To protect against the crypto market’s extreme volatility stablecoins were created. However they tend to be issued by a centralized organizations with the promise that 1 issued stablecoin will be backed by 1 USD in the bank. But in many cases of stablecoins we don’t actually know whether this is true or not. As a result Maker was formed to try and address this issue. Maker generates a stablecoin where the value is tied to USD but collateralized by crypto. The fact that it is a decentralized system means everything is transparent to see within its ecosystem.
Imagine you are a homeowner who wants to make some renovations to your home, but you don't have enough savings to cover the expenses. Traditional banks require extensive paperwork and may have strict lending criteria making it difficult for you to secure a loan. However you own a valuable piece of jewellery and you recognize this can be used as collateral to obtain the funds you need via alternative lending options.
Enter Maker, the Defi lending platform that operates similarly to a community-based lending trust. Think of it as a group of individuals within your local community who pool their resources together to provide loans. These individuals are willing to lend you the money you need in exchange for holding onto your expensive piece of jewellery until the loan is repaid back.
Think of it as you are the borrower, the members of the lending pool represent Maker, and your expensive jewellery serves as the collateral, which in Maker’s case is ETH. Instead of relying on a traditional bank, Maker enables you to borrow their own stablecoin called $DAI, by staking your jewellery (ETH) as the collateral, and therefore in the case of this analogy you can begin your home renovations using the borrowed money for example.
To maintain the stability of $DAI, Maker employs the $MKR token as a mechanism to guarantee that one $DAI is always valued at one USD. In the event of a significant risk to the system, such as a security breach or a decline in collateral value, Maker implements measures to safeguard the platform's integrity. This process is known as ‘global settlement’ where outstanding loans are resolved and collateral is used to address any remaining obligations.
Overall with its technology Maker has become one of the largest, most well-established dApps on the Ethereum blockchain and it holds a considerable percentage of the total liquidity in the Defi ecosystem. I really look forward to seeing how Maker continues to carry on developing its infrastructure, expanding its use cases / utilities and continuing to progress the Defi landscape in the future. Show Less
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