MakerDAO, a decentralized finance or Defi application. is it for you?

by Lumai Mubanga

Decentralized finance has immerged as an offshoot from the blockchain. Decentralized finance was probably unknown when bitcoin was first launched. However, it has become prominent with the surge of Ethereum network. What is it all about and is it one of those crypto “circuits” you can explore?

The shift from centralized finances to peer-to-peer enabled technologies has gained ground, with large companies and startups coming on board. Notable is ConsenSys taking the lead. So many types of DeFi have flooded the crypto market with notable ones being chainlink, wrapped bitcoin and Dai. There is also a corresponding array of use cases for these tokens.

What is Maker DAO?

Greater financial freedom for everyone has been the goal of decentralization. The mission for MakerDAO however, has been to provide Greater financial freedoms for everyone. Built on the Maker protocol, Maker DAO seems to favour those who live in countries where they experience hyperinflation as well as for those who need to take control of their assets. Its design is supported by two native tokens namely the DAI and the MKR.

Just how does it function and is it suitable for you and me?

Collateral based

This DeFi application is unique from others in that it allows its users to borrow funds from the network by supplying collateral. Many users have adopted it and it is one of the fastest-growing networks on the Ethereum network. Among its core strengthens is its decentralized nature that removes one point of failure, transparency and rule-based protocol designs. These features have eliminated some of the possible bottlenecks that have made other DeFi application redundant.

Another feature is that DAI is a stable coin that equates to 1 USD. This has given more confidence to users as it mitigates the volatility nature of cryptocurrency.

What makes DAI Different? While many stable coins are fiat-backed; thereby preserving their value even in the midst of financial turbulence; it is not the presence of dollars in a bank account that keeps its value stable. Instead, DAI is generated when users deposit supported crypto assets as collateral. The Maker ecosystem is backed by collateral that has been individually locked and audited and is publicly viewable Ethereum smart contracts.

What is the role of MKR?

MKR comes in as a governance token designed to keep the value of DAI as closer to the value of the USD as possible. It also powers Makers decentralized community-driven governance. Thus, anyone is free to purchase MKR and become eligible to join the networks community of MKR token holders to help govern the Maker protocol and enjoy other privileges such as maintenance and voting rights.

Thus, MakerDAO has over 400 Apps supporting individuals and businesses. It has earned its reputation as the world’s first unbiased currency. Powered by Ethereum’s smart contract, MakerDAO’s DAI is described as “the Dai stable coin, which is the most-used cryptocurrency in the decentralized finance (DeFi) space”, on MakerDAO website.

Could this be your next investment?

Source: Coinbase.com