The Maker Protocol is one of the largest decentralized applications on the Ethereum blockchain. The people involved in designing the protocol are diverse and include Maker Foundation developers, external partners, and other individuals and entities. The Maker Protocol is the first decentralized finance (DeFi) application to achieve mass adoption.
The Maker Protocol is governed by holders of the governance token MKR from around the world. Through a scientific governance system consisting of Executive Voting and Governance Polling, MKR holders can manage the financial risks of the Maker protocol and Dai, thereby ensuring the stability, transparency and efficiency of the protocol. Each MKR token locked in the voting contract is equivalent to one vote.
Stablecoin Dai
Stablecoin Dai is an asset-backed cryptocurrency soft-pegged to the U.S. dollar, and its issuance is decentralized and unbiased. Dai has been issued on the Ethereum blockchain and some other popular blockchains; holding Dai requires a cryptocurrency wallet or cryptoasset platform.
The barriers to generation, access, and use of Dai are very low. Users generate Dai by using the Maker protocol to create a smart contract called a "Maker Vault" and deposit assets. This process is not only the process of Dai entering the circulation field, but also the process of users obtaining liquidity. In addition, users can also purchase Dai from intermediaries or exchanges; or more simply, as long as they are willing to accept Dai as payment, they can get Dai.
Whether you generate, buy, or receive Dai, you can use it just like any other cryptocurrency: you can send Dai to others, use it to buy goods and services, and even use it through something called “Dai.” Deposit Rate (Dai Savings Rate, DSR)” Maker protocol function to transfer Dai to a savings account.
Every Dai in circulation is backed by excess assets — the value of the collateral is always higher than the value of Dai’s debt — and all Dai transactions are publicly visible on the Ethereum blockchain.
Dai’s currency function
Generally speaking, currency has four major functions:
store of value
medium of exchange
unit of account
Deferred payment standards
In order to meet the above functions, Dai has specially designed the following features and application scenarios.
Dai is a store of value: a store of value refers to an asset that can maintain its value and will not depreciate significantly over time. Dai is a stablecoin designed to ensure price stability in volatile markets.
Dai is a medium of exchange
A medium of exchange is anything that represents a standard of value and is used to facilitate the sale, purchase, or exchange (trade) of goods or services. The Dai stablecoin can be used to complete transactions in different types of transactions around the world.
Dai is a unit of account: A unit of account is a standardized measurement of value (e.g. USD, EUR, JPY) used for pricing goods and services. Currently, the target price for Dai is 1 USD (1 Dai = 1 USD). While Dai has not yet become a standard measure of value outside of blockchains, it serves as a unit of account within the Maker Protocol and some blockchain dApps. Among them, the Maker protocol’s accounting and dApp service pricing use Dai instead of legal currencies such as the US dollar.
Dai is a deferred payment standard
In the Maker protocol, Dai is also used to pay off debt (for example, users use Dai to pay stability fees and close vaults). It’s this advantage that makes Dai so great.
Collateral assets: Dai’s creation, value endorsement, and price stability are all achieved through collateral assets deposited in the Maker vault. Collateral assets refer to digital assets voted into the protocol by MKR holders.
Any Ethereum-based asset can be used as collateral to generate Dai on the Maker protocol, as long as it is approved by MKR holders. When allowing an asset to become collateral, MKR holders must also select specific risk parameters accordingly (for example, stable assets may need to choose looser risk parameters, and risky assets may need to choose stricter risk parameters). Please see below for details on risk parameters. MKR holders make these and other decisions through Maker’s decentralized governance process.
Conclusion
The Maker Protocol and its stablecoin Dai play a crucial role in the decentralized finance space. Through innovative governance mechanisms and stable value storage functions, Dai has become a cryptocurrency trusted by many users and developers. As the DeFi ecosystem continues to develop, Dai and the Maker protocol are expected to continue to lead the trend in the future, providing more stable and efficient financial services to users around the world.