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Review on Maker by Fanuel PORPORTY

Maker, the DeFi protocol based on Ethereum

Personally I love this project. I saw in this project a real decentralization and a future for decentralized finance.

Offering a viable and stablecoin substitute for Tether, Maker is a smart contract platform that controls and sells Dai. Decentralized and without trusted third parties, the Maker platform stabilizes the value of the Dai against the US dollar using external market mechanisms and economic incentives. Eliminating the need to rely on centralized organization and the hassle of third-party audits, Maker offers a transparent stablecoin system that is fully inspectable on the Ethereum blockchain.

The Maker platform has two currencies: Makercoin (MKR, A token with a volatile price which is used to manage the Maker platform) and Dai (DAI, A currency whose price is stable and suitable for payments, to savings or collateral.)

MKR has three essential roles on the Maker platform:

1. Utility Token: You can only use MKR to pay the costs incurred on CDPs that generate Dai in the Maker system. When you pay these fees, the MKR is "burned" or removed from the reserve. The MKR supply will decrease as the MKR is burned. If the demand for Dai and CDP increases, the demand for MKR should also increase.

2. Governance Token: MKR holders use the token to vote on the risk management and logistics of the Maker system. Maker’s voting process is through continuous approval voting.

3. Recapitalization resource: If certain parts of the collateral portfolio become sub-collateral, the Maker system automatically creates new MKR tokens and sells them on the market. This instantly raises funds to capitalize the value deficit in the system and relieve the entire Maker system from insolvency. Poor governance will dilute the value of all MKR tokens. This creates a penalty system that should align the interests of Maker voters with those of the entire Maker system.

it should be noted that the Maker project underwent a major metamorphosis on November 18, 2019. Indeed, since that date, ethers (ETH) are no longer the only collateral available to obtain new DAIs, since they can be supported by several different collaterals (“multi-collateral DAI“)

Pros & cons

  • Stablecoin based on the US dollar without holding it in return. Although a DAI has the value of one USD, it does not require holding these dollars, with all the constraints of holding a reserve in state currency.
  • Stablecoin decentralized by smart contracts. Thanks to its smart Vault contracts, the Maker project aims to be the embodiment of DeFi (decentralized finance). Each individual can lock a collateral and issue DAIs, the whole system does not require a centralized account linked to a company. Automation by smart contract and decentralized governance (DAO) dispenses with the system of usual intermediaries or a central actor.
  • Based on the only US dollar. Even if it does not have to manage collateral in fiduciary currency, it is a pity that only a US dollar stablecoin has been envisaged, other currencies or assets could ultimately be appreciable.
  • Attack of malicious hacking: If the smart contracts deployed present a vulnerability, a malicious coder could try to steal guarantees from the Maker platform.