Okay, the title is a little dramatic. I won’t be covering why MakerDAO won’t die (dai), or why Dai is better than the others. I’ll just be giving a shallow dive into MakerDAO.

Before we start, watch this video on Vitalik Buterin, Co-founder of Ethereum, saying that he's “definitely impressed by MakerDAO”. If that doesn’t warrant your interest, I don’t know what will. Okay, let’s get started.

Let’s turn back to 7 years ago to a reddit post by Rune Christensen throwing out the idea of the 'ultimate stablecoin built on Ethereum', originally termed as 'eDollar'. What Rune wrote in that reddit post, at its core, is essentially what MakerDAO does with Dai right now as well (which we'll dive into later!).

He made it into a reality, and MakerDAO has definitely garnered a lot of attention. They were the first investment of a16z's crypto fund, pouring $15 million to buy up 6% of its token supply, on top of a $12 million round done in 2017. In 2019, they received another $27.5 million from Dragonfly and Paradigm to help them break into the USDT dominated Asia market.

In Dec 2017, MakerDAO introduced the original Dai (now Sai), that (only) accepted Ethereum (ETH) as a collateral to generate the stablecoin. By Nov 2019, MakerDAO started accepting various Ethereum-based asset types to be used as collaterals. That’s the Dai that we know (and use) today.

So, that’s a super brief history. If you want to look back and understand their journey, this article here is a good overview! I want to spend a little more time on the key elements of MakerDAO instead.

Dai is basically a stablecoin that is decentralised, unbiased, collateral-backed, and soft-pegged to the US Dollar. At day of writing, Dai is the fourth largest stablecoin, behind USDT, USDC, and BUSD. All of them serves the same purpose (1 stablecoin = 1 USD), but are slightly different.

How are they different though? Generally, there are three kinds of stablecoins:

1. Fiat backed (USDC, USDT) - stablecoins are backed by actual fiat in the form of cash, bonds, commodities, US treasuries. More stability, but centralised and requires regulatory oversight

2. Algorithmic (UST) - relies on one stablecoin and another cryptocurrency that backs the stablecoin (e.g. UST and LUNA), with a smart contract that regulates the relationship between the two. Does not require collateralisation and is decentralised, but risk depegging with large-volume withdrawals

3. Collateral backed - Basically requires another asset to back it. This is the core of what Dai is. Let's dig slightly deeper below.

As a user, to generate Dai, you would have to deposit collateral assets (think ETH, WBTC, LINK, MATIC etc). What you're essentially doing is borrowing Dai, similar to how you can only borrow money from a bank if you put your house as a collateral.

The Dai you have right now can be used just like any currency and any other stablecoin out there. And similar to your savings account, you can earn interest on your Dai.

Think of Maker Vault like any other vault out there - it keeps your money. But Maker Vault does more than that.

Enter Oasis. Oasis allows you to create the vault to generate the Dai you need!

Here's a few things that you need to take note of though.

• Collateralisation Ratio: You need to be within the Collateralisation Ratio [Calculation = (Deposit in USD value / Dai)*100%]. So assuming the collateralisation ratio is 150% and you deposit $1000 worth of ETH into the vault, you can take (read: borrow) up to 666 Dai tokens ($666).

• Liquidation Price and Ratio: If the value of your collateral or the collateral to Dai ratio falls below a liquidation price or ratio, you will be subject to liquidation. This means that your collateral will be sold and you'll have to pay a Liquidation Penalty. To prevent this, you can either pay back the Dai you've borrowed, or deposit more collateral.

• Stability Fee: This is basically the interest rate that you would need to pay at the end, similar to what a traditional bank would charge you.

• Closing the vault: If you do decide to close your position, you can either payback all the Dai you've borrowed or sell your collateral right there and then. You definitely can’t do that with a traditional house. I mean you can’t just sell your house back to the bank to repay your loan.

• And it’s super flexible: Unlike banks, there’s no repayment schedule or timelines involved. You just need to maintain a healthy collateral ratio!

Note that Oasis does more than just this. Do check out the app for more details!

MKR is mainly used to two things - governance and recapitalisation.

As a governance token:

MKR allows its holders to vote on a variety of items, such Risk Parameters of Maker Vault and other non-technical aspects, among other things

• Risk Parameters of each vault - e.g. Debt Ceiling, Stability Fee, Dai Savings Fee

• Other non-technical aspects - e.g. Asset priority lists, governance processes etc

• See the other items you can vote on here as well!

As a recapitalisation source

This happens when the Maker Protocol runs at a deficit. If the collateral portfolio becomes undercollateralised and show threat of insolvency, such as when the price of the collateral drops drastically and does not cover the Dai issued, automatic recapitalisation is triggered.

The Maker system does this by creating new MKR tokens and selling them on the market, which will allow them to raise the necessary funds to bring it back from insolvency. As more MKR tokens are issued, the value per token drops since there are more in circulation. That's why MKR holders are incentivised to govern the system well to prevent dilution on their part. This whole process is called a Debt Auction. Get a preview of it in this article or this thread here!

There will also be cases where MKR will appreciate in value too! One way that the system does this is via surplus auction, which is the opposite of debt auction. Here's how it works: when you get Dai as a user, you'll need to pay an interest rate ("stability fee"). This stability fee (in Dai) is kept in a safe place, which is termed as "surplus buffer".

If the surplus buffer gets too large, the system will use the Dai in the surplus to purchase MKR and burn it . As a result, there's less tokens in circulation, value per MKR token increases! This also incentivises MKR token holders to govern the system well too!

This is by no means a complete guide, but hope this gives you a quick overview of MakerDAO and Dai. See you in the next one!

Okay, the title is a little dramatic. I won’t be covering why MakerDAO won’t die (dai), or why Dai is better than the others. I’ll just be giving a shallow dive into MakerDAO.

Before we start, watch this video on Vitalik Buterin, Co-founder of Ethereum, saying that he's “definitely impressed by MakerDAO”. If that doesn’t warrant your interest, I don’t know what will. Okay, let’s get started.

Let’s turn back to 7 years ago to a reddit post by Rune Christensen throwing out the idea of the 'ultimate stablecoin built on Ethereum', originally termed as 'eDollar'. What Rune wrote in that reddit post, at its core, is essentially what MakerDAO does with Dai right now as well (which we'll dive into later!).

He made it into a reality, and MakerDAO has definitely garnered a lot of attention. They were the first investment of a16z's crypto fund, pouring $15 million to buy up 6% of its token supply, on top of a $12 million round done in 2017. In 2019, they received another $27.5 million from Dragonfly and Paradigm to help them break into the USDT dominated Asia market.

In Dec 2017, MakerDAO introduced the original Dai (now Sai), that (only) accepted Ethereum (ETH) as a collateral to generate the stablecoin. By Nov 2019, MakerDAO started accepting various Ethereum-based asset types to be used as collaterals. That’s the Dai that we know (and use) today.

So, that’s a super brief history. If you want to look back and understand their journey, this article here is a good overview! I want to spend a little more time on the key elements of MakerDAO instead.

Dai is basically a stablecoin that is decentralised, unbiased, collateral-backed, and soft-pegged to the US Dollar. At day of writing, Dai is the fourth largest stablecoin, behind USDT, USDC, and BUSD. All of them serves the same purpose (1 stablecoin = 1 USD), but are slightly different.

How are they different though? Generally, there are three kinds of stablecoins:

1. Fiat backed (USDC, USDT) - stablecoins are backed by actual fiat in the form of cash, bonds, commodities, US treasuries. More stability, but centralised and requires regulatory oversight

2. Algorithmic (UST) - relies on one stablecoin and another cryptocurrency that backs the stablecoin (e.g. UST and LUNA), with a smart contract that regulates the relationship between the two. Does not require collateralisation and is decentralised, but risk depegging with large-volume withdrawals

3. Collateral backed - Basically requires another asset to back it. This is the core of what Dai is. Let's dig slightly deeper below.

As a user, to generate Dai, you would have to deposit collateral assets (think ETH, WBTC, LINK, MATIC etc). What you're essentially doing is borrowing Dai, similar to how you can only borrow money from a bank if you put your house as a collateral.

The Dai you have right now can be used just like any currency and any other stablecoin out there. And similar to your savings account, you can earn interest on your Dai.

Think of Maker Vault like any other vault out there - it keeps your money. But Maker Vault does more than that.

Enter Oasis. Oasis allows you to create the vault to generate the Dai you need!

Here's a few things that you need to take note of though.

• Collateralisation Ratio: You need to be within the Collateralisation Ratio [Calculation = (Deposit in USD value / Dai)*100%]. So assuming the collateralisation ratio is 150% and you deposit $1000 worth of ETH into the vault, you can take (read: borrow) up to 666 Dai tokens ($666).

• Liquidation Price and Ratio: If the value of your collateral or the collateral to Dai ratio falls below a liquidation price or ratio, you will be subject to liquidation. This means that your collateral will be sold and you'll have to pay a Liquidation Penalty. To prevent this, you can either pay back the Dai you've borrowed, or deposit more collateral.

• Stability Fee: This is basically the interest rate that you would need to pay at the end, similar to what a traditional bank would charge you.

• Closing the vault: If you do decide to close your position, you can either payback all the Dai you've borrowed or sell your collateral right there and then. You definitely can’t do that with a traditional house. I mean you can’t just sell your house back to the bank to repay your loan.

• And it’s super flexible: Unlike banks, there’s no repayment schedule or timelines involved. You just need to maintain a healthy collateral ratio!

Note that Oasis does more than just this. Do check out the app for more details!

MKR is mainly used to two things - governance and recapitalisation.

As a governance token:

MKR allows its holders to vote on a variety of items, such Risk Parameters of Maker Vault and other non-technical aspects, among other things

• Risk Parameters of each vault - e.g. Debt Ceiling, Stability Fee, Dai Savings Fee

• Other non-technical aspects - e.g. Asset priority lists, governance processes etc

• See the other items you can vote on here as well!

As a recapitalisation source

This happens when the Maker Protocol runs at a deficit. If the collateral portfolio becomes undercollateralised and show threat of insolvency, such as when the price of the collateral drops drastically and does not cover the Dai issued, automatic recapitalisation is triggered.

The Maker system does this by creating new MKR tokens and selling them on the market, which will allow them to raise the necessary funds to bring it back from insolvency. As more MKR tokens are issued, the value per token drops since there are more in circulation. That's why MKR holders are incentivised to govern the system well to prevent dilution on their part. This whole process is called a Debt Auction. Get a preview of it in this article or this thread here!

There will also be cases where MKR will appreciate in value too! One way that the system does this is via surplus auction, which is the opposite of debt auction. Here's how it works: when you get Dai as a user, you'll need to pay an interest rate ("stability fee"). This stability fee (in Dai) is kept in a safe place, which is termed as "surplus buffer".

If the surplus buffer gets too large, the system will use the Dai in the surplus to purchase MKR and burn it . As a result, there's less tokens in circulation, value per MKR token increases! This also incentivises MKR token holders to govern the system well too!

This is by no means a complete guide, but hope this gives you a quick overview of MakerDAO and Dai. See you in the next one!