MakerDAO (Ethereum)
Again I would like to discuss another pioneer decentralized finance (DeFi) project named MakerDAO. This project is built on the Ethereum blockchain. It was launched in December 2017. The main purpose of this DeFi project is to create a stable and decentralized crypto called DAI. This crypto DAI is pegged to the value of the US dollar. This pegging is achieved through a system of smart contracts and collateralized debt positions (CDPs).
It is designed to maintain a 1:1 peg with the US dollar. We know traditional stablecoins are backed by fiat currency reserves. But the DAI is a decentralized and algorithmic stablecoin that achieves its stability through a mechanism known as the Maker Protocol. It provides a unique solution for stablecoin issuance and governance. The Maker Protocol operates on the Ethereum blockchain and consists of two main components: the Dai Stablecoin System (DSS) and the Maker Governance.
The Dai Stablecoin System (DSS) is responsible for minting and managing DAI. Users must lock up collateral assets, primarily Ether (ETH), into a CDP to create a DAI. This collateral serves as security for the newly minted DAI. The value of the collateral must exceed a specified collateralization ratio (currently 150%) to protect against potential price fluctuations of the collateral asset. If the value of the collateral falls below this ratio, the CDP becomes at risk of liquidation.
The Maker Governance is the allowance of MKR token holders to participate in the decision-making process of the MakerDAO system. MKR is the native governance token of the protocol.MKR token holders have the ability to vote on key decisions and The Maker Governance is essential in maintaining the stability of DAI.
~ Regards,
VEIGO (Community Mod)
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