What is Maker?


Maker (MKR) is a decentralized platform built on the Ethereum blockchain that aims to address volatility issues in the crypto market by creating a new-generation blockchain-based banking system that facilitates faster and simpler international payments and peer-to-peer transactions. The project’s main objective is to support and stabilize a collateral-backed cryptocurrency called DAI Stablecoin. DAI is a digital currency that maintains its purchasing power by being pegged to the value of the US dollar. Maker achieves this through its innovative smart contracts, known as Collateralized Debt Positions.

Key Takeaways

  • Maker is an open-source decentralized platform built on the Ethereum blockchain that enables the creation of stablecoins.
  • Maker’s stablecoin, DAI, is pegged to the value of the U.S. dollar and is designed to maintain a consistent value through a system of collateralized debt positions (CDPs) and a dynamic stability fee.
  • The platform also allows users to participate in the governance of the platform through its governance token, MKR, which is used to vote on changes to the platform.
  • Maker aims to provide a decentralized alternative to traditional financial systems, providing users with more control over their own financial assets.
  • The MakerDAO project is a decentralized autonomous organization (DAO) that was created in December 2017.

The Maker platform allows individuals to use their Ethereum assets to create DAI, a collateral-backed cryptocurrency. This can be used for a variety of purposes such as sending to others, paying for goods and services, or holding as a long-term investment.

How does Maker work?

The Maker Protocol generates Dai, a stablecoin, through smart contracts called Maker Vaults. These contracts can be accessed through various web interfaces and apps, such as Oasis Borrow or Instadapp. Users who want to retrieve their collateralized cryptocurrency from the smart contract must first pay back the Dai they generated, along with a stability fee.

The MKR token serves as a governance token for the Maker Protocol, allowing holders to vote on proposals for changes to the protocol. These proposals are presented as smart contracts and can be proposed by any Ethereum address. The MKR community then votes on which proposal they want to pass, with the proposal receiving the most MKR votes being granted administrative access to implement the proposed change to the protocol.

Maker’s Dai (DAI) Stablecoin

The reliability of any blockchain lending service is dependent on the stability of the collateral used for loans. To address this, the Maker ecosystem centers around the use of the DAI stablecoin as collateral. The Maker protocol utilizes smart contracts to create Maker Vaults, which are token repositories in which investors can deposit assets as liquidity to collateralize the DAI stablecoin. These Maker Vaults act as liquidity pools that support the lending system.

The Maker Protocol creates new Dai stablecoins through smart contracts called Maker Vaults. These contracts can be accessed through various interfaces such as Oasis Borrow or Instadapp. To retrieve their collateralized crypto, users must pay back the Dai they generated along with a stability fee.

The process of creating new Dai stablecoins involves adding liquidity in the form of popular crypto assets such as USDC, Wrapped Bitcoin, and Ethereum. This is done because these assets have large market caps and are less likely to experience significant price fluctuations that could affect the one-to-one peg of Dai to the dollar. Additionally, USDC is a widely used centralized stablecoin that is fully backed by USD cash reserves or equivalents.

The decentralization of DAI is limited due to its current reliance on centralized stablecoins for collateralization. However, the potential for decentralization exists if the collateralization structure is altered through the decision-making power of MKR token holders.

Maker’s MKR Governance

The Maker protocol can only be considered truly decentralized if all stakeholders have a say in its features. Similar to shareholders in a company, MKR token holders can vote on various aspects of the protocol using their tokens as a voting weight. These include:

  • Deciding which new crypto assets to use as collateral for DAI,
  • Determining the level of overcollateralization for each asset to minimize instability risk,
  • Setting staking rewards for DAI,
  • Approving or proposing new upgrades to the protocol,
  • Selecting or adding oracle networks such as Chainlink to provide off-chain data to on-chain Smart contracts,
  • Determining liquidation ratios for each collateralized asset, and;
  • Setting stability and liquidation fees for retrieving collateral and penalties for liquidation.

In the MakerDAO governance protocol, token holders of MKR tokens have proportional voting power based on the number of tokens they possess. If a risk assessment determines a specific Maker Vault to be too high risk, it will be liquidated through automated auctions, resulting in the creation of new DAI.

Maker Development

The evolution of the Maker ecosystem progressed through various phases, with the initial stage being the development of MakerDAO in 2014. This was initiated by Rune Christensen, a Danish business leader and graduate of the University of Copenhagen. Christensen, after earning degrees in international business and biochemistry, co-established a recruitment firm named Try China before venturing into the blockchain industry.

Dai was officially launched on the Ethereum blockchain in 2017, and in the following year, the Maker Foundation was established with the purpose of driving the growth of the ecosystem and leading the decentralization of development. Rune Christensen, the creator of MakerDAO, is the CEO of the foundation, and other members of the board include Steven Becker, who is the President and COO and also founded Cubit Capital, and economist Shefali Roy.

Initially, the Maker Protocol only allowed for Ethereum to be collateralized, resulting in the creation of Single-Collateral Dai or Sai. In 2019, the Multi-Collateral Dai (MCD) system was introduced, allowing for any Ethereum-based asset that has been approved by the community of MKR token holders to be used as collateral.

Maker FAQ

Who are the founders of Maker?

MakerDAO, the initial component within the broader Maker ecosystem, was established in 2015 by Rune Christensen, a Danish entrepreneur. Christensen graduated from the University of Copenhagen with a degree in biochemistry and completed international business studies at the Copenhagen Business School. Prior to founding MakerDAO, he co-established and managed the Try China international recruitment firm.

What makes Maker unique?

The Maker community, composed of MKR token holders, has the exclusive ability to actively engage in the governance of Dai, a widely-used stablecoin.

By utilizing their MKR tokens, they can vote on proposals such as adding new cryptocurrencies as collateral options to increase the production of Dai, adjusting the risk parameters of existing collateral options, modifying the Dai Savings Rate, selecting oracles (which provide real-time market price data to the Maker ecosystem), and implementing system upgrades.

How Does Maker’s Loan Issuance Work?

Several decentralized applications (dApps) utilize the Maker protocol to provide loans. One such example is Oasis.app. When a user requests a loan through a dApp, the Maker protocol creates a smart contract known as a collateralized debt position (CDP). For instance, if a borrower wants to collateralize their CDP loan with ETH, the native cryptocurrency of Ethereum, ETH is then utilized to mint DAI stablecoin through the Maker Vault. In other words, ETH acts as collateral for the loan, which is issued in DAI. Once the loan is repaid, the minted DAI tokens are burned, meaning they are permanently removed from circulation.

More articles:

What is MetaMask?

MetaMask is like a digital Swiss Army Knife, a tool that can handle almost anything you throw at it in


DApps, or Decentralized Applications, are software applications that run on a peer-to-peer blockchain network. Breaking away from server-based models of

What is MetaMask?

MetaMask is like a digital Swiss Army Knife, a tool that can handle almost anything you throw at it in


DApps, or Decentralized Applications, are software applications that run on a peer-to-peer blockchain network. Breaking away from server-based models of