MakerDao is a project that allows users to take a loan by collateralizing Ethereum and receiving stablecoin “dai” in return.
This process is basically called a collateralized debt position.
MakerDAO aims to be transparent and sustainable by giving financial solutions to the people involved in the cryptocurrency or you can say blockchain space.
MakerDAO has three main important features that help in achieving their goals and visions.
Decentralized Stable Coin “Dai”
Providing Collateral Loans
So we will be discussing all these features, as we move forward with the review, so let’s begin.
Decentralized Stable Coin “Dai”
Maker has its own decentralized stable coin termed as “Dai” which is always equivalent to the value of USD.
Dai is much more decentralized compared to other stable coins like Tether or TUSD.
Dai is the first decentralized stable coin on the Ethereum blockchain.
Anyone can purchase dai without having the risk of its volatility and easily rely on the coin.
Each Dai is backed by the collaterals, so users can stay least worried about its value fluctuations.
Dai also has three main features including:
In terms of security, each Dai coin is backed by another asset value, and also the collateral portfolio is very much diverse, which basically allows multiple assets to determine the value of Dai coins
With being transparent, anyone can view the locked collateral that is backing each Dai, including its safety profile.
Makerscan shows all the collateral data in just one place.
In the unlikely case of a black swan event, the system will employ Emergency Shutdown, a last resort to guarantee a stable price.
Providing collateral loans
Providing collateral loan is the main objective of MakerDAO.
Features of collateral loans:
Borrow on users terms
Gain additional liquidity from assets so that users can lend themselves a secure and stable form of money.
By opening a collateralized debt position (CDP), individuals can increase their exposure to an underlying asset and effectively trade on margin.
Steps involved in opening a collateralized debt position (CDP)
Anyone owning ETH can open a collateralized debt position (CDP) on the MakerDAO Dapp
The next step is is to sign in with any 1 of the 4 trusted Ethereum supported wallets that are Metamask, Ledger Nano S, Trezor, and Coinbase Wallet.
Once logged in, there will be an “Open CDP” button just in the middle of the dapp.
After clicking on “Open CDP”, there will be two tabs displayed.
The first tab on the left side is the amount of ETH tab, where the user has to enter the amount of ETH he wishes to set as collateral.
The second tab on the right side is the amount of Dai coins the user wishes to be lent.
The user has to keep in mind about the liquidity risk while entering the amount of dai to be lent, which is really very important to be understood because it helps in preventing the user from major losses.
The next step is to click on the “collateralize and generate Dai” button below, after that you need to confirm the transaction in your respective wallet, the transaction will be processed and since the Dai coins are the ERC20 tokens the user will automatically receive them straight to their Ethereum wallet.
The user can then do whatever he wishes with the dai coins.
The community governance is a voting system where the MKR token holders can vote for further decision making and electing active proposals they like to wish.
The voters can find the proposals they wish to in the MakerDAO Voting System
Here is an image of the current proposal running on to reduce the stability fee of Dai by 4% to a total of 5.5% per year
So if the voters wish to support this, then they can vote by clicking the “vote for change”.
The voters can use MKR tokens or ETH to vote on proposals.
Know more about MakerDAO by having a look at its Whitepaper