MakerDAO is a decentralized credit platform on Ethereum that supports Dai, a stablecoin whose value is pegged to USD. Anyone can use Maker to open a Collateralized Debt Position (CDP), lock ETH as collateral, and generate Dai as debt against that collateral. Dai debt incurs a stability fee (i.e., continuously accruing interest), which is paid (in MKR) upon repayment of borrowed Dai. That MKR is burned, along with the repaid Dai. Users can borrow Dai up to 66% of their collateral’s value (150% collateralization ratio). CDPs that fall below that rate are subject to a 13% penalty and liquidation (by anyone) to bring the CDP out of default. Liquidated collateral is sold on an open market at a 3% discount.
The MKR Token
Holders of Maker’s other token (MKR) govern the system by voting on, e.g., risk parameters such as the stability fee level. MKR holders also act as the last line of defense in case of a black swan event. If systemwide collateral value falls too low too fast, MKR is minted and sold on the open market to raise more collateral, diluting MKR holders.
As of June 2019, only ETH can be used as collateral. A planned upgrade to Multi-Collateral Dai should add support for other assets. MKR holders will decide which new assets to support and the risk parameters for each.