MakerDAO – The Tether Alternative

MakerDAO – The Tether Alternative

Maker is an autonomous platform based on the Ethereum blockchain with the goal of providing consumers with a cryptocurrency with less volatility than BTC and/or ETH. The token will be a collateral-backed asset whose value will be relative to the US Dollar.


Fundamentals

The Maker platform will utilize the smart contract platform that Ethereum offers to stabilize the value of their token, Dai, through a dynamic system of Collateralized Debt Postions (CDPs), autonomous feedback mechanisms, and incentivized external actors.

Anyone can leverage their ETH assets to generate Dai on the Maker platform using the platform’s smart contracts, referred to earlier as CDPs. A user first sends one transaction to the Maker platform to create a CDP and another to fund it. The user then can generate the amount of Dai requested using the assets, accumulating the equivalent debt.

Initially, the platform will only accept Pooled Ether (PETH) as collateral. Once upgraded, Maker will accept ETH and various other new collateral types. If and/or when a CDP ends up containing more debt than the value of its collateral, the platform will automatically dilute and liquidate the collateral pool to recapitalize the system.

Collateralized Debt Positions is a fairly straightforward title, referring to the debt that is accrued to generate Dai tokens. The CDP will lock the offered asset until the debt is repaid, plus the Stability fee that the debt also continuously accrues over time. This fee can only be paid in MKR, and the MKR token is burned when utilized as such. There are multiple CDP types, each with its own unique set of Risk Parameters, determined by the risk profile of the collateral.

Only once a debt is paid off can the owner withdraw their initial collateral. The mechanism is comparable to that of a pawnshop. The Maker platform will automatically calculate the collateral-to-debt ratio of a CDP. As one would expect, the value of the collateralized asset will always exceed the value of the generated debt.

Once generated, Dai can be used in the same fashion as any other cryptocurrencies. The value of each Dai token will be soft-pegged to the USD in a 1:1 ratio. In the event of severe market instability, the platform’s Target Rate Feedback Mechanism will adjust the rate of price change and target price to balance the supply and demand of Dai as needed in a negative feedback loop.

In the worst case scenario, the Maker platform can trigger a global settlement mechanism as a last resort to guarantee the target price and net value of assets users are entitled to. MKR holders will vote to govern access to the mechanism to ensure it is used only in case of emergency. Once activated, the function will stop CDP creation and manipulation, freezing the Dai price at a fixed value that is then used to process proportional claims for all users.

Token

The platform utilizes both the MKR and Dai tokens. Dai tokens will be based as a standard ERC20 Ethereum token. Only the Dai token’s value will be tied to the USD.

MKR tokens are the utility and governance token of the Maker platform. The MKR tokens will not only be used to pay for CDPs’ stability fees, but holders will also be able to vote and perform various actions to influence the platform. These actions include adding and modifying CDP types, sensitivity parameters, target rates, and other factors of the Maker ecosystem. Each MKR token will give its holder one vote and will also act as a backstop in the case of insolvent CDPs.

There is a total supply of 1,000,000 MKR tokens, with 618,228 MKR currently in market circulation. MKR are burned used to pay for the platform’s stability fee and removed from the supply.

However, if necessary, MKR tokens can be used as a recapitalization resource for the Maker system through forced MKR dilution. When triggered, the Maker system automatically creates new MKR tokens and sells them on the market, instantly raising money to recapitalize the shortfall of value in the system.

Analysis

The Maker platform has been in development since 2015, and it was only recently in December of 2017 did their Dai token release. As the time of writing, the token is only about three months old, but fundamentals are performing as expected. The Dai token value has not often deviated from the pegged USD value and looks to be resistant to price volatility as any fluctuations were quickly stabilized.

Team

Rune Christensen
CEO
Rune was a co-founder of Try China from 2011 to 2014. He started working on MakerDAO in 2015.
Matt Richards
President
Matt has worked as a Marketing Director of Audience Science and Playdom. He has been an early cryptocurrency investor since 2012 until 2017 when he started work as President of MakerDAO.
Greg Diprisco
Business Development Lead
Greg was a Futures Trader for Axiom Market and worked as a Co Founder/CEO of EtherIndex. He is now working as the Head of Business Development of MakerDAO and is a Partner at Distributed Capital Partners.

Sources

  • https://www.coindesk.com/makerdao-quest-stable-stablecoin-continues/
  • https://makerdao.com/
  • https://makerdao.com/whitepaper/DaiDec17WP.pdf
  • https://medium.com/@MakerDAO/what-is-mkr-e6915d5ca1b3
  • https://cryptoslate.com/makerdao-launches-new-dai-stablecoin-ethereum-blockchain/
  • https://medium.com/@MakerDAO/single-collateral-dai-source-code-and-security-reviews-523e1a01a3c8
  • https://coincentral.com/maker-dai-beginner-guide/
  • https://github.com/makerdao/docs/blob/master/Dai.md
  • https://coinmarketcap.com/currencies/maker/
  • https://www.reddit.com/r/MakerDAO/
  • https://medium.com/@MakerDAO/mkr-token-upgrade-and-oasis-redeployment-2445482437d6
  • http://bitcoinist.com/creating-decentralized-digital-global-economy-dai-goes-live/
  • https://thecontrol.co/lessons-from-makerdao-a42081116e9a
  • https://steemit.com/makerdao/@zandy/makerdao-s-annual-update-reality-check-next-chapter
  • https://mybroadband.co.za/news/cryptocurrency/245289-dai-the-stable-ethereum-token-worth-1.html
  • http://unitimes.media/unitalks/3912/