Review of the Maker Protocol – Introduction

Cryptocurrencies are less popular than they were one year ago, and the market’s inflow has decreased substantially. Nevertheless, many assets with powerful use cases have held their place in this volatile market. The Maker Protocol is one of the projects that succeeded in maintaining the investors’ interest even when the market was almost entirely red. In the remainder of the review, we talk about the project’s founders, ecosystem, use case, native tokens, and its pros and cons.

Who are the Founders of the Maker Protocol?

Rune Christensen is the co-founder and CEO of the first stablecoin on the Ethereum blockchain. He had previously co-founded an international recruiting company called Try China in 2013 and established MakerDAO in 2015. He studied Biochemistry at Copenhagen University and passed courses at the Copenhagen Business School.


How does MakerDAO work?

MakerDAO is an Ethereum-based decentralized organization that works hand in hand with the Maker Protocol (its software platform) and uses smart contracts to process the market dynamics in order to immune the stablecoin against volatility. The project has been developed based on a two-token scheme, including Dai, a collateral-backed stablecoin that is soft-pegged to the US dollar, and MKR, which is the governance token that allows Dai stakeholders to control and manage the project. In other words, MKR serves as a voting right for the holders to ensure Dai’s stability, transparency, and efficiency. The ultimate goal of MakerDAO is to create a decentralized medium that provides everyone equal access to the financial markets.

The Maker Protocol has evolved into a new version, Multi-collateral Dai, that enables the system to support any Ethereum-based asset as a Dai-collateral, given that the Maker community approves it. Users can lateralize their designed tokens to Dai through a set of smart contracts referred to as Maker Vaults which are accessible through UIs such as Oasis Borrow. Generally, working with a Maker Vault incorporates a four-step procedure: first, the user creates the vault and funds it with specific collateral that will be used to generate Dai. Secondly, as the user has now created a collateralized vault, they initiate a transaction to generate Dai tokens in exchange for locking the collateral in the vault. The third step is a prerequisite for withdrawing the collateral, which involves paying back the generated Dai as well as the Stability Fee (an annual percentage yield paid in addition to the debt amount). Finally, when the user pays the debt, they can transfer all of the collateral to their wallets, and the vault remains empty for future deposits. It’s worth mentioning that each type of collateral needs a separate vault, and a user can own several vaults.


What is the Status of the MakerDAO Native Token?

Maker (MKR) is the native token of the Maker Protocol, built on the Ethereum blockchain (ERC-20 standard) and secured by the PoW consensus. At the time of writing (10/31/2022), it is the 54th listed token at CoinMarketCap. Each MKR token is worth $921 with a daily trading volume of $48,425,252. There are 977,631 MKR tokens circulating in the market, which will soon meet the max supply at 1,005,577 tokens. Regarding the asset’s price range, MKR has seen $21 as its ATL and $6,339 as its ATH.

Also, since the Maker Protocol is in charge of the Dai coin, it is worthwhile to check the asset’s status here as well. DAI is also an Ethereum-based ERC-20 token that serves as a stablecoin. DAI is ranked 13th at CoinMarketCap, and it is the fourth-largest stablecoin by market cap. As of today, Dai has a daily trading volume of $267,044,210 and a circulating supply of 6.25 billion tokens, each worth $1. Dai has successfully maintained its peg to the US dollar so far, and the lowest recorded price for the asset is $0.945, while it has seen the $3.67 price at its highest value.


What are the Advantages of MKR and Dai?

Financial independence:

Although we live in a modern society, many people are still unbanked or underbanked, meaning that they either have no bank accounts or take care of their finances through traditional methods such as pawn shops. Dai can facilitate people’s financial affairs no matter where they are, given that they have access to the Internet.


Self-sufficient platform design:

Users can generate Dai through the Oasis Borrow interface without any need to use an intermediary platform. In addition, the interface accelerates the speed of generating Dai and reduces related costs.


MKR holders can control the world’s first Ethereum-based and the fourth-largest stablecoin by market cap. The amount of locked MKR tokens on the blockchain’s smart contracts specifies the holders’ voting power; the more MKR one holds, the more effective their decisions are regarding the management of Dai and acceptance of new collaterals.

DeFi development:

Dai empowers dApps to offer robust methods of exchanging crypto assets. Also, dApps that support Dai can provide a smoother onboarding experience for their users.

Future prospects:

Maker has announced it will invest $500 million in the US Treasury to diversify its balance sheets. The project has gained the trust of crypto investors and traders, and its utility token, MKR, has had a bullish monthly trendline. Moreover, MakerDAO aims to restructure its system and break its DeFi protocols into smaller units to make the system more decentralized and resistant to censorship.


What are the Disadvantages of MKR and Dai?

The risk of Dai De-pegging

Dai is soft-pegged to the US dollar, meaning that its peg is based on the market dynamics that are detected by smart contracts. According to the project’s founder, Christensen, this is quite likely, but the platform is constantly preparing to control the probable aftermath so that Maker does not go through what happened to Luna.


Final Words:

MakerDAO and Dai are very familiar names for crypto investors. The project’s use case and focus on decentralization indicate a bright long-term future for the project. However, traders must be wary of Dai’s soft-peg to US dollar because if it de-pegs, the loss would be even more significant than what was incurred to Luna (now Luna Classic) investors.

Disclaimer: Please note that the above info is gathered solely for educational purposes and is not financial advice. It’s crucial to consult a market expert before making any investment.


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Source: The Pipsafe Team


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