Maker Lending Rates
Maker is a permissionless lending platform responsible for the creation of DAI, the first decentralized stablecoin, built on Ethereum.
As what many would call the very first DeFi project, Maker has long since held the #1 ranking on virtually all DeFi tracking platforms when it comes to the total amount of ether (ETH) locked within the system.
For those unfamiliar with Maker, the platform allows any user to autonomously take out a loan (denominated in Dai) by staking digital assets such as ether (ETH) as collateral. The system is inherently permissionless, meaning that there are no KYC requirements necessary to get started. Furthermore, all lending actions are performed by smart contracts, meaning that no human is involved in the facilitation of any specific loan.
“Once generated, Dai can be used in the same manner as any other cryptocurrency: it can be freely sent to others, used as payments for goods and services, or held as long term savings. Most importantly, the generation of Dai in this manner creates the components needed for a robust decentralized lending platform.”
Maker leverages a native token, MKR, which is primarily used as a governance token to vote on new upgrades to the platform. Outside of governance, MKR is used to pay for stability fees (described below) and, in the case of emergency, sold as a last resort for bootstrapping the network to ensure Dai maintains it’s 1:1 peg with the US Dollar.
As one of the earliest Ethereum projects, announcements from Maker began surfacing as early as the middle of 2015. An updated whitepaper and mainnet were launched in December of 2017, followed by a private sale of $12M worth of MKR tokens lead by Polychain Capital and Andreessen Horowitz with participation from Distributed Capital Partners, Scanate, FBG Capital, Wyre Capital, Walden Bridge Capital, and 1confirmation.
Unlike a traditional ICO in which anyone was welcome to participate, the Maker team was very selective about who they sold tokens to. In practice, they would only broker deals with parties who reached out to them in advance, ultimately only raising an additional $15M through a second purchase by Andreessen Horowitz in September of 2018.
Since the private sale, Maker’s Single Collateral Dai (SCD) system has been responsible for the creation of $85M worth of Dai with an active overcollateralization ratio of 394%. MKR is currently the 23rd largest digital asset according to Messari with an estimated liquid market cap of around $550M.
Core Maker Team
Maker is inherently structured as a DAO, or a Decentralized Autonomous Organization, meaning that although there is a core team, decision making ultimately rests in the hands of the community. With that being said, Maker has simultaneously grown to perhaps the largest team in the DeFi ecosystem as a whole.
The company is currently led by the project’s founder, Rune Christensen, with additional financial risk management expertise from the company’s president and COO Steven Becker. Similarly, many have come to recognize Richard Brown as one of the primary faces behind Maker, thanks to his strong efforts as Community Lead. In addition to the three more publicly recognized figures, MakerDAO currently boasts a team of 19 leaders, 4 business developers and 6 other community managers (excluding Rich).
How Does MakerDao Work
When it comes to using the MakerDAO system, new DeFi users will be happy to know that Coinbase recently launched a Dai earn campaign, walking you through a few quick quizzes on what Dai is, along with a step-by-step guide on how to mint new Dai through the creation of a Vault using Coinbase Wallet.
As for the rest of our readers, the process for generating Dai is pretty straight forward. All you need to get started is a little bit of ether ($ETH), and a web 3.0 wallet such as Metamask or Ledger Nano S.
Once connected to Oasis Borrow, users are promoted to signal how much ether they wish to stake or lock within the system. This determines how much Dai can be minted, while it is strongly encouraged to never mint the maximum amount of Dai to ensure that your position is sufficiently collateralized in the event that ether takes a sudden turn for the worst.
After following a few simple steps and agreeing to the various parameters described below, a transaction to create your Vault is processed on the Ethereum network. Once approved, Dai is autonomously minted and sent to your wallet through a smart contract without any third party interaction. In particular, some of the parameters defined in a contract’s creation include:
- Liquidation Price: The price at which your loan will be forced to liquidate, or “margin called”.
- Liquidation Penalty: The mandatory fee that is paid if you are liquidated. Penalties are charged as a portion of existing collateral and are dynamically adjusted based on Maker governance decisions.
- Collateralization Ratio: An indicator to see how leveraged your wallet is. It is recommended to maintain a ratio at least 50% above your forced liquidation to account for unexpected price swings.
- Minimum Ratio: The ratio at which you will be force-liquidated, should your collateralization ratio fall below this ratio.
- Stability Fee: A fee that needs to be paid in parallel with the Dai you borrowed to close your loan. As of writing, all stability fees must be paid in Maker’s native token ($MKR) or Dai ($DAI).
In order to ensure that the system as a whole is always covered, users are required to maintain a margin of at least 150% overcollateralization relative to the amount of Dai that they have generated. Additional collateral can always be deposited or withdrawn depending on how the price of ether shifts during the course of your loan.
Multi Collateral Dai
Seeing as Single Collateral Dai has been shown to function as intended in a real-world environment, Maker shifted to Multi Collateral Dai (more commonly known as MCD) in Novermber of 2019, in which other assets other than Ether can be used as a form of collateral when opening a new Vault.
At the time of writing, only Ethereum-based assets are being considered, with Brave’s Basic Attention Token ($BAT), 0x Protocol token ($ZRX) and Augur’s Reputation ($REP) likely to be the first three newly supported assets. The results of the poll that ended on August 19th were as follows:
|Asset Name||Unique Voters||Yes||No||Participation Rate|
|Basic Attention Token (BAT)||45||99.82%||0.18%||2.26%|
You can view all active proposals and polling here: https://vote.makerdao.com/
In addition to new collateral types, MCD will brought about the implementation of the Dai Savings Rate (DSR), in which users can earn an interest rate on their Dai when locking it within a DSR smart contract created by MakerDAO.
Maker offers an intuitive user-dashboard synonymous to that of a traditional savings account through Oasis Save. Users will be able to deposit and withdraw at any given time with a clear balance being displayed on the amount of Dai accrued as a result of savings.
Here’s a look at the historical changes of the DSR:
|Date Changed||New DSR||Change (+/-)|
|March 24th, 2020||0%||(-4%)|
|March 19th, 2020||4%||(-4%)|
|February 26th, 2020||8%||(+0.5%)|
|February 12th, 2020||7.5%||(-1.25%)|
|February 5th, 2020||8.75%||+1%|
|January 27th, 2020||7.75%||+1.75%|
|January 8th, 2020||6%||+2%|
|December 7, 2019||4%||(0)|
Overall, Maker has done a fantastic job at proving that there is real demand for DeFi applications at large. While the use-cases for Dai are largely related to sophisticated trading strategies such as margin and lever, it’s clear that more and more companies are beginning to respect the importance of Dai each day.
As it currently stands today, Dai can be lent via Compound, Dharma or Nuo, used to purchase NFTs via Axie Infinity or traded against other digital assets on exchanges such as Binance and Coinbase. In the future, more obscure applications of Maker and Dai have been proposed that may allow real-world assets to be posted as collateral via a Tokenized Asset Portfolio along with Dai being be used for real-time salaries, state channel payments and/or forward rate agreements.
For those who are interested in keeping up to date with Maker, weekly governance and risks calls are hosted every Thursday at 12PM EST. Recaps of these calls are posted on Maker’s Youtube channel. The most active place to discuss Maker is via the official Discord channel or by reading the official blog. Other useful tools include MakerScan and MakerBurn, both of which actively monitor different elements of the platform at large.
We’re looking forward to watching MakerDAO continue to grow over the coming months and hope that you are too!
Cooper is the Editor of DeFi Rate. He is an ambassador of Set Protocol and an active contributor to MetaCartel where he seeks to find emerging consumer-facing applications that propel the Ethereum ecosystem. He often works with projects as the Director of Fitzner Blockchain Consulting where he coauthors the weekly publication Token Tuesdays.
Like my writing? Drop me some gwei @ coopahtroopa.eth 😉