What is MakerDAO? DeFi Protocol Guide

MakerDAO is a decentralised autonomous organisation and smart contract platform on Ethereum that issues and manages DAI — a decentralised stablecoin pegged to the US dollar through a system of overcollateralised debt positions. Founded by Rune Christensen in 2014 and launching its Single-Collateral DAI system in December 2017, MakerDAO is one of the oldest continuously operating DeFi protocols and a foundational piece of the decentralised financial ecosystem.

DAI is fundamentally different from centralised stablecoins like USDC or USDT: rather than being backed by actual dollar deposits in a bank account, each DAI is minted by a user who deposits cryptocurrency collateral worth more than the DAI they create. This overcollateralisation provides a buffer against collateral price declines, and the protocol's liquidation mechanism ensures that DAI remains fully backed even during sharp market downturns.

Collateralised Debt Positions and Vaults

The mechanism through which DAI is created is a Collateralised Debt Position (CDP), now called a Vault. A user deposits an accepted collateral asset — ETH, wBTC, stETH, LP tokens, and others — into a Maker Vault smart contract and receives DAI in an amount up to a protocol-defined percentage of their collateral's value. For example, with a 150% minimum collateralisation ratio, a user can create 100 DAI by depositing at least $150 worth of ETH.

If the value of the deposited collateral falls below the minimum collateralisation ratio (due to a declining collateral price), the Vault becomes eligible for liquidation. Keepers — automated bots monitoring the system — trigger liquidations and purchase the collateral at a discount through an auction process. The stability fee — an annual interest rate charged on outstanding DAI debt — is paid in MKR tokens, which are burned, creating a deflationary mechanism for MKR when the system operates profitably.

Multi-Collateral DAI and Real-World Assets

MakerDAO's transition from Single-Collateral DAI (backed only by ETH) to Multi-Collateral DAI in November 2019 significantly expanded the system's capacity and resilience by diversifying the collateral base. In subsequent years, MakerDAO has been at the forefront of integrating real-world assets (RWAs) into DeFi: the protocol now holds billions of dollars in US Treasury bills and other fixed-income instruments as DAI backing, accessed through institutional partners and trust structures.

This RWA integration has made DAI's backing partially centralised — US Treasuries are held by regulated entities subject to governmental jurisdiction — prompting significant debate within the Maker community about the appropriate balance between censorship resistance and capital efficiency. The stability fee income from RWA vaults has, however, made Maker one of the most profitable DeFi protocols, generating substantial revenue for MKR holders.

The Sky Rebrand and Endgame

In 2023, MakerDAO founder Rune Christensen introduced the 'Endgame Plan' — a comprehensive restructuring of Maker's governance and product architecture. As part of Endgame, MakerDAO rebranded to Sky, with the MKR governance token migrating to SKY and DAI evolving toward USDS (Sky Dollar). The Endgame plan also introduced 'Sky Stars' — semi-autonomous sub-DAOs each responsible for a specific product or market segment within the Sky ecosystem.

Sky/MakerDAO remains one of the largest and most important DeFi protocols by any measure: DAI consistently ranks among the largest decentralised stablecoins by market capitalisation, and the Maker protocol's governance processes — conducted through on-chain MKR votes — represent some of the most consequential decisions in decentralised finance, affecting billions of dollars in TVL and the DAI peg that countless other DeFi protocols depend upon.