Maker: An Overview

Maker: An Overview

July 07, 2024


Maker (MKR) is an Ethereum dApp that issues the stablecoin DAI, backed by overcollateralization with cryptocurrencies like ETH and WBTC. It's governed by MKR token holders to maintain stability through collateralized debt positions (CDPs).

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3 min. read

What is Maker?

Maker (MKR) is one of the largest dApps built on the Ethereum blockchain. It aims to reduce the volatility of the crypto market using a blockchain-based banking system and a crypto-native stablecoin. The stablecoin is DAI and is backed by collateral through the use of smart contracts.

How Does Maker Work?

Maker allows users to generate DAI, a stablecoin pegged to the US dollar, by locking up cryptocurrency as collateral. DAI is always overcollateralized, meaning for $1 of DAI there is always more than $1 of collateral. The process involves creating a Collateralized Debt Position (CDP) where users deposit supported cryptocurrencies like ETH or WBTC and borrow DAI against this collateral.

The system maintains stability through automated liquidations and a dynamic fee structure. If the value of the collateral falls below a certain threshold, the CDP is liquidated to protect the system. Users must maintain a minimum collateralization ratio to avoid liquidation. The protocol is governed by MKR token holders who vote on key parameters and system upgrades, ensuring decentralized management of the ecosystem.

What is DAI Coin and Its Uses?

DAI is a stablecoin created by the Maker protocol, designed to maintain a stable value equal to the US dollar. It's primarily used as a stable store of value, allowing users to hedge against market volatility. DAI is widely utilized in trading pairs on decentralized exchanges, providing liquidity and facilitating trades. 

It's also commonly used for lending and borrowing in various DeFi protocols, enabling users to earn interest or access loans. 

Additionally, DAI functions as a medium of exchange for goods and services in some crypto-friendly marketplaces, and it's employed in yield farming strategies to generate returns.

Important Key Metrics (as of July 5, 2024)

  • Total Value Locked (TVL): ~$5.5bn

  • Total Circulating Market Cap: ~$2.1bn

  • Token Max Supply: 5.1bn $DAI

Disclaimer: The information provided in this research paper is for educational and informational purposes only. It does not constitute financial advice, investment guidance, or any solicitation to buy or sell financial instruments. The views expressed herein are those of the authors and do not necessarily reflect the opinions of Kollectiv.