Defi Review #2: MakerDAO The Collective Wealth

Defi Review #2: MakerDAO The Collective Wealth

By xuanling11 | Crypto Learning | 22 Dec 2021

MakerDAO is a decentralized autonomous organization that runs decentralized finance through their government token Maker to form a self-sustaining community. It is a kind organization without centralized authority and manages finance through its governance. It is also a one-of-a-kind stablecoin issuer formed fully by communities.


Here is a 1 min summary of the article if you want to skip the reading.


What is MakerDao


Created in 2015, the Maker DAO or Multi-Collateral Dai (MCD) system is a decentralized autonomous organization that allows users to generate Dai, a stablecoin, by leveraging collateral assets approved by Maker Governance. It is a fully self-sufficient and self-governed organization to manage and issue its currencies without third parties interference.


Why Choose MakerDao


Citizens do not vote to have money printed out in the traditional finance market. Usually, few people or a single entity decide how much to print. They are considered experts to represent people. However, the decision has never been made by all agreed-upon but to proceed with a closed-door deal. MakerDao offers a solution to have an unbiased currency that any individual or business can anticipate and vote to influence the future of money. 


Goals of MakerDao

The idea of MakerDao is to have an unbiased, transparent, and highly efficient permissionless financial system. Unless Bitcoin is speculated to hedge inflation, MakerDao is designed to minimize price volatility. It invented the stablecoin Dai to peg the dollar at a 1 to 1 ratio. They also create unique smart contracts as Collateralized Debt Positions (CDPs) to generate income streams similar to the bond issued by the government. It makes the competition between fiat currency and threatens the status quo of the fiat currency system.


MakerDao Focus on Governance


MakeDao runs its own governance system with stablecoin and voting tokens. There is a decentralized risk management function to proactive govern and reactive govern. There are two types of voting through governance polls and executive votes. Their scientific governance makes sure holders have their fair rights and ensure the stability of the stablecoin. Yet, voting tokens and stablecoin are separate valuations that strictly distinguish financial power from political power. 


Holders From MakerDao


Holders are equally distributed among communities. Not holders may have significant voting tokens to overinfluence one another. The system tends to be more democratically operated through communities and each holder.


Risks With MakerDao


Even though MakerDao claimed their code is open source, it is not accessible to the public. Their portfolio-backed assets are intransparent, making their stablecoin unsustainable to overcome the risks of over-leveraging. 



In Conclusion

I think MakerDao makes decentralized governance feasible by separating voting rights and currency. However, with time and communities growing, we may see a new form of governance that runs by communities and decentralized finance with a fair system for each participant to vote and make decisions.

This article is also published in Cryptologist as parnership publication.

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You can refer my previous article lists here and here

Below are my previous Defi articles for references:
DeFi Swap: Great Returns come with Great Cost
Defi: A Rainbow 5-Layers Cake
Robot Sucks: How Lousy Jobs AMMs Did to Ruin the DeFi
Defi Winter: What May Come After the Bubble Pops
Defi Winter?! When Stablecoins Become CBDCs
Defi Manual
Defi Manual: Part 1 - Cefi vs. Defi
Defi Manual: Part 2 - Regulations
Defi Manual: Part 3 - Financial Weapons
Defi Manual: Part 4 - Market Manipulation
Defi Manual: Part 5 - Synergies
Defi Review
Defi Review #0: Why I Focus on DeFi
Defi Review #1: Uniswap The Market Maker
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