MakerDAO is the decentralized autonomous organization behind DAI, the largest decentralized stablecoin. Users lock crypto collateral into smart contracts called Vaults (formerly CDPs) to mint DAI, while MKR token holders govern the protocol’s risk parameters. Founded in 2014, MakerDAO is one of the oldest and most influential DeFi protocols.
How MakerDAO Works
Vaults (Collateralized Debt Positions)
- Mint DAI — The user generates DAI up to the vault’s collateralization ratio (e.g., 150% minimum for ETH vaults).
- Use DAI — The minted DAI is a soft-pegged USD stablecoin, usable anywhere in DeFi.
- Repay + reclaim — To recover collateral, the user repays DAI plus a stability fee (interest rate). The repaid DAI is burned.
Liquidation
DAI Stability Mechanisms
DAI maintains its $1 peg through multiple mechanisms:
| Mechanism | How It Works |
|---|---|
| Stability Fee | Interest rate on vaults; raised to reduce DAI supply when peg is above $1 |
| DAI Savings Rate (DSR) | Yield paid to DAI holders; raised to increase demand when below $1 |
| Peg Stability Module (PSM) | Allows 1:1 swaps between DAI and USDC; hard pegs DAI to PSM collateral price |
| Liquidation auctions | Keeps vaults overcollateralized, ensuring DAI is always backed |
MKR Token
MKR is the governance token of MakerDAO. MKR holders vote on:
- Which collateral types are accepted and their risk parameters
- Stability fees and DSR rates
- Protocol upgrades and new features
MKR is also used as a backstop: if the system accumulates bad debt that exceeds the surplus buffer, new MKR is minted and auctioned to recapitalize — diluting holders. When the protocol runs a surplus, MKR is repurchased and burned.
The Endgame Plan
In 2022–2023, MakerDAO founder Rune Christensen proposed a major restructuring called Endgame. Key elements:
- Split MakerDAO into smaller, independent “SubDAOs” with their own tokens
- Launch NewStable (eventually branded as USDS) and NewGovToken (SKY) alongside DAI and MKR
- Create Spark Protocol — a lending frontend for Maker vaults
- Expand real-world asset (RWA) collateral significantly
In 2024, MakerDAO rebranded to Sky, with DAI and MKR coexisting alongside USDS and SKY. Existing users could upgrade or remain on the legacy system.
Real-World Assets
A major strategic shift for MakerDAO has been the incorporation of Real World Assets (RWAs) as collateral — US Treasury bills, tokenized bonds, and lending facilities to institutional borrowers. By 2023, RWAs represented over 50% of Maker’s collateral, generating the majority of protocol revenue but introducing off-chain counterparty risk.
History
- 2014 — Rune Christensen founds MakerDAO.
- 2017 — Single-Collateral DAI (Sai) launches — only ETH as collateral.
- 2019 — Multi-Collateral DAI launches — opens to any approved collateral, introduces DSR.
- 2020 — Black Thursday (March 12) — ETH price crashes 50% in hours; liquidation auctions fail, creating $4M bad debt. MKR is auctioned to cover it.
- 2021 — PSM launches with USDC, cementing DAI’s peg stability but introducing centralization concerns.
- 2022 — Endgame proposal published; RWA strategy accelerates.
- 2023 — SparkLend launches as Maker’s native lending frontend.
- 2024 — Sky rebrand — DAI and MKR continue alongside USDS and SKY.
Common Misconceptions
“DAI is centralized because of USDC collateral.”
The PSM module uses USDC heavily, creating a dependency on Circle. This is a real and acknowledged tradeoff — DAI’s stability has improved at the cost of some decentralization. MakerDAO has debated reducing USDC exposure.
“MKR holders control all decisions.”
MKR governance votes determine protocol rules, but Maker’s core development team (the Maker Foundation, now dissolved) historically had significant influence. Endgame aims to further decentralize through SubDAOs.
“Maker is just a stablecoin.”
MakerDAO is a fully autonomous credit system — it lends DAI against collateral, manages risk, runs auctions, and generates revenue entirely on-chain without a legal entity that can be shut down easily.