In these days of Web 3.0 and blockchain, the word “DAO” is becoming more and more common. Recently, the “MZ DAO” project launched by Yusaku Maezawa, the founder of ZOZO, was recognized by Guinness World Records.
In the midst of all this, did you know that one DAO is gaining momentum? It is called “MakerDAO”.
This decentralized organization is said to be revolutionizing DeFi, and Maker, MakerDAO’s governance token, is ranked 53rd in the trading market as of March 2023. It is the hottest stock in the market today.
So, in this article, we will explain the future and features of MakerDAO. In addition, we will also explain DAO in an easy-to-understand manner, so that you can understand what DAO is all about, whether you have heard of DAO but are not familiar with it, what’s so great about MakerDAO, or are curious about its future prospects.
“What’s so great about MakerDAO?”
“I’ve heard of DAO, but I don’t really understand it, and I’m curious about its future prospects.”
If you are interested in crypto currency or want to know the recent trend of blockchain, please refer to this article.
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About MakerDAO
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| Name | MakerDAO |
| Token symbol | MKR |
| Project Type | Decentralized financial organization |
| Official page | https://makerdao.com/en/ |
| https://twitter.com/MakerDAO | |
| Telegram | https://t.me/makerdaoOfficial |
| bebbit | https://www.reddit.com/r/MakerDAO/ |
| Youtube | https://www.youtube.com/MakerDAO |
What kind of organization is MakerDAO?
MakerDAO is a DeFi protocol configured on the blockchain on Ethereum. It is characterized by the ability to lend and borrow cryptographic assets without the need for a third party intermediary.
MakerDAO allows you to borrow a stable coin called “Dai” using your own Ethereum as collateral, which is useful for transactions using stable coins.
Stablecoin is a crypto currency with a fixed price, like legal tender, and each “Dai” is fixed at one dollar and used for DeFi related services and crypto currency payments.
What is DAO?
To understand MakerDAOs, it is necessary to know what a “DAO” is.
The official name for a DAO is a Decentralized Autonomous Organization. This organization literally means that there is no manager or leader, and the members of the community work together to advance the project.
There is no hierarchy in the chain of command, and project management policies are voted on by governance tokens.
About DeFi
DeFi stands for Decentralized Finance and DeFi is characterized by the construction of a financial system without a central administrator, and the system operates on the blockchain.
Our everyday financial system is dominated by centralized financial services such as banks, so a structure without a central administrator may be a little difficult to imagine.
The image of decentralized finance is a place like a “flea market” where money and goods are traded directly with other parties.
DeFi is said to be the new financial service of the Web 3.0 era, as it does not have a central controller, transaction costs are extremely low, and there are no geographical restrictions on trading partners. One study has predicted that “DeFi transactions will become common in the future,” and we can look forward to its future development.
MakerDAO Features
MakerDAO has three main features.
- Low-risk stablecoin borrowing
- Unique price stabilization mechanism
- Stability fees to regulate the amount of coins in circulation
Let’s take a closer look at these
Feature 1: Borrow low-risk stable coins.
Dai, which can be borrowed from MakerDAO, is a decentralized, crypto currency-backed stablecoin. As a result, Dai is a stable crypto currency with a relatively low risk of collapse among stablecoins.
The following is an explanation of what the risks of stablecoins are, starting with the characteristics of DeFi.
Currently, the most common stable coins in circulation are
- USDT
- BUSD
- USDC
- TUSD
and others. These stablecoins are managed by exchanges such as Binance and Tether, and can be considered centralized stablecoins. Centralized stablecoins are subject to various risks because they depend entirely on the entrepreneurship of the issuer to maintain the price and control the volume of circulation.
For example, the TerraUSD crash in 2022. This also occurred because the operating company that managed TerraUSD was unable to maintain linkage between the U.S. dollar and TerraUSD. No one would have thought that this stablecoin, which had been growing rapidly as an unsecured stablecoin, would lose its value in an instant.
However, as a practical matter, such incidents do occur. Depending on the company operating the stablecoin, a crash of a stablecoin is unlikely to occur, but centralized stablecoins are still at risk of potential collapse.
On the other hand, let’s look at a decentralized stablecoin, Dai, whose price is maintained using Ethereum pooled within MakerDAO as collateral. The price is pegged to the U.S. dollar, with 1 Dai fixed at $1. It is the same as a centrally managed stablecoin.
However, the main difference from the centrally managed type is that it is decentralized: since Dai is decentralized among the MakerDAO community participants, the risk of a price collapse is lower than with a centrally managed stablecoin.
Dai also matches DeFi’s biggest advantage of decentralization, and will become increasingly popular as the trend of decentralized systems that will develop in the future gains momentum.
Feature 2： Unique price stabilization mechanism
While Dai has many advantages, it also has a disadvantage due to its crypto currency collateralized status. That is the difficulty of maintaining prices. To begin with, it is difficult to match the price of a highly volatile crypto currency with that of a less volatile legal tender as collateral.
MakerDAO uses a unique price stabilization mechanism to solve this problem. First, when borrowing Dai, the crypto currency used as collateral must be at least 1.5 times the value of the currency.
For example, if you want $100 worth of Dai, you would need $150 worth of Ethereum. At this point, Dai already has a lower conversion rate than other stable coins, and the cost of acquiring it is higher.
In addition, if the crypto currency used as collateral falls below a certain amount, the Dai borrowed to protect the value of the token will be forced to settle. These mechanisms maintain the price of Dai and its value as a stable coin.
Feature 3： Adjustment of distribution volume through stability fees
Stability fees are fees paid when repaying a borrowed Dai. The Stability Fee varies with market demand and supply and contributes to the price linkage between the Dai and the U.S. dollar.
The price adjustment mechanism using the Stability Fee is as follows.
When the price of Dai goes down, the price of the stability fee goes up
When the price of Dai goes up, the price of the stability fee goes down.
This mechanism is very similar to the relationship between currency value and interest rates in the economy. For example, when the price of the Dai goes up, the value of the token must decrease in order to keep the price in line with the U.S. dollar.
If the stability fee is reduced to make it easier to borrow Dai, the market will be flooded with Dai and inflation will occur. The relative value of the tokens will decrease.
In the opposite case, the stability fee is raised to make it difficult to borrow dai, thereby limiting the supply. The relative value rises.
The system of automatically adjusting the supply of Dai through MakerDAO’s smart contracts and maintaining its value is a management method unique to a decentralized organization.
Maker (MKR) Market Price
Maker has a market ranking of 53rd as of March 2023. Its market capitalization is over 120 billion yen. It is worth the equivalent of a large crypto currency project.
Daily trading volume is also over $896,000,000, making it one of the most watched stocks by many users.
Price outlook
The price outlook for Maker has been “trending upward” since its peak in 2021 during the crypto currency boom, but it has been on an upward trend since the beginning of 2023.
This could simply be due to the growing popularity of DeFi, in addition to expectations for MakerDAO. If the number of users of decentralized MakerDAO is expected to continue to grow and the value of Maker will increase each time this happens, it is reasonable to assume that the bottom of the price has been confirmed by the previous decline.
The price of Maker in March 2023 has already exceeded $900, making it an expensive issue to buy casually, but it is an issue to hold onto if you are aiming for a long-term investment in crypto currency.
How to purchase Maker (MKR)
Maker can be purchased from the international crypto currency exchange “Binance”. USDT is required for purchase, so please be prepared if you are interested in acquiring the currency.
With bitcastle, USDT can be purchased with a credit card.
If you are new to buying USDT, we recommend “bitcastle”, a crypto currency trading platform. This service can be used immediately after registering your email address, and there is no charge for opening an account.
The speedy transaction service of bitcastle is especially recommended for those who want to trade crypto currency in a hurry.
If you do not have an account yet, please consider opening one.
The Future of MakerDAO
As crypto currencies and blockchain become more popular, the number of MakerDAO users will increase. The white paper summarized the following markets that MakerDAO will be involved in the future.
Use for working capital, risk hedging, and leveraged transactions
Dai borrowed through MakerDAO’s will be used for working capital for your own projects or for leveraged transactions.
Although the cost of borrowing is higher than that of a bank, there is no screening process for borrowing, and payments can be made quickly due to decentralized management.
This is attracting attention as a next-generation financial institution that will replace banks.
Low Cost Transactions
With seamless transactions, DeFi allows for low-cost currency transfers between international locations. Therefore, it is expected that MakerDAO and other DeFi will be used to pay for imported goods and to send money to international clients.
In particular, MakerDAO has the background of being the pioneer among DeFi, and considering its reliability, the penetration rate of MakerDAO DeFi will be high.
Use for games
Blockchain games and DeFi are a great match, and DeFi, especially the decentralized MakerDAO, is a very easy-to-use platform for building Gamefi.
The blockchain gaming market is expanding every year, and the number of both development users and users is increasing. As the number of users increases and more DAIs are used, the number of MakerDAO users will undoubtedly trend upward as well.
summary
MakerDAO allows users to borrow the stable coin Dai, whose convenience will increase dramatically as DeFi becomes more popular.
Right now, decentralized finance is not that popular. But the inevitable wave of decentralization will eventually come. By then, MakerDAO may have evolved into the DeFi protocol that everyone knows.
- USDT
- BUSD
- USDC
- TUSD