.makerdao.com/polling-proposal/qmrstwrnbrufiffttmsbxqn9ermoeiqj2b43r7xs2jwmhp proposal] to add other stablecoins like Gemini USD, Binance USD and increase the systems [https://twitter.com/MakerDaiBot/status/1280348236730052610 debt ceiling]. | ||
This development made the backing of Dai partially dependent on centralized actors thus making Dai less decentralized. | This development made the backing of Dai partially dependent on centralized actors thus making Dai less decentralized. | ||
=== Dai usecases === | === Dai usecases === | ||
* Dai is a great medium of exchange due to its stable value and being soft pegged to the U.S. dollar | * Dai is a great medium of exchange due to its stable value and being soft pegged to the U.S. dollar. | ||
* Users can use Dai to earn income on their ETH by minting Dai using their ETH and then depositing that Dai in some DeFi app to earn yield. | * Users can use Dai to earn income on their ETH by minting Dai using their ETH and then depositing that Dai in some DeFi app to earn yield. | ||
* Dai can be minted to get a leverage position on your collateral by depositing collateral, minting Dai and selling Dai to purchase more of the collateral. | * Dai can be minted to get a leverage position on your collateral by depositing collateral, minting Dai and selling Dai to purchase more of the collateral. | ||
*Dai can be used to avoid taxes by borrowing against collateral instead of selling it | *Dai can be used to avoid taxes by borrowing against collateral instead of selling it. | ||
==The Maker Protocol== | ==The Maker Protocol== | ||
===The Maker Protocol=== | ===The Maker Protocol=== | ||
The Maker Protocol is one of the largest | The Maker Protocol is one of the largest DApps on the Ethereum blockchain. Designed by a group of contributors, including developers within the Maker Foundation, its outside partners, and other persons and entities, it is the first [[Decentralized Finance|decentralized finance]] (DeFi) application to see significant adoption. | ||
The Maker Protocol is managed by people around the world who hold its governance token, MKR. Through a system of [https://makerdao.world/en/learn/governance/gov-risk-framework/ scientific governance] involving Executive Voting and Governance Polling, MKR holders govern the Protocol and the financial risks of Dai to ensure its stability, transparency, and efficiency. One MKR token locked in a voting contract equals one vote. | The Maker Protocol is managed by people around the world who hold its governance token, MKR. Through a system of [https://makerdao.world/en/learn/governance/gov-risk-framework/ scientific governance] involving Executive Voting and Governance Polling, MKR holders govern the Protocol and the financial risks of Dai to ensure its stability, transparency, and efficiency. One MKR token locked in a voting contract equals one vote. | ||
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<references /> | <references /> | ||
[[Category:Protocols]] | [[Category:Protocols]] | ||
[[Category:DAO]] | |||