In the vast ocean of cryptocurrencies, those who do not innovate are fatally engulfed by the biggest predator that dwells in this market, most known as the “failure shark”.
New projects are developed every day aiming to attract more and more users to the blockchain universe, offering increasingly sophisticated features that allow anyone to earn a slice of the big cake of crypto assets available within the ecosystem.
In this sense, MakerDAO offers the most successful decentralized lending platform to date.
HOW DOES IT WORK?
MakerDao works as a decentralized lending platform, backed by Ethereum-based smart contracts. Using the so-called Collateralized Debt Position (CDP), users have security with full transparency and global availability within the platform, as well as far more privacy than its generally available outside.
Running a community governance model with full transparency, MakerDao is powered by an open-source code foundation.
It was the first open finance protocol that ever launched on Ethereum, a true pioneer, and it continues to play a big role in the decentralized finance scenario.
But what the heck does CDP means and why it is important for users? We answer.
In the MakerDao system, a collateralized debt position (CDP) is created when users enter an agreement via a smart contract. These agreements serve to enforce that the borrowed amount must be repaid to retrieve locked collateral back from the system.
Here, users lock their Ethereum in the form of CDP smart contracts and are issued with DAI as a loan.
WHY IS IT INTERESTING FOR DEFI USERS?
We can highlight some facts that make MakerDao a truly valuable tool as DApp.
Transparency is the main concern, for sure. Holding collateral all locked up, the platform offers stability for users. DAI is the only censorship-resistant stablecoin available today, which can only be minted with full access to Maker CDP portal smart contracts.
Another important aspect is governance. The project is a 100% decentralized organization, where governance is done by its’ token holders only.
MKR holders can lock their precious tokens into smart contracts and participate in democratic vote sessions on protocol upgrades as well as changes to the CDP platform.
Privacy is the main foundation when it comes to blockchain’s philosophy (peer-to-peer technology is not used just by coincidence). Here users are not even required to register or submit any personal info as documentation to have access to loan services.
Hence, MakerDAO can be specially recommended for individuals in countries with aggressive regulations.
ETHEREUM ENTHUSIASTS MIGHT HAVE SOME ADVANTAGES:
As the Maker CDP smart contracts run natively on Ethereum, only ER20 compatible assets are available on the platform.
This may be mean that users fonder of Ethereum-based tokens can use it as an advantage to leverage their operations, and by doing this earn more interest.
Other users can realize ER20 compatible Bitcoin alternatives, such as WBTC, are very convenient here.
IS THE PLATFORM SECURE ENOUGH?
We must remember balances here are not insured, meaning that it is the user’s responsibility to keep their wallets secure as they can (using insurance services such as Nexus Mutual, per example).
Everyone involved in the “smart contract game” must have a full conscience that this world has its risks. It is safe to say to date there have not been any security issues involving Maker CDP smart contracts, but it is highly recommended to use insurance as a security back-up to continue operations more safely and avoid headaches.
All smart contracts have been audited, tested, and scrutinized, so it is safe to say that security is not an overwhelming problem here.
WHO IS BEHIND THE IDEA?
MakerDAO has been operating as a system since late 2017. It was the first open finance protocol to launch on Ethereum, and it still must have an essential role in the movement, being one of the main foundations of what we all know was Decentralized Finance today.
Company’s CEO is Rune Christensen and President Steven Becker also acts as the project’s COO.
Offering a globally available platform empowered with full transparency and community-based governance, MakerDao is an important pioneer of DeFi.
Here, cryptocurrency-based asset loans are currently only issued in DAI, which is a fact that means it can have more advantages for more advanced users, especially those fond of ER20 compatible tokens.