Crypto Academy Week 4 Homework Post for [@gbenga]
Hi everyone, and welcome to my Week 4 homework post for Professor @gbenga. I attended the lecture about Ethereum Blockchain and I have learned many new things. I will discuss MakerDao with full detail. So let us get started.
What is Ethereum Blockchain
It is a computing platform that uses multiple nodes as it is a decentralized in nature. Ethereum is a platform where new decentralized applications can be created just like internet, but difference is only internet allows creation of applications based on centralized environment. Ethereum uses blockchain system and allows the creation and use of smart contracts.
MakerDao
As we all know that cryptocurrency is volatile in nature. So borrowing or lending cryptocurrency can be very tricky. Any person or organization which lends or borrows cryptocurrency can face a great loss due to its volatile nature. While a stable coin can assure that there will be no loss. Here comes MakerDao.
MakerDao is an organization which facilitate users by borrowing, saving and a stable cryptocurrency based on Ethereum Blockchain. MakerDao was founded by Rune Christensen. This platform has been built using Ethereum blockchain. Maker is a protocol built on Ethereum blockchain. It facilitates user with a stable coin. It is a smart contract platform to sell and buy Dai. Maker has two coins in form of Dai and Makercoin (MKR).
Makercoin (MKR) is a ERC-20 token whose price is volatile and it is used for governance of Maker Platform. MKR is a token with purpose to support the stability of Dai. Moreover, MKR holders can make key decisions regarding operation of the system. These tokens can be stored in ERC-20 wallets and can be traded on some exchanges.
Dai is ERC-20 token whose price is stable at 1 USD and it can be used for payments, savings or collateral. Dai is a collateral backed asset and it cannot be mined. Dai price is stabilized by using external market factors. These external factors can be CDPs, autonomous feedback mechanism and external economic incentives.
A user can create Dai by locking up some ETH in Maker smart contracts. So in this way, Dai can be created as much as a user lock up ETH. These ETH work as collateral against Dai loan. Eth can be unlocked whenever user is ready to pay back Dai along with fee.
How it works
Main function of MKR is to stable the price of Dai at 1 USD. For this purpose, MKR can be created or destroyed when Dai price fluctuations happen. When a user purchases a smart contract based on Collateralized Debt Position (CDP), Dai is issued to the buyers. CDPs are purchased with Ether and the buyer get Dai in return. The Eth behaves like a collateral to debt. When the loan paid back, Dai is destroyed and fees are taken from the buyers in form of MKR token.
MKR holders can also vote on governance decisions. For example, MKR holders can decide how much fees can be collected and which collateral types can be accepted. One MKR token has power of one vote, so users with large number of MKR token have large influence on voting.
Conclusion.
To conclude I would say that MakerDao has become the most popular project of DeFi movement. In future, MakerDao can be a more stronger if it meets all the challenges faced by it.
Thanks in anticipation.
@mawattoo8, thanks a lot for participating in this week's assignment. Maker DAO is a lending platform that I must say has gained lot of traction outside the Ethereum blockchain. DAI isn't stable to the dollar, it is +/- $1 and backed by debt. Since there is no more DAI than the amount of collateral available, the price remains stable.
You could have explained more about the Decentralized autonomous organization of Maker in your post and its governance.
Rating 5
Thanks for your kindness. I have tried my best to explain but was not up to the mark. I will try more in future to better explain.
My post shared on twitter. Below is the link of the post.
https://twitter.com/mawattoo8/status/1367856348784963587