What Is MakerDAO and How Is It Related to DAI?

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Contributor, Benzinga
June 8, 2022

MakerDAO is a historic decentralized (DeFi) application that has inspired the crypto community. This Decentralized Autonomous Organization (DAO) was one of the first to successfully operate.

MakerDAO, the ninth-ranked DeFi project by market capitalization, via CoinMarketCap, is used to govern and collateralize DAI – a popular Ethereum-based stablecoin. The MakerDAO uses on-chain collateralization to support the stability of DAI by holding different cryptocurrencies in its treasury.

Token holders use MKR governance tokens to vote on various proposals on MakerDAO. The token price is up since launch yet has been on a downtrend for roughly the past year. Despite the falling price, decentralized applications (DApps) continue to accept DAI, further expanding the MakerDAO ecosystem.

MakerDAO has successfully operated as a DAO for roughly five years now. Its protocol uses a different structure from other popular stablecoins such as Tether or USDCoin, which are far more centralized than DAI. They are supported by companies and use off-chain collateralization.

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Overview of MakerDAO

MakerDAO is commonly called upon when looking for solid examples of DAO success stories. The DAO displays decentralization and has largely operated in the manner in which it was intended. 

MakerDAO can be used to stake ETH while also giving access to DAI. For example, a user can lock up a certain amount of Ethereum in the MakerDAO and be paid up front in DAI. The ratio is 1 DAI for every $1.70 worth of ETH locked up. This treasury of ETH helps the MakerDAO to algorithmically peg DAI to a dollar.

Why do People use DAI?

People use DAI to participate in an unbiased form of money. The stablecoin grants holders access to many DeFi applications while keeping it pegged to the value of the dollar. 

DAI ranks in the top 20 of all cryptocurrencies by market capitalization. Among all stablecoins, it ranks fourth. 

The tides seem to be shifting following the Terra (Luna) collapse. Extreme trading volatility among the remaining stablecoins has been seen, as fear, uncertainty and doubt (FUD) rip through the market. Still, DAI remained closely pegged to the dollar, never moving over 1% in value.

If an exodus is to occur among stablecoins, DAI remains strongly positioned to become the number one stablecoin. DAI proved its stability among the volatility following the Terra (Luna) panic. 

MakerDAO History

The MakerDAO was founded by Rune Christensen in 2014. In 2021, Christensen joined the VC firm Dragonfly Capital. While today he invests in a number of companies, he also keeps a hand in the MakerDAO, yielding powerful influence.

Christensen is intent on collateral backing of stablecoins and has been vocal about this during the Terra (Luna) collapse. Also, a writing from Christensen titled “Endgame Post” appeared in the MakerDAO forums. It was revealed that MakerDAO was no longer profitable, and a pivot to simplicity was in order. Along with simplifying the MakerDAO base layer, Christensen proposed MetaDAOs. These smaller DAOs with more specific goals will be able to use the size and simplicity of MakerDAO to focus on smaller complexities.

Where to Buy MKR

  • securely through Bitstamp's website
    securely through Bitstamp's website
    Best For:
    Fee-conscious Crypto Investors

You are able to purchase MakerDAO’s governance token MKR on trading platforms  like Bitstamp. Another option is to swap Ethereum for the token through a decentralized exchange (DEX) – if you have a non-custodial wallet. A simple setup if you are new to non-custodials is to get the MetaMask chrome extension and connect to the Uniswap DEX.

How to Store MKR Safely

To store MKR or any other cryptocurrency you own a hardware wallet is highly recommended. Hardware wallets keep your keys off the internet and out of harm's way from phishing scams and other risks. 

Owning your own keys and assets also makes you liable to some risks. To help limit these risks, safe practice with your private keys is encouraged.

The industry leader in hardware wallets is Ledger. Its most recent product is the Ledger Nano S and is widely used among crypto users.

MakerDAO Makes DAI Decentralized

The MakerDAO is the backbone to the stablecoin DAI. Through decentralized governance and on-chain collateralization, both MKR and DAI have proven successful. The proof can be seen in MKR’s rise in price and DAI’s steady peg to the dollar. With a volatile crypto market –– and failing stablecoins –– MKR has serious boom or bust potential. 

If MakerDAO is able to capture the spot as lead stablecoin and Christensen’s vision of a simpler model with complex MetaDAOs is successful, it could become the most successful DAO thus far and push the entirety of the crypto space forward.

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