The History of MakerDAO: One of the Pioneer DeFi Projects

Believers of the decentralized finance revolution know the hype of MakerDAO and are looking forward to its promising future. The project itself has humble origins starting in 2015 by Rune Christensen and many other Ethereum die-hard believers in the vision of creating a permission-less, decentralized stable coin on the Ethereum blockchain.

In this article, we will learn what the MakerDAO is, its features, history, how it functions, and how it revolutionized crypto space.

What is MakerDAO?

Launched in 2015, MakerDAO shines as one the earliest protocols focused on Decentralized Finance solutions. It hails as the first Ethereum-supported venture to issue loans to users looking for a secure and reliable lending interface. One can define MakerDAO as a powerful peer-to-peer organization that aims to develop technological solutions for borrowing, saving, and lending using cryptocurrencies.

In Layman’s terms, MakerDAO is a crypto lending credit system that offers loans at pre-determined interest rates so as to avoid confusion and uncertainties involving the industry. MakerDAO offers a robust infrastructural layer for the decentralized economy running on Ethereum, often termed as DeFi.

The entire process of lending and borrowing on MakerDAO is managed by smart contracts that are thoroughly decentralized and secure. The protocol allows any investor using the ETH blockchain and owning a MetaMask wallet to borrow money in the form of MakerDAO’s native currency DAI. MakerDAO and DAI strive to provide seamless access to an exclusive interface that can be built upon by DeFi developers. They provide liquidity and a stable unit of value for DeFi projects. Even the best blockchain certification platforms brag about the efficient infrastructure of MakerDAO that leverages support for the DeFi cluster.

One thing that makes MakerDAO different from its competitors is that it is decentralized- as no central authority controls DAI- and employs collateral in the form of Ethereum-supported digital assets to sustain its peg against the USD. The entity is also referred to as a Decentralized Autonomous Orgnaization or DAO. With its DAO infrastructure, the portal allows the holders of the MKR token to take part in the decision making process thus ensuring complete decentralization of power. MakerDAO takes pride in being one of the longest-employed projects in Ethereum’s DeFi ecosystem.

To further understand the DAO entity, what it means on the blockchain and how it works, check out the article we posted here.

What is DAI?

The DAI cryptocurrency is an ERC-20 token of the MakerDAO project that is designed to function as a stablecoin whose value is pegged to the dollar. This currency is issued in a decentralized manner thanks to the collateralization of assets that are used to secure its issuance at all times. Unlike other stablecoins such as Tether, DAI offers complete transparency because the tokens are backed by assets which in turn are locked in smart contracts, publicly available on the blockchain. This means that everyone can verify the existence of these assets. The price of DAI is set algorithmically so that it comes as close as possible to the value of 1 USD. The currency and the entire protocol that supports its operation were designed by MakerDAO.

MakerDAO Timeline History

2014

• The creation of the Maker Foundation.

2015, March

• The birth of MakerDAO. Founded by Rune Christensen, CEO of MakerDAO and Maker Foundation. The project has managed to unlock the potential of DeFi across the geographical domain.

2015, August

• The MakerDAO project reached another milestone with the launch of the Maker token (MKR), which established the basis for the governance of the protocol.

2017, December

• The first version of MakerDao that was based on SAI coin was deactivated to make way for the final DAI version and the First MakerDAO and DAI white paper was published.

2018, September

• The foundation proposal was approved and the following year MCD became live: DAI can now be generated from various crypto assets approved by Maker Governance.

2020, September

• The amount of generated DAIs reaches half a billion.

How MakerDAO works

MakerDAO allows the user to obtain Collateralized Debt Position (CDP) loans by generating stablecoin DAIs, against a deposit of Ethereum (ETH) or other supported assets. The value that needs to be deposited must be at least 50% higher than the value of the DAIs being withdrawn.

Then the DAIs can be returned and the deposited assets will be released. The system charges a fee (stability fee).

The value of DAIs is kept stable through the creation or destruction of DAIs which occurs with the incentive to open or close loans which is obtained by appropriately modifying the interest rates.

All operations are carried out automatically by smart contracts and MKR token holders participate in governance decisions, such as the modification of stability fees.

Is MakerDAO a good investment?

• It is a decentralized protocol that seamlessly supports lending and borrowing in crypto.
• The holders of the MKR token become an essential part of the community as they quickly gain governance rights. On investing in MKR, users get autonomy to participate in the future decision-making processes of the firm.
• Each time a loan is repaid, equivalent worth of MKR tokens are destroyed by the network. This ensures to increase the scarcity of the token, thus. Keeping its price on a rise.
• MKR token is a profitable option for borrowers too. They can lend themselves a loan by locking their ETH assets as collateral and earning a Collateralized Debt Position.
• The protocol has its own set of risks as well. One such risk is the uncertain price crash of Ethereum that will render the collateral within MakerDAO useless.
• There is also a risk that the volume of bad debts and non-repayments can rise to a level where the price of MKR tokens falls.

The future of decentralized finance

The basic premise of the foundations of MakerDAO crypto lending platform serves favorable prospects for its long-term growth. The Maker protocol resolves one of the long-standing issues for borrowing and lending on blockchain networks by introducing liquidity. At the same time, the assurance of trust through smart contracts also serves as a vital advantage for the Maker protocol.

With the help of two distinct tokens, i.e., DAI and MKR, the Maker protocol provides control in the hands of users. Furthermore, the emphasis on DAO and external agents is also a formidable aspect for strengthening the prospects of Maker protocol. Start learning more about the protocol and how it works practically right now.