A Brief History of Maker Protocol
The Maker Protocol launched in December 2017 as a Single Collateral Dai (SCD) system, pioneering decentralized finance solutions. Designed to address systemic flaws in traditional finance—such as opacity and market volatility—Maker prioritizes transparency by publicly sharing meeting recordings and mitigates volatility through its DAI stablecoin.
DAI has successfully maintained its $1 peg, emerging as a leading algorithmic stablecoin. A major upgrade occurred in November 2019 when MakerDAO transitioned from SCD to Multi Collateral Dai (MCD), expanding the types of accepted collateral.
How MKR Functions in the Maker Ecosystem
Collateralized Debt Positions (CDPs)
DAI is generated through ether-backed collateral. Users deposit ether into a Collateralized Debt Position (CDP), a smart contract within the Maker Protocol. This contract:
- Holds the ether as collateral.
- Issues loans in DAI.
- Triggers liquidation if ether’s value falls below a predefined threshold, auctioning the collateral to maintain stability.
👉 Learn how CDPs protect the DAI peg
Mechanisms Ensuring Stability
To preserve DAI’s 1:1 dollar peg, Maker liquidates undercollateralized CDPs before collateral value dips below the borrowed DAI amount. If system-wide collateral becomes insufficient:
- New MKR tokens are minted.
- MKR is sold publicly to raise additional funds.
This creates a self-regulating incentive: MKR holders must govern responsibly to avoid dilution. In return, they earn fees for maintaining protocol parameters.
Key Features of Maker Protocol
- Decentralized Governance: MKR holders vote on critical parameters (e.g., stability fees, collateral types).
- Algorithmic Stability: DAI’s peg is enforced via smart contracts, not centralized reserves.
- Transparency: All governance decisions and financial operations are publicly verifiable.
👉 Explore MKR’s governance model
FAQ
1. How does DAI maintain its $1 peg?
DAI’s stability relies on collateralization ratios and automated liquidations of CDPs. Excess collateral buffers price fluctuations.
2. What happens if my CDP is liquidated?
Your deposited ether is auctioned to cover the DAI debt. Any remaining collateral is returned after fees.
3. Can I use assets other than ether as collateral?
Yes! After the MCD upgrade, multiple collateral types (e.g., WBTC, USDC) are supported.
4. How are MKR holders rewarded?
They earn stability fees (interest on DAI loans) for governing the system effectively.
5. Is Maker Protocol fully decentralized?
Yes—no single entity controls it. Decisions are made via MKR holder votes.
6. What’s the difference between MKR and DAI?
- DAI: Stablecoin pegged to $1.
- MKR: Governance token with voting rights and fee incentives.
Why Maker Protocol Matters
By blending decentralized governance, algorithmic stability, and transparency, Maker offers a robust alternative to traditional financial systems. Its success with DAI and MKR underscores the potential of DeFi innovations.
For real-time MKR price updates and deeper insights, stay tuned to authoritative blockchain resources.