What is the MakerDAO protocol?

MakerDAO is an Ethereum-based platform that creates the Dai algorithmic stablecoin, which is soft-pegged to the USD. The Maker Protocol allows you to redeem Dai in exchange for collateral in the form of Ethereum-based tokens. The company was founded in 2015, and it was one of the first to forego ICO investment in favour of concentrating on long-term product development. MakerDAO has grown into a foundational component of decentralized finance as an early adopter and pioneer in the Ethereum ecosystem (DeFi). Dai is now available on over 400 platforms, and the protocol has approximately $2 billion in value locked in as of October 2020. The establishment of a fully decentralized stable store of wealth with which to transact is MakerDAO's innovative contribution to DeFi. DeFi customers can choose from a variety of stablecoins, such as Bitfinex's Tether (USDT), Gemini's Gemini Dollar (GUSD), and Coinbase's USD Coin (USDC). These stablecoins, on the other hand, are issued and regulated by a centralized authority in charge of asset reserves and issuance.

In asset-backed stablecoins, MakerDAO provides a totally decentralized alternative. No single entity controls the protocol's issuance, and anybody may use it to redeem or loan Dai. Holders of the MKR governance token, who vote on protocol management via the Maker decentralized autonomous organization, rule the protocol instead (DAO). The DAO votes on system improvements such as fee adjustments and the addition of loans with different types of collateral. Dai is far from the only decentralized stablecoin alternative, but it is by far the most liquid and widely used.

Since its inception in 2017, MakerDAO has suffered market conditions that have caused its value to diverge from the US dollar at times. In March 2020, for example, Dai's price soared to $1.10 during a period of high market volatility. Demand for Dai and other stablecoins has also increased as a result of the popularity of yield farming. For the majority of cryptocurrencies, increasing asset value is always a good thing. It's a clue that the protocol isn't working correctly for an algorithmic stablecoin like Dai. MakerDAO has since built a monetary lever system in order to reduce future risk. Nonetheless, Dai is an important part of DeFi's infrastructure, and MakerDAO is a mainstay of Ethereum development.

Any discussion of MakerDAO and its capabilities would undoubtedly conclude with a discussion of its applications. Crypto lending functionality is one of Maker protocol's most obvious use applications. The Maker system, as well as its stablecoin DAI, provide a useful foundation for the creation of alternative DeFi protocols. DAI stablecoin is used by global organizations like UNICEF to raise funds for blockchain-based open-source initiatives in social projects. Uniswap and Outlet are two other significant practical DeFi applications supported by the Maker ecosystem. Furthermore, the gaming industry applications of MakerDAO can aid in the generation of tokenized in-game assets.