What Is Maker? – The Defiant

Maker, a crypto lender, is one of the pioneers of decentralized finance (DeFi), Maker uses smart contracts on the Ethereum blockchain to make loans based on DAI, a stablecoin. 

MakerDAO is a cooperative organization that manages the Maker protocol. As one of the most valuable and widely used platforms in DeFi, investors and crypto users are closely watching how Maker’s governance and operational model evolves. 

Ever since  Ethereum went live in 2015, it has become the host of hundreds of decentralized applications (dApps). The most popular by far are dApps for lending, borrowing, and token swapping because these services can be executed without the need of intermediaries such as banks or credit scoring outfits. The Maker protocol was in the DeFi vanguard.

Maker’s Origin and Purpose

In 2014, Rune Christensen created MakerDAO for the Maker ecosystem. He is a Danish entrepreneur who studied at the  University of Copenhagen. 

Inspired by the Ethereum Foundation, he launched the Maker Foundation in 2017. It was a coordinating body for programmers and started Maker, an open-source project to spearhead a completely decentralized and permissionless banking system without banks.

Specifically, Maker’s mission is to generate and maintain a stable on-chain digital asset pegged to the value of the dollar — the DAI stablecoin.. To do so, Maker deploys smart contracts that automate loan issuance and debt/stablecoin collateralization. 

From this centralized beginning, the Maker Foundation gradually turned over its control to MakerDAO, the decentralized governing body for the Maker protocol. It used  MKR as a governance token that grants voting rights on all aspects of Maker’s management and development.

This transition is ongoing, and it has had some mishaps. In late 2018, Maker Foundation established Maker Ecosystem Growth Fund (MEGF). This fund oversees MKR token treasury to spur MakerDAO ecosystem adoption. Due to disagreements on how the funds should be allocated, five out of nine of its board members were fired by Christensen.

MakerDAO’s key product is Dai stablecoin, launched in December 2017 and collateralized by Ethereum. In November 2019, MakerDAO upgraded DAI issuance so it’s backed by dozens of crypto assets but mainly by USDC stablecoin.

Maker’s Dai (DAI) Stablecoin

For any blockchain lending service to be reliable, the collateral used for loans must be stable. Consequently, Maker’s entire lending ecosystem revolves around DAI. Maker protocol uses smart contracts to create Maker Vaults. These are token repositories in which investors add liquidity. Therefore, Maker Vaults serve as liquidity pools to collateralize Dai stablecoin.

After liquidity is added into Maker Vaults, they mint new DAI stablecoins. In turn, the newly minted Dai stablecoin is collateralized by the crypto asset provided. Typically, investors add USDC to mint…