Maker MKRPrice $ 1,272

MakerDAO is an Ethereum-based protocol that facilitates collateral-backed loans without the need for a middleman. Since its launch, it has gained widespread use and its DeFi integration has made MakerDAO one of the most operational protocols across the crypto ecosystem.

MakerDAO is made up of a smart contract service that manages borrowing and lending. It has two currencies, DAI and MKR, that are used to regulate the value of loans.

What are MakerDAO’s key features and how does it work?

MakerDAO makes use of two tokens, these are MKR and DAI. DAI is fully backed stable while MKR is a governance token. 

DAI is an ERC20 token on the Ethereum blockchain that is soft pegged to the US dollar. Also on other chains now It is designed to provide an alternative to more volatile cryptocurrencies. When a loan is taken out on MakerDAO, DAI is created. It is the currency that users can borrow and then pay back at a later date.

The Maker (MKR) token was created by MakerDAO. Its main function is to govern Maker protocol. Traditional stablecoins use reserves of fiat currencies, or in some cases gold, to peg a cryptocurrency in order to keep it stable.

MKR is also used in the Dai system governance. MKR tokens are used by its holders to vote on changes to the MakerDAO protocol. However, anyone with an Ethereum address can submit a proposal to change the protocol, even if they do not own any MKR.

DAI is issued when buyers purchase a smart contract-based collateralized debt position (CDP), which is very similar to a traditional loan. CDPs are bought with ETH and DAI is given in return, as such, ETH acts as the collateral to the loan. 

In essence, the system means that individuals can get a loan against their ETH. Upon repayment of the loan, the DAI is “burned” or destroyed.