Maker is a DeFi system best known for creating DAI, a stablecoin that aims to hold a value close to one US dollar. Unlike stablecoins backed by dollars in a bank, DAI is generated when users lock up crypto as collateral in the Maker protocol.
To keep DAI near a dollar, the system requires borrowers to lock up more value than the DAI they create, and it uses automatic mechanisms to manage this. If collateral falls too far, it can be liquidated. The system is governed by holders of a separate token, who vote on its settings.
This entry explains what Maker is and how DAI works at a high level. It is educational. Stablecoins and the systems behind them carry risks, including collateral and governance risks, and nothing here recommends holding or using any particular asset.
Frequently Asked Questions
How does DAI try to stay near one dollar?
DAI is created against crypto collateral worth more than the DAI generated, with automatic mechanisms and possible liquidations helping keep its value close to one dollar.
How is DAI different from a dollar-backed stablecoin?
Dollar-backed stablecoins hold reserves in a bank. DAI is instead generated by locking up crypto collateral in the Maker protocol, making its backing crypto-based rather than cash.
