Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $1,165 trillion. Bitcoin is up by over 2% after a rollercoaster of a week. Ethereum decreased by almost 1% over the past seven days. XRP gained more than 15% in value this week. Almost all altcoins are trading in the green, with very few exceptions. The DeFi sector decreased the total value of protocols…
Beginner’s Guide to MakerDAO – Resolving the Fight Against Volatility
Decentralized Finance, more commonly known as DeFi, is the newest trend in the cryptocurrency sector. After “Colored Coins,” Smart Contracts, and ICOs, DeFi has taken the limelight. It has opened the door to a whole new branch of decentralized technologies.
Among the hundreds of projects focusing on bringing Decentralize Finance to the masses, none has been as successful as the MakerDAO Network.
The Need for MakerDAO
The MakerDAO is a decentralized smart contract platform on Ethereum. It is one of the market’s most diversified and community-driven DeFi projects. One of the DAO’s main functions (Decentralized Autonomous Organization) is to back and stabilize its native token value – DAI. The network uses a dynamic system of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and appropriately incentivized external actors to maintain liquidity.
Essentially, Maker is a stablecoin platform that carries several other features under its hat. For example, maker enables anyone to leverage their crypto assets to generate Dai on the Maker Platform. The leverage can be used in many ways, such as getting loans, issuing governance rights, building applications based on stablecoins, etc.
Once generated, DAI can be used in the same manner as any other cryptocurrency. DAI can be freely sent to others, used as payments for goods and services, or held as long-term savings. Importantly, the generation of Dai also creates the components needed for a robust decentralized margin trading platform. Using USD as a hedge, DAI is relatively stable compared to the crypto market.
With the DeFi Ecosystem on the move, Maker aims to prove itself the major player in providing finance products on the Blockchain. Since 2016, Maker has constantly been developing, starting from the alpha test – SAI, and eventually moving on to the full-fledged DAI and other DeFi products. The projects started with a plan to help bring collateralized loans on the Ethereum Blockchain. Still, since then, it has issued several finance-based products such as Governance protocols, decentralized exchanges, token management, etc. As a result, MakerDAO has cemented its position as the main player in the decentralized financial products market.
Characteristics of the MakerDAO
According to the White paper, “The founders of the Maker community have established a prudent governance roadmap appropriate for the needs of agile development in the short term, but also coherent with the ideals of decentralization over time.” For this reason, it is important to point out the characteristics of the Maker Network so that we can look into its use cases later.
Tokenization substitutes a tangible or non-tangible asset with a digital equivalent for identity, transfer, and storage purposes. As a result, tokenization has increasingly become the greatest craze in the Blockchain industry. To help their users easily navigate the platform, Maker has come out with three individual tokens:
- MKR – The native token of the Maker platform. The Maker community exists partly to act as the decentralized counterparty to the Maker Team. It is a loose collective of independent actors aligned by holding the MKR token, giving them a strong incentive to see the Maker Platform succeed.
- DAI – The Dai Stablecoin System was designed to solve the crucial problem of stable exchange of value in the Ethereum ecosystem and the wider blockchain economy.
- SAI – SAI is the experimental branch of the platform. People who wish to interact with the network and prospectively build applications to use the sad network. SAI is a stable coin used to test features and do beta tests.
Governance-based applications can be developed on the network. It is done at the system level through the election of an Active Proposal by MKR voters or tokens issued using the Maker platform.
It can help tokenized SAI migrate to the in-house Maker network. The Maker network is then used to build applications that can do well in a platform centered on stability.
Oasis is a loose decentralized exchange. We use the word ‘loose’ because the Oasis platform has no fixed features. Users can use Oasis to trade, save, leverage, or even borrow.
Apps that use Maker to run and function come under the Ecosystem. Over the years, dozens of applications, even highly successful ones, have come to use the Maker Platform. The OKX, Argent, and InstaDapp are just some of the dozens of Maker applications.
The Global Settlement feature is built as a last resort. The MKR stakeholders’ token could initiate the feature anytime they feel that the network is under threat. It is necessary to safeguard the funds of the holders and users of DAI. An emergency, such as network hacks, market irrationality, security breach, etc., can trigger the network to settle the balances and return the funds to the users.
What Can You Do with MakerDAO? – Use Cases
Anyone with collateral assets can leverage them to generate Dai on the Maker Platform through Maker’s unique smart contracts known as Collateralized Debt Positions. A user wishing to open a CDP must indeed over-collateralize by 150%. This means that for every $150 of ether deposited as collateral, $100 worth of Dai can be minted. This collateral margin protects Dai holders against a negative equity scenario. Active CDPs are always collateralized in excess, meaning the collateral value is higher than the debt value.
In 2017, when the beta test of DAI was released, the projects only supported collateralized loans in Ethereum, as it was essentially built on the Ethereum chain. However, the network accepted over half a dozen tokens and diversified its services. As a result, users can use leverage to make loans and fund their daily activities.
Financial Products Platform
As of early 2020, about 50% of DeFi funds are associated with Maker. Maker is, in some ways, considered the Bitcoin of the DeFi platform – the lone dominator. Dozens of applications have found their home in the Maker Network. Some of the projects, Insta DApp – a leverage and loan platform, Argent – which acts as a public key compiler, and OKex – a decentralized exchange built on Marker, can help revolutionize the world of finance we know it.