Background
Last updated
Last updated
MakerDAO was established in 2014 with the aim of creating a stable cryptocurrency that would not suffer from the price volatility seen in other cryptocurrencies. In 2017, MakerDAO launched DAI. DAI is a stablecoin pegged to the US dollar at a one-to-one ratio. The name is based on the Chinese character 貸, which can be translated as "to lend or to provide capital for a loan".
DAI is created through a collateralized debt position (CDP) system, where users lock up collateral (e.g., ETH) to generate DAI. In other words, MakerDAO takes collateral and issues DAI.
Further, it does not rely on intermediaries or centralized authorities to operate or verify transactions. Thus, it offers transparent and trustless lending and borrowing.
What sets MakerDAO apart from traditional FinTech and many other DeFi projects is its governance.
MakerDAO's governance structure is based on a token voting system. Specifically, MakerDAO issues MKR governance tokens that provide holders with rights to access, control, and ownership.
MKR token holders can vote on proposals and changes to the system. This voting process is transparent and auditable, with all votes recorded on the blockchain. Token holders also share the profits and losses of the collective governance.
In MakerDAO, community participation is encouraged through forum, chat room, and other channels.
Typically, stakeholders gather on the community forum to discuss and form proposals.
Next, proposals are submitted to the community.
This is accompanied by an evaluation process by other community members and dedicated Core Units or teams, which consist of paid contributors. This allows for a diverse range of voices to be heard and ensures that the system is responsive to the needs of its users.
Once a proposal is ready, it will be scheduled for a vote during one of MakerDAO's governance cycles.
If the wider community accepts a proposal, then it will be implemented as smart contracts or changes to source codes of the protocol.
On the other hand, if a proposal is rejected, the authors of the proposal can try to resolve differences of opinions through further discussion to improve their proposal.
MakerDAO's governance process is designed to be transparent and inclusive, allowing anyone with MKR tokens to have a say in the organization's future. However, this decentralized approach also presents unique challenges in terms of risk assessment, decision-making, and coordination.
Read more in Additional Information on MakerDAO
© 2023 Xule Lin & Ying-Ying Hsieh. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
