MakerDAO is an organization that develops technology for loans, savings, and a stable cryptocurrency on the Ethereum blockchain. It has created a protocol that allows anyone who has ETH and a MetaMask wallet to lend money to each other in the form of a stablecoin called DAI. By locking up some ETH in MakerDAO smart contracts, users can create a certain amount of DAI: the more ETH that is locked up, the more DAI can be created. When users are ready to unlock their ETH, which serves as collateral for their DAI loan, they simply return the loan along with any fees.

MakerDAO has built a core layer of decentralized finance system on Ethereum, what kids nowadays call “DeFi”.

Using crypto to borrow money used to be very difficult. Since most crypto assets fluctuate so wildly, the amount someone borrowed and the amount someone had to pay back could be very different in a short period of time. That's where MakerDAO comes in. By combining loans with a stablecoin, MakerDAO allows anyone to borrow money and reliably predict how much they have to pay back.

In this article, we learn how the MakerDAO protocol managed to attract more than 2% of the total ETH supply by allowing you to lend money to yourself.

Without credit checks and honesty from people, how does lending work on the blockchain? The answer is liquidation, that is, the moment an asset is converted into capital to pay creditors.

When the collateral for a loan drops below a certain point—meaning the price of ETH has fallen too far below the amount of DAI borrowed—the loan is liquidated. In other words, the ETH that is used as collateral is sold to pay for the DAI borrowed, plus any fines and fees. Liquidation and the threat of liquidation keep the system stable by preventing people from borrowing too much.

If the threat of liquidation keeps the system honest, then the lenders of last resort are the holders of Maker (MKR) tokens. When the price of ETH crashes and too many loans are liquidated at once, MKR is created and sold to pay off the loans. At the same time, fees must be paid in MKR, and liquidation penalties are used to buy back MKR, which are burned or destroyed. In theory, there should always be enough value in MKR to support liquidated loans.

DAI, ETH, and MKR function as an automatic system of checks and balances, each working to counteract the other and keep the system stable and decentralized.

Here's a quick rundown of how all three work:

• DAI is an ERC20 token on the Ethereum blockchain that has a stable value of one US dollar. It is also the key to MakerDAO's lending system. When a loan is taken on MakerDAO, DAI is created. It is the currency that users borrow and return.

• Maker (MKR) was created by MakerDAO and its primary purpose is to support the stability of the MakerDAO DAI token and enable governance of the DAI credit system. MKR holders make key decisions about the operation and future of the system.

How are MKR tokens produced?

MKR is an ERC20 token that is created or burned depending on how close the DAI stablecoin is to the US dollar. The creation of new MKR depends on the stability of the DAI. If the DAI remains stable, more MKR is burned decreasing the total supply. If the DAI fluctuates too far from the parity of one dollar, more MKR is created, increasing the total supply.

How are MKR tokens acquired?

MKR is available on major cryptocurrency exchanges like OKEx and decentralized exchanges like the Kyber Network.

What can be done with MKR?

Since MKR holders benefit financially from a stable MakerDAO system, they are incentivized to act in the best interest of the MakerDAO protocol. As a result, MKR holders can vote on government decisions, such as how to set rates and the types of collateral that can be accepted as collateral by the protocol. In the MakerDAO system, one MKR token equals one vote, so individuals or organizations with large holdings in MKR can have a large influence on voting results.

The future of MakerDAO

MakerDAO has become one of the flagship projects of the DeFi movement thanks to a series of high-profile partnerships that have helped drive adoption.

MakerDAO is an organization that develops technology for loans, savings, and a stable cryptocurrency on the Ethereum blockchain. It has created a protocol that allows anyone who has ETH and a MetaMask wallet to lend money to each other in the form of a stablecoin called DAI. By locking up some ETH in MakerDAO smart contracts, users can create a certain amount of DAI: the more ETH that is locked up, the more DAI can be created. When users are ready to unlock their ETH, which serves as collateral for their DAI loan, they simply return the loan along with any fees.

MakerDAO has built a core layer of decentralized finance system on Ethereum, what kids nowadays call “DeFi”.

Using crypto to borrow money used to be very difficult. Since most crypto assets fluctuate so wildly, the amount someone borrowed and the amount someone had to pay back could be very different in a short period of time. That's where MakerDAO comes in. By combining loans with a stablecoin, MakerDAO allows anyone to borrow money and reliably predict how much they have to pay back.

In this article, we learn how the MakerDAO protocol managed to attract more than 2% of the total ETH supply by allowing you to lend money to yourself.

Without credit checks and honesty from people, how does lending work on the blockchain? The answer is liquidation, that is, the moment an asset is converted into capital to pay creditors.

When the collateral for a loan drops below a certain point—meaning the price of ETH has fallen too far below the amount of DAI borrowed—the loan is liquidated. In other words, the ETH that is used as collateral is sold to pay for the DAI borrowed, plus any fines and fees. Liquidation and the threat of liquidation keep the system stable by preventing people from borrowing too much.

If the threat of liquidation keeps the system honest, then the lenders of last resort are the holders of Maker (MKR) tokens. When the price of ETH crashes and too many loans are liquidated at once, MKR is created and sold to pay off the loans. At the same time, fees must be paid in MKR, and liquidation penalties are used to buy back MKR, which are burned or destroyed. In theory, there should always be enough value in MKR to support liquidated loans.

DAI, ETH, and MKR function as an automatic system of checks and balances, each working to counteract the other and keep the system stable and decentralized.

Here's a quick rundown of how all three work:

• DAI is an ERC20 token on the Ethereum blockchain that has a stable value of one US dollar. It is also the key to MakerDAO's lending system. When a loan is taken on MakerDAO, DAI is created. It is the currency that users borrow and return.

• Maker (MKR) was created by MakerDAO and its primary purpose is to support the stability of the MakerDAO DAI token and enable governance of the DAI credit system. MKR holders make key decisions about the operation and future of the system.

How are MKR tokens produced?

MKR is an ERC20 token that is created or burned depending on how close the DAI stablecoin is to the US dollar. The creation of new MKR depends on the stability of the DAI. If the DAI remains stable, more MKR is burned decreasing the total supply. If the DAI fluctuates too far from the parity of one dollar, more MKR is created, increasing the total supply.

How are MKR tokens acquired?

MKR is available on major cryptocurrency exchanges like OKEx and decentralized exchanges like the Kyber Network.

What can be done with MKR?

Since MKR holders benefit financially from a stable MakerDAO system, they are incentivized to act in the best interest of the MakerDAO protocol. As a result, MKR holders can vote on government decisions, such as how to set rates and the types of collateral that can be accepted as collateral by the protocol. In the MakerDAO system, one MKR token equals one vote, so individuals or organizations with large holdings in MKR can have a large influence on voting results.

The future of MakerDAO

MakerDAO has become one of the flagship projects of the DeFi movement thanks to a series of high-profile partnerships that have helped drive adoption.