Are you looking for a sound cryptocurrency investment? One that uses Stablecoin and pegs to the US dollar?
MakerDAO allows you to lend and borrow through their decentralized system without a middle man. Their currency tokens are part of the Ethereum blockchain and cannot be mined.
The currency keeps in line with the USD rate. And that stability is why Dai is such an attraction to many investors.
This article provides an honest breakdown of MakerDAO and its business model.
We review the platform's history. The need for a Stablecoin currency. And whether Dai delivers on its promises.
Read our MakerDAO review and see if this crypto lending platform is right for your investment.
MakerDAO develops blockchain technologies for borrowing and saving stable cryptocurrencies. The CEO is Rune Christensen and he founded the organization back in 2015.
Christensen saw the need for stability in a volatile marketplace. Bitcoin's value fluctuated on a daily basis and the world needed a crypto it could trust and rely on.
Using the open-standards decentralized Ethereum, his team set to work.
The system needed to tie with the world's foremost fiat currency, the US dollar. It also had to remain free from governmental interference. And it couldn't fall into the trap of high spikes and drops in value.
Dai is a Stablecoin currency meaning that it's pegged to another stable asset, in this case, the USD. It's global but not tied to any bank. And it has low volatility, unlike other cryptocurrencies.
At launch, only Ether could be converted into Dai. But now you can exchange multiple digital currencies including USDC, BAT, and WBTC. You can then store your purchases in a MetaMask wallet which will generate an Ethereum account.
Decentralized Crypto Lending Platform
MakerDAO community-based to further underline its independence. The system is governed by ballot through MKR holders.
MKR is a governance token and a vote is weighed in proportion to the volume owned. Holders decide as a group on key factors such as collateral types and rates and stability fees.
The Maker Foundation is part of the larger community and aims to keep the platform decentralized. And their protocol is one of the biggest decentralized apps (DAPPS) on the Ethereum blockchain.
Generating Dai Currency
Generating Dai works by lending and borrowing.
Firstly, you send Ether or another asset into a collateralized debt position or CDP. This is software that runs on the Ethereum blockchain and acts as smart contracts. It ensures that whatever money you borrow and is converted into Dai you can pay back.
The CDP also works within certain thresholds.
If the value of your initial assets falls below a certain value you need to buy it back. Otherwise, Maker will auction off your assets in the CDP to the highest bidder.
How does Dai come into the picture?
Dai is generated when you make that initial loan transaction. The more you assets you add as collateral the more Dai you receive.
How does the Dai currency compare to other cryptocurrencies? What are its strengths? And is it better than the likes of Bitcoin?
Here are the top 5 benefits of the MakerDAO-created currency that makes it appealing to investors.
1. Fully Decentralized
As Dai works on the Ethereum blockchain you can be sure no third-parties have access to your funds.
Governments and banks cannot touch the system and have no control on what is lent, spent, or borrowed. Dai is not tied to any specific country. And it's open to anyone wishing to trade.
2. Relatively Stable
Because it's tied to the US dollar, Dai remains relatively stable. Especially compared to other cryptocurrencies.
Stability is maintained through the supply and demand for loans.
When you want to exchange your Dai for your original collateral, you're required to pay a stability fee. This fee fluctuates depending on the Dai rate to USD ratio. The more expensive the fee the fewer loans are generated which then lowers the price.
This keeps things on a steady track. But to help matters more, MKR stakeholders get to vote on those rates. As the system's stability is in their interest, they ensure those rates match the current supply and demand.
This keeps Dai almost resilient to crypto crashes, unlike other systems with no checks and balances.
3. Dai Savings Rate
Anyone holding Dai can earn the Dai Savings Rate or DSR.
Think of it like a savings account that's funded by the stability fees generated when creating or closing CDPs. It's an incentive for people to invest in the currency and helps to promote it in a competitive marketplace.
There are no fees or constraints and there's no minimum deposit required to earn DSR. You can also withdraw Dai at any time because the system is user-controlled.
Dai can be used in many ways like repaying debts, paying for goods, and cross-border transactions.
Compared to other financial services like international wire transfers, it's cost-effective and easy. The currency flows through the blockchain within seconds. And unlike Western Union, for example, the fees you're charged remain minimal.
5. Anytime and Anywhere
Traditional financial services operate within 'ordinary' business hours. That means you can't bank on the weekend or see transactions settle immediately.
With Dai, the system is decentralized which means it's available around the clock. It doesn't matter where in the world you are. You can trade Dai at 3 am just as you would at 3 pm.
Pros and cons of MakerDAO
- It's great for arbitrage traders
- It's available worldwide
- Locked, transparent collateral
- Users are not required to register, KYC, or submit any personal identification documentation in order to access loan services
- Only support Ethereum-based assets
- Insurance is not offered
Compare with MakerDAO alternatives
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Frequently asked questions about MakerDAO
We’ve compiled some answers to questions we often get. Should you have any other questions, feel free to reach out below in the comments.
Who controls MakerDAO?
Governance is controlled by MakerDAO token holders. It's one of the first major projects in "decentralized finance".
MakerDAO has created a new brand of Stablecoin in Dai.
It's soft-pegged to the USD dollar, which makes the cryptocurrency appealing to many ordinary investors. The smart contracts CDP ensures supply and demand keep the system even. And the Dai Savings Rate is an incentive to add extra collateral.
The historical savings rates for Dai show this stability in action. Even through a volatile 2020.
See how well Dai does in comparison to other crypto savings accounts. And use our widgets and calculators to help plan your future investments.