MakerDAO is a decentralized organization built on the Ethereum blockchain that runs a Defi platform that allows users to lend and borrow crypto. Its native token is a stablecoin called DAI. DAI is an ERC-20 token, which means it runs on the Ethereum blockchain. It is designed to maintain a stable value of one US dollar. MKR is a governance token issued to users of MakerDAO Defi services. It gives holders a say in the future of the organization.
MakerDAO works through a process called “over-collateralization”, where assets supplied by users are locked up in smart contracts as collateral in exchange for newly created DAI tokens.
The MakerDAO Defi lending platform works via a collection of smart contracts that allow users to supply and borrow cryptocurrencies without a centralized loan provider.
Users create DAI by depositing some of their cryptos into a smart contract on the platform. Once DAI is created, it functions as a token on the Ethereum blockchain that can be transferred between wallets to facilitate the transfer of value like any other cryptocurrency.
DAI is useful as a medium for transfers because each token always aims to be worth one U.S. dollar — which means the value won’t swing wildly during the duration of the transaction. This type of stable cryptocurrency is known as a stablecoin.
Funds deposited to create DAI can be instantly re-acquired by paying off the DAI loan plus any fees. MakerDAO was the first DeFi protocol to reach a total value locked (or “TVL”) of $1 billion in 2020.
