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MakerDAO is a decentralized autonomous organization for the Dai stablecoin (formerly called eDollar).
MakerDAO plans to keep the value of their Dai to one U.S. dollar using external market mechanisms and economic incentives, potentially offering a viable alternative to centralized stablecoin tokens, such as Tether.
The network uses two tokens, Dai, which is the stable asset, and Maker, which is a decentralized autonomous organization (DAO), that seeks to control the price of Dai.
While fiat currencies like the dollar offer relatively low volatility, they are controlled by central parties such as the Federal Reserve Bank and rely on the health of the local banking system for commercial utility.
The MakerDAO system relies on two distinct tokens to create the Dai credit system.
1. The Dai token (DAI) is a free-floating currency that is backed by collateral and pegged, currently, to the U.S. dollar. The Maker token (MKR) is a token that derives its value from the interest payments, called stability fees, which are paid by borrowers that create Dai tokens. MKR also plays the important role as the basis for governance decisions in the network.
2. The Dai credit system acts similar to a decentralized lender allowing users to lock up collateral in smart contracts and borrow DAI.
A user that wishes to transact in DAI would send a specific amount of ETH to a contract which creates a collateralized debt position (CDP). Users can withdraw DAI from the contract at any time and similar to a line of credit, a withdrawal of the entire balance is not required.
To retrieve collateral, users repay the balance of DAI which they withdrew, along with an interest payment, called a Stability Fee in MKR.
To hedge against a decline in the price of collateral users must overcollateralize these contracts.
Currently, the network requires collateral of greater than 150% of the dollar value of the DAI borrowed. If the value of the collateral falls below 150% the CDP may be liquidated. This liquidation starts an auctioning process in which the assets of the CDP are sold in order to pay off the outstanding DAI loan balance, stability fees, and penalty fees.
This following comparison is based on the competitive edge possessed by Maker over that of other stablecoins. In this comparison we have chosen Tether as it is the most widely used stablecoin in the market.
Collateral Asset – Tether is backed by fiat U.S. dollars in audited bank reserves while Dai is backed by overcollateralized Ethereum smart contracts.
Price Stabilization – Tether’s price is derived entirely from a holder’s ability to exchange one Tether for one U.S. dollar. Dai’s price is stabilized at one U.S. dollar using external market factors such as collateralized debt positions (CDPs), autonomous feedback mechanisms and external economic incentives.
Blockchain – Tether is issued on the Bitcoin blockchain via the Omni Layer protocol while Dai is issued on the Ethereum blockchain.
Decentralization – Tether is essentially centralized as it can only be created or destroyed by Tether Limited. On the other hand, Dai is more decentralized as Dai can only be created and destroyed by individual users.
No roadmap for 2018. The last roadmap was issued at the beginning of 2017.
INITIAL COIN OFFERING (ICO)
There are currently 1 million MKR tokens outstanding, but the supply can fluctuate based on the performance of the system. New tokens can be created in the rare event that collateral levels decline sharply and auctions are not sufficient to pay back all outstanding DAI.
In Dec. 2017 Maker announced that it had sold $12 million of MKR to a group of investors led by Andreessen Horowitz and Polychain Capital.
Currently around 60% of the total supply has been distributed with the remaining 40% held by the foundation.
The max supply of DAI tokens is 50 million with a current outstanding supply of approximately 20 million. New DAI tokens are created when a user withdraws from a Collateralized Debt Position (CDP) and are burnt when the outstanding balance is repaid.
Creators / Founders
CEO and project lead
• Co-founder of Try China
• Started working on MakerDAO in 2015
Core Development Team
• Previously Marketing Director of Audience Science and Playdom
Building the Stable fund, an investment partnership
to help start-up’s use the Maker platform
Long-only blockchain hedge fund
Crypto fund founded by Nick Tomaino and backed
by Peter Thiel, Marc Andreessen, and Mark Cuban
Distributed Capital Partners
Walden Bridge Capital
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Reference & Links