Overview
MakerDAO is a decentralized finance project launched on December 18, 2017, that enables users to generate the DAI stablecoin through collateralized debt positions. It is governed by holders of its native MKR token. DAI is designed to maintain a one-to-one peg to the US dollar while being backed by crypto collateral.
How It Works
Users deposit collateral, typically ETH or other approved assets, into a Maker Vault and mint DAI against it, subject to a collateralization ratio. If the position falls below the required ratio, it is liquidated and the collateral is auctioned. The protocol's stability fee, paid in DAI, is set by MKR governance, and MKR holders bear the risk of absorbing losses when positions underperform, which links their tokens to the system's health.
Why It Matters
MakerDAO created the first major decentralized stablecoin and demonstrated that a currency can be governed by its users rather than a central bank. DAI became a core unit of account across DeFi, and Maker's risk framework influenced how protocols design collateral and liquidation systems. Its centralized reliance on oracles and governance decisions has also made it a case study in decentralized stability trade-offs.
Related Concepts
MakerDAO's DAI is a stablecoin built on Collateralized Debt Positions and is central to DeFi liquidity. It relies on Oracles for pricing and on MKR governance, and it is a major source of demand for collateral assets like ETH.