As a result of the recent DeFi boom, the demand for stablecoins has skyrocketed. It brings the total supply of stablecoins to over $100 billion.
While it has become clear that DeFi needs stablecoins to provide liquidity and volatility, there are growing concerns about the long-term sustainability of centralized stablecoins.
Founded in 2015, MakerDAO is a surplus stablecoin project the Ethereum blockchain powers. The Maker Foundation initially directed the project. But now the DAO manages it.
In 2017, the protocol’s official release took place and shows as a single collateral DAI system. It is famous for the term SAI, wherein it allows users to issue DAI using ETH as collateral. Maker follows it, which raised $12 million by exchanging MKR tokens with Andreessen Horowitz, Polychain Capital, and some crypto-focused venture capital firms.
The release of the protocol
Dai’s single-collateral successful launch was followed by Maker, a Multi-Collateral DAI (MCS) system in 2019. This is to accommodate numerous collateral types other than ETH. Seven months after the release of MCS in May 2020, Dai’s total supply has reached $100 million. More than a year later, the total supply of DAI exceeded $5 billion.
The Maker Protocol blocks higher-value collateral assets in system vaults, allowing users to issue DAI, a stablecoin pegged to the US dollar value. Maker supports different kinds of collateral, such as stablecoins, liquid tokens, volatile crypto assets, and tangible assets.
The low volatility currency with the critical attributes of cryptocurrency, with no permission, no borders, transparency, and peer-to-peer are some of the advantages that DAI combines.
DAI’s maintenance
DAI’s maintenance is through collateral assets in the Maker Vault. It uses the Maker Protocol (e.g., $1,000 ETH of deposits are in the Vault as collateral for the release of 500 DAI). This, combined with an interest rate adjustment function, ensures that the value of DAI is always equal to $1.
When the DAI is issued, the vault owner takes out a loan against the deposited assets. This is just like any other secured loan. When the deposit in the vault falls below a certain threshold, the Maker Protocol liquidates the position to repay the outstanding debt of DAI. In the event of liquidation, the user will have a penalty.
Protocol revenue comes from three primary sources: interest income from over-secured loans, liquidation income from fees charged from liquidated vaults, and stablecoin transaction fees in the price stability module (PSM). The maker has established itself as a significant competitor in the stablecoin and lending markets. As well as two fundamental segments of the dynamic DeFi ecosystem. With a strong development team, community, and growing user base, we believe Maker will continue growing for years to come.
However, achieving the proposed assessment requires overcoming challenges. These challenges can be bridging the gap between DAI demand and lending through innovative solutions such as RWA. We look forward to the continued growth of the DAI supply and the burning of MKR tokens.
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