Maker Protocol (MakerDAO)

The Maker Protocol is a set of smart contracts on Ethereum that creates the Dai (DAI) stablecoin, which aims to track the US dollar. Users lock crypto or other approved assets in vaults and borrow newly minted Dai against them. MakerDAO is the decentralised organisation of MKR token holders that governs the protocol, voting on which collateral to accept, the fees borrowers pay and other risk settings.

Maker was one of the earliest and largest projects in decentralized finance, and Dai became the best-known decentralized stablecoin. In August 2024 the project rebranded as Sky, introducing a new stablecoin, USDS, and a new governance token, SKY, which holders can obtain by upgrading their DAI and MKR. As of November 2026 the original DAI and MKR tokens remain in use alongside the new ones.

Picture a pawnshop that never closes and is run by a computer program. A customer brings in something valuable, say some ether, and leaves it in a locked box. In return, the shop prints new digital dollars and lends them to the customer, but always less than the value of what is in the box. When the customer pays the dollars back, plus a fee, they get their ether back.

If the value of the ether in the box falls too far, the shop sells it to make sure the loan is covered. The rules about what the shop accepts, how much it lends and what it charges are decided by votes from the people who hold the shop's governance tokens.

• Vaults. A user deposits approved collateral into a vault, originally called a collateralized debt position, and generates Dai up to a limit set by the collateral's liquidation ratio, for example 150%.
• Stability fee. Borrowers pay an interest rate on outstanding Dai, set by governance, which helps steer Dai's price towards one dollar.
• Liquidations. If the collateral's value falls below the required ratio, the vault is liquidated through an auction, and a penalty is charged. Prices come from a blockchain oracle system approved by governance.
• Savings rate. Dai holders can lock their tokens in a savings module to earn a rate set by governance, which raises demand for Dai when needed.
• Peg Stability Module. Introduced in 2020, it lets users swap certain fiat-backed stablecoins, mainly USDC, for Dai at close to one to one, which tightened the peg but made the system more reliant on those assets.

If the system runs short of collateral after bad liquidations, it can create and sell new MKR to cover the gap, so MKR holders bear the cost of failures. In normal times, surplus fees were used to buy back MKR.

MakerDAO was founded by Rune Christensen and began work in 2014 and 2015. The first version of Dai, backed only by ether, launched in December 2017. Multi-collateral Dai followed in November 2019, accepting several assets. On 12 March 2020, a sudden crash in crypto prices and congestion on Ethereum caused some liquidation auctions to clear at near-zero bids, leaving the system short; it covered the deficit by auctioning newly minted MKR. Over the following years governance added tokenised real-world assets, including short-term US government debt, as collateral, and the founding Maker Foundation handed its remaining functions to the DAO in 2021. A restructuring plan known as "Endgame" led to the 2024 rebrand as Sky.

MKR holders vote on-chain on proposals ranging from collateral types and debt ceilings to oracle providers and changes to the protocol's code. Votes are weighted by token holdings, which concentrates influence among large holders and delegates. Specialist teams, once employed by the Maker Foundation and later organised as independent contributors, prepare risk assessments and proposals. The Sky restructuring introduced semi-independent sub-projects intended to run specific products. Critics argue that a small number of voters and founders still dominate decisions, a common concern for any decentralised autonomous organisation.

• Collateral concentration. Heavy reliance on USDC and real-world assets has led critics to say Dai is less decentralised than its branding suggests; when USDC briefly suffered a depeg in March 2023, Dai's price also dropped below a dollar.
• Smart-contract and oracle risk. Errors in code or faulty price feeds could trigger wrongful liquidations or allow theft.
• Governance risk. Concentrated voting power could push through harmful changes.
• Regulatory risk. Holding real-world assets brings legal counterparties and could expose the protocol to rules on stablecoins and securities.

• Sky