Crypto Academy Week 4 || Homework Post for @gbenga || Maker dao project Ethereum

Today i am going to do my homework task for professor @gbenga , which is about a project build on ethereum blockchain. I have choose maker dao as an ethereum project because it is the very stable and highly rank project ever build on ethereum blockchain. So lets get into it..Source👆

Stable coins are those which prices are stable somehow and the benefits to a business that a stable token could provide are great a stablecoin makes finance far easier than a volatile coin since the price is predictable budgeting becomes less of a headache but in practice this is a tough solution to make work take die for instance the stable coin designed by the ethereum project maker Dao.

In the last three years maker dao has become the most popular decentralized finance application on ethereum the maker dai project includes two tokens mkr and dai. Dai is the stable coin mkr is the governance token to understand the makerdao system it's important to note its role as a lending platform so let's get into it.

While both tokens can be purchased directly on exchanges dai is created when users of the system lock up ether than they can simply withdraw dai which maintains a their soft pegged to the us Dollars, users can withdraw up to two-thirds of the value of ether that was locked up there's currently over 400 million dollars in ether locked up in maker dao so when someone depositing 300 in eth at today's prices could then borrow up to around 50 000 dai which would be worth roughly 50000 yet because the price of ether fluctuates so much the maker dai system encourages users to over collateralized ,Like they will have to lock in more ether than they'll get back in dai the minimum amount.

A user must collateralize their dai loan with eth is 1.5 times but people usually collateralize much more  like a traditional credit card dai loans accrue interest in january the interest rate which is called the stability fee for a dai loan was half a percent sounds like a good interest rate compared to the range banks charge anywhere from 10 to 30 percent depending on a person's credit score but that low rate hasn't remained over the last couple months die interest rates have fluctuated dramatically dai’s price one to one with the dollar is kept by backing the token with an equal amount of debt if there is more dai in the world than the market demands and over supply the price will drop so the system began to adjust by increasing the interest rate on all borrowers in order to encourage them to pay down part of the amount they took a loan for or close the line of credit altogether when people pay down their debt they pay it with dai that dai gets burnt or destroyed when they do which contracts the overall supply a smaller supply should drive the price back up and that's what happened in recent months in order to close a loan the user can only repay the principal with dai they have to repay the interest accrued in mkr both those coins are then burned as debt gets retired dai is destroyed because dai is only backed by debt so without that debt in the ecosystem those coins are not needed mkr is destroyed as an incentive for the maker dao community with a present supply of roughly 1 million destroying some of those mkr Tokens makes the price of the rest appreciate or go up a dai loan could also be liquidated automatically should a person's collateral dip below the minimum 150 percent the system will liquidate their eath holdings automatically with a 13 penalty fee that's on top of the interest owed as well it's a fee big enough few users want to get hit with.

This is why the rapid increase in the interest rate has been so controversial while it was clear to everyone participating in the ecosystem that interest rates could be increased in the future.

People who hold its mkr token they get to decide on things like the interest rate how much of one type of loan can be issued and more because of this and the possibility of appreciation the mkr token has been attractive to hold as long as people keep taking out dai loans and repaying them back than the value should go up. as mkr tokens get burned and interest is repaid. Mkr is currently worth over six hundred dollars so far only about one thousand mkr tokens have been Burned.

Holding mkr also gives participants the chance to be a decision maker in an interesting new kind of financial Organization collectively these people pay attention to the price of dai and decide whether or not the interest rate needs to go up and down so far they've been mainly choosing to drive it up as pioneers of a new financial instrument. There's not much prior data for mkr holders to draw on to make an optimal decision nevertheless as of this recording dai's price appears to have returned to a steady dollar valuation across major cryptocurrency exchanges and over-the-counter trading desks what's more mkr holders are now looking towards potentially lowering interest rates given that the price of dai has increase in that way maker dao functions as one of the best versions of a decentralized autonomous organization.