History of MakerDAO project

What is MakerDao?

MakerDAO is a project that combines a DAO along with the  DAI stablecoin creating a complete DeFi ecosystem that can secure loans, savings, and more on Ethereum‘s blockchain smart contracts. MakerDAO is one of the largest DeFi projects in the world, and in addition to being a leader in cryptocurrencies and the DeFi movement, it was also one of the first to be launched.

What is a DAO?

The acronym DAO stands for Decentralized Autonomous Organization. A DAO is an organization governed by computer programs, in this case by smart contracts. As such it has the ability to function autonomously, without the need for a central authority. As the name suggests, it is in fact decentralized and totally autonomous. It is decentralized because there is no entity that has the authority to make and enforce decisions, and it is autonomous in that it can function on its own. 

Through the use of smart contracts, a DAO can work with external information and execute commands based on it, all without any human intervention.The rules and transaction logs of a DAO are transparently stored on the blockchain. Rules are generally decided through proposals that are put to a vote by stakeholders using an open collaboration policy

What is DAI?

The DAI cryptocurrency is an ERC-20 token that is designed to function as a stablecoin whose value is pegged to the dollar. This currency is issued in a decentralized manner thanks to the collateralization of assets that are used to secure its issuance at all times. Unlike other stablecoins such as Tether, DAI offers complete transparency because the tokens are backed by assets which in turn are locked in smart contracts, publicly available on the blockchain. This means that everyone can verify the existence of these assets. The price of DAI is set algorithmically so that it comes as close as possible to the value of 1 USD. The currency and the entire protocol that supports its operation were designed by MakerDAO.  

Origins of MakerDao

The birth of MakerDAO can be attributed to Rune Christensen, currently CEO of the Maker Foundation, who decided to kick off the ambitious project in March 2015. Initially,the original concept of DAI, an indispensable element behind MakerDAO, was announced by Christensen on Reddit, in the post “Introducing eDollar, the ultimate stablecoin built on Ethereum” . In that post, Christensen first talked about the idea of creating a DAO on Ethereum and using it to issue a stablecoin pegged to the dollar. Hence the plan to create a community to exercise governance of an investment protocol that would provide unique opportunities for those who wanted to participate. His idea also began to be developed through the creation  of the Maker Foundation in 2014, a foundation whose key role is to direct the development and management efforts of the project. Then, in August 2015, the project reached another milestone with the launch of its Maker token (MKR), which established the basis for the governance of the protocol. In December 2017, the first version of MakerDao that was based on SAI coin was deactivated to make way for the final DAI version and the First MakerDAO and DAI white paper was published: thus the first stablecoin governed by a DAO in the entire crypto world was born and the doors were opened to a new range of financial opportunities on blockchain technology. Subsequently, in September 2018 the foundation proposal was approved and the following year MCD became live: DAI can now be generated from various crypto assets approved by Maker Governance and in September 2020 the amount of generated DAIs reaches half a billion. 

How MakerDAO works

MakerDAO allows the user to obtain Collateralized Debt Position (CDP) loans by generating stablecoin DAIs, against a deposit of Ethereum (ETH) or other supported assets. The value that needs to be deposited must be at least 50% higher than the value of the DAIs being withdrawn. 

Then the DAIs can be returned and the deposited assets will be released. The system charges a fee (stability fee).

The value of DAIs is kept stable through the creation or destruction of DAIs which occurs with the incentive to open or close loans which is obtained by appropriately modifying the interest rates.

All operations are carried out automatically by smart contracts and MKR token holders participate in governance decisions, such as the modification of stability fees.

Conclusions

After more than five years since the concept announcement of the DAI stablecoin and almost three years since the official launch of the first version of DAI, the MakerDAO project today is one of Ethereum’s most successful DeFi applications, as nearly 800 projects have integrated DAI or other components of their protocol into their apps or services.

Since 2015, MakerDAO has been able to transparently provide anyone with the ability to actively participate in the global financial system. 

“One billion DAIs in circulation is a valid confirmation that people around the world want more access, more opportunities and more control over their finances,” says Rune Christensen. Today there are 5 billions DAI.

The fact that there is a stable currency gains followers who see MakerDAO as a viable option to protect their assets or as a means to generate money through new strategies. Without a doubt, MakerDAO has revolutionized the world of cryptocurrencies, providing innovative solutions and new opportunities.

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