The MakerDAO protocol undoubtedly marked a milestone in the young journey of Decentralized Finance, better known as DeFi. So much so that if we were to write a history manual on decentralized finance, MakerDAO would undoubtedly occupy a prominent place in the timeline.
Its cornerstone is DAI, the decentralized stablecoin that already has more than four and a half billion market capitalization. DAI has become the favorite stablecoin of millions of users. And it has been used in multiple initiatives, from funding projects, seeking investment returns and as a haven of value. Even small businesses have begun to accept it as a means of payment.
The beginnings of MakerDAO date back to 2015, when its founder Rune Christensen, barely 25 years old, published an article on Reddit. In it, he presented his idea for a DAO called Maker. He also made reference to the eDollar, a stablecoin built on the Ethereum blockchain, an idea that after a series of transformations would become the current DAI.
Rune’s purpose was to provide people with a stablecoin that would be a refuge against volatility. But, unlike building a centralized stablecoin like USDT (launched in 2014) it proposed a system based on the participation of diverse members making decisions through voting.
Maker marked a milestone in 2017 by becoming the first blockchain-based protocol to launch an automated cryptocurrency lending platform. It was undoubtedly the kickoff that accelerated what we now identify as Decentralized Finance (DeFi).
The ecosystem has 3 actors working together: the Maker Foundation, Maker governance and the Maker community.
The Maker Foundation was created by the initiating members of MakerDAO. Initially its purpose was to boost the system and lay solid foundations so that it can stand on its own as a decentralized organization.
We call “governance” the process where a group of people make decisions about something in particular as part of that system or organization. In MakerDAO, governance happens through a voting system that is accessed by being a holder of the MKR token.
As for the Maker Community, we must understand it as the essence of MakerDAO. The Maker Community is made up of early adopters, Dai enthusiasts, developers, Maker Foundation employees, MKR holders and observers who choose to get involved.
The community is globally present and interacts in discussion forums remotely. It is undoubtedly imbued with a strong social character. The DAO cannot exist without cooperation. The focus is on the usefulness and need for scientific governance of the entire community.
Issuing DAI is possible thanks to a tool that changed the rules of the game: Oasis. It offers the possibility of generating DAI, a coin with a value pegged to USD by depositing a volatile cryptocurrency or another stablecoin (Vaults). And it has even been working steadily to incorporate RealT into the protocol.
At the beginning, it was only possible to issue DAI with ETH. The governance of the protocol proposed and voted over the last few years new collaterals, with their overcollateralization ratios, stability fees, interest rates and fees, etc.
By issuing DAI with collateral, their value is overcollateralized to ensure the backing of circulating DAI. Settlement auctions and Maker reserves are mechanisms to keep the protocol stable.
The auctions are responsible for allowing the system to liquidate the positions of those Vaults where the liquidation ratio is negative, thus avoiding large losses in the system. The aim is to cover the obligations of the armed Vault with the liquidation penalty, but selling the least amount of collateral possible and returning the rest to the Vault holder.
In times of market volatility where collateralized tokens drop sharply in price, the auction is exposed to not covering the issued position. For this purpose, the Maker Reserve mechanism was designed, which enters the scenario by contributing the remainder of the position. If the situation becomes delicate, the amount of MKR tokens is increased in order to put them up for sale, and from there extract the money needed to pay off the debts.
MakerDAO has remained in the top 5 protocols with the highest total blocked value (TLV) for the last few months. We can observe this in the Defi Pulse index. Maker demonstrates its consolidation regardless of the comings and goings of the market and the DeFi ecosystem. It currently stands at over USD 9.8 billion.
At the beginning of 2021, the MKR token began a rapid escalation in price. On January 1, it cost only US$581. In the month of May it is sitting above US$4500.
The Foundation’s role was always to build the Decentralized Autonomous Organization (DAO) and put it in the hands of the community, before dissolving.
On May 3, the Maker Foundation returned 84,000 MKR tokens from the Development Fund to MakerDAO. They are now under the control of Maker governance. MKR token holders have full independent control to decide how (or if) they incorporate this amount of MKR into their future plans.
Luis Lozada, MakerDAO’s Business Developer for LATAM, told Bitnovo that forum members are currently discussing what fate the returned MKR tokens will have: “the different teams within Maker are adding MKR vesting across a minimum of 4 years for their members, within their budget proposals”.
Several options are being considered, such as burning the tokens, spending them on staking rewards or whatever the governance decides. In that case, we would have to wait what vesting proposals are accepted and what to do with those returned MKRs.
Lozada is part of the Growth Core Unit that works for the DAO as such. Luis adds, “The Foundation is practically dissolved and my role is to increase DAI’s adoption worldwide through integrations with different partners, especially in Latin America.