Skip to main content

MakerDAO: What it is and how it works

By May 10, 2021May 10th, 20234 minute read

MakerDAO is currently one of the most popular platforms in the DeFi world, so if you are familiar with the decentralized finance universe, there’s a good chance that you have heard of it. In 2020, even as the Covid-19 pandemic toppled fiat monetary systems across the globe, the DeFi space saw a significant rise in the number of daily active unique wallets, so much so that 2020 got dubbed the year of DeFi. This success of decentralized finance primarily got assigned to the MakerDAO platform, so big a part of the DeFi ecosystem it has come to be.

In this post, we talk about the MakerDAO platform, the DAI stablecoin, how it all works, and of course – MakerDAO price predictions for 2021. 

What is MakerDAO?

MakerDAO is best known as the platform to develop the stablecoin DAI . DAI is tethered to the value of the US dollar at a ratio of 1:1. Therefore 1 DAI = $1.

stablecoin DAI
(image source:

Created back in 2014, MakerDAO is an open-source project based upon the Ethereum ecosystem and a DAO or a Decentralized Autonomous Organization. However, the protocol launched the DAI stablecoins at the beginning of 2018. According to the market cap, the coin has grown significantly since then; as of the end of April 2021, DAI is ranked among the top 50 cryptocurrencies worldwide.  

DAI has been designed to lower the impact of the price volatility most cryptocurrencies experience. It’s safe to say that at this point, DAI and MakerDAO together form the backbone of the still-developing DeFi universe. 

How is DAI Different from Other Stablecoins?

DAI is definitely not the first stablecoin to exist upon a blockchain. It has its predecessors in USDT (Tether), TrueUSD, and more. Most stablecoins are usually backed by fiat currencies. Now, the threat associated with these stablecoins is that the custodial party that holds the actual fiat currencies can deny the redemption of any of these stablecoins on the ground of regulatory requirements. 

This is also the biggest difference between cryptocurrencies and stablecoins: while regular cryptocurrencies are permissionless, stablecoins are controlled by an authority figure. 

Moreover, there’s also the fact that the custodial party might not have the right amount of fiat currency needed to power the stablecoins since there’s no way to verify whether they are telling the truth.   

The Tether controversy has essentially made the traders and the crypto universe as a whole realize the issues associated with fiat-backed stablecoins. However, with DAI, traders can mostly forego the aforementioned risks. MakerDAO’s model vastly varies from other stablecoins primarily because it is decentralized – no central authority controls the issuance of DAI tokens. DAI is structured to use collateral in the form of Ethereum-based assets to preserve its peg to the US dollar. 

The decentralized nature of MakerDAO is made possible by the holders of MakerDAO’s governance token MKR, who govern the platform through a decentralized autonomous organization.

How Does the MakerDAO Platform Function?

Maker warrants the stability of its DAO by making use of CDPs or Collateralized Debt Positions. These are smart contracts that keep the collateral users deposited on the platform and allow the generation of DAI tokens for borrowers. The presence of the debt locks up the collateral deposited within the smart contract until the users pay back the amount they had borrowed in DAI. 

Naturally, once the debt is paid, a user can withdraw the collateral they had deposited. To preserve the system’s stability, an active CDP on Maker has a relatively higher collateral value than the debt.

This is how Maker works: first of all, a user has to send Maker their transaction to create a CDP. The user now funds the transaction, and once the collateralization is complete, the user can receive their DAI from the smart contract. The smart contract now accrues the debt and locks in the collateral deposited by the user until they pay back the debt and some additional fees like the Stability Fees payable in MKR.

This process allows MakerDAO to provide users with loans without requiring a trusted party to vouch for the borrowers or a KYC protocol.  Instead, with Maker, the repayment terms are at the user’s preference, and the smart contract guarantees the collateral’s security. 

Governance on MakerDAO

As mentioned before, governance on the MakerDAO protocol is supervised by the community of MKR token holders. Indeed, MKR holders can propose any changes in the way Maker is run or vote on the governance changes suggested by other users. MKR holders can vote on the many issues, including introducing new assets as types of collateral, changing the risk parameters of the existing collateral loans, picking price oracles and emergency oracles, and more. Further, MKR holders can also initiate an emergency shutdown of the Maker platform should they notice any threats or irregularities.

MakerDAO Price Prediction: Is It Worth Investing in 2021?

The MakerDAO price was around $582.22 on January 1 of 2021, and by the end of the month, it had already gone up to about $1,480.81. As of April 2021, Maker has been on a positive run so far, with MakerDAO price being near $4000 at the end of the same month. As per MakerDAO price predictions for 2021, the MakerDAO price will certainly go up despite market fluctuations.

Furthermore, according to MakerDAO price predictions and crypto experts the token could be trading at almost double its current value by the end of the year, with a MakerDAO price of over $7000. Going by these forecasts, it’s safe to call MakerDAO a safe investment as of right now.

And that was everything you need to know about the MakerDAO platform, all in one place, along with the MakerDAO price predictions. To trade DAI, and over a hundred other cryptocurrencies in India, do give MakerDAO on WazirX a visit!

Is Cryptocurrency Safe To Invest In?

Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.

Is Bitcoin And Cryptocurrency The Same Thing?

Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.

How To Invest In Cryptocurrency Stocks?

Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.

Who Invented Cryptocurrency?

Satoshi Nakamoto invented cryptocurrencies and the technology that makes them function in 2009. The presumed pseudonymous individual or persons who invented Bitcoin used this identity. In addition, Nakamoto created the first blockchain database. Even though many people have claimed to be Satoshi Nakamoto, the person's identity remains unknown.

What Is The Safest Cryptocurrency To Invest In?

Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.

What Are The Best Cryptocurrencies To Invest In?

The best cryptocurrencies to invest in would be the ones you study and analyze in detail. Some of the most popular cryptocurrencies include Bitcoin, Ethereum, and many altcoins such as Tron, Ripple, Litecoin, etc.

Can I Invest In Cryptocurrency?

Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.

How Many Cryptocurrencies Are There?

There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.

Is Pi Cryptocurrency Safe?

Pi Network (PI) is the newest digital token to catch the cryptocurrency community's interest, even before it has wholly debuted. Some users see it as a chance to get engaged in a cryptocurrency from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.

Is Cryptocurrency Legal In India?

In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
Participate in the Indian Crypto Movement. Share:

Leave a Reply

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.