Historically, cryptocurrencies are known for their large price swings. For this reason, using those assets to borrow always presents a problem, because the amount a borrower has to pay back can be very different from the amount they borrowed.

In addition, businesses want to take advantage of cryptocurrencies to serve different needs and purposes, not just invest in or speculate on one token or coin and wait for the price to increase.

This requires a stable currency whose price does not change despite market forces.

That is the inspiration for the birth of MakerDAO.

What is MakerDAO?

MakerDAO is a peer-to-peer organization created on the Ethereum network to allow anyone to lend and borrow with cryptocurrency. The p2p organization is also known as the Decentralized Autonomous Organization (DAO).The lending and borrowing processes are controlled by smart contracts.

Simply put, MakerDAO is a crypto lending credit facility that offers loans at predetermined interest rates with DAI stablecoins.

MakerDAO, the first entity inside the larger Maker ecosystem, was created in 2015 by Rune Christensen, an entrepreneur from Sealand, Denmark.

What is DAI stablecoin?

Because cryptocurrencies are highly volatile, MakerDAO uses a stablecoin called Dai to determine loan interest rates and repayable amounts. Users can use DAI for any purpose they desire.

So, anyone with Ether cryptocurrency and a MetaMask wallet can lend themselves money in the form of DAI. So what do users need to do? All the user has to do is lock some Ether in the MakerDAO smart contract and mint the stable coin DAI. The more ETH they lock up, the more they can borrow. To unlock their ETH, users simply need to pay off the loan.

More specifically, CDPs will hold users’ collateral, then return DAI to them. To get their collateral back, the user must repay the initial amount of DAI borrowed plus a part of the stability fee; this fee is calculated based on the time the user borrowed.

You can understand CDPs as Collateralized Debt Position Smart Contracts (CDPs) (temporarily understood as Smart Contracts on mortgages). The CDP is returned to the user after the user has paid off the debt. Now that the CDP is under the control of the user, they can withdraw all or part of the corresponding collateral.

Tokens in MakerDAO

MRK

Maker is a smart contract platform built on top of the Ethereum blockchain network. It is used to support and stabilize the price of stablecoin DAI (01 DAI = 01 USD).

In addition to DAI, MakerDAO has another token called MKR.

Maker (MKR) is the governance token of MakerDAO and Maker Protocol, respectively, a decentralized organization and a software platform, both based on the Ethereum blockchain, allowing users to issue and manage DAI stablecoin.

And because DAI and MKR are ERC-20 tokens, when trading, we incur fees such as transaction fees and withdrawal fees on exchanges. It also includes transfer fees and transactions within the blockchain network collected by Ethereum.

PETH

In addition, we also have a PETH token that is generated corresponding to the amount of ETH that users deposit into MakerDAO’s system. The amount of PETH changes based on the amount of ETH deposited or withdrawn.

What we need to note here is that PETH cannot be moved out or traded on other exchanges. You can be used at points inside the Makerdao System.

What rights do MKR token holders have?

They give the holder the right to vote on the development of the Maker Protocol. However, their voting power depends on the size of their MKR stake.

Thus, it can be said that the function of MKR is designed to encourage responsible behavior from MKR holders. This function is also responsible for building MakerDAO into a truly decentralized system. In addition, they are responsible for regulating the platform by controlling the addition of new collateral types and their risk parameters.

The MKR Token is used as a Stability Fee (the Stability Fee is about 1% when users pay their debts in the system).

MakerDAO’s development potential

We can see that MakerDAO is a good investment as it is a decentralized protocol. Anyone who owns the MKR token automatically becomes part of the community and gains governance rights.

In addition, the MKR token is destroyed every time the loan is repaid. This means that the scarcity of the token increases and the price of MKR remains high. MKR is also more profitable for borrowers.

And if the number of people and the amount of collateral deposited into the system increase, the amount of stability and voting fees will also increase.

However, there are also risks. For example, when the price of Ethereum crashes, all collateral in the Maker ecosystem will become worthless.

Here, many organizations and businesses apply MakerDAO in their activities.

UNICEF uses the DAI stablecoin to enable donors to support blockchain-based open source exploration for social projects, research funds, and bounties for various technology projects to help. Hello there, everyone.

Beyond applications in trade finance, MakerDAO hopes to have an impact on regions currently suffering from hyperinflation by providing a stable alternative to volatile fiat currencies.

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