Glossary · M
MakerDAO
One of the oldest DeFi protocols, responsible for the DAI and USDS stablecoins. Users lock collateral (ETH, wBTC, RWAs) into Maker Vaults to mint DAI. MakerDAO rebranded to Sky in 2024 and introduced the USDS stablecoin and SKY governance token.
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How MakerDAO works in practice
MakerDAO created the first widely used decentralised stablecoin, minted as debt against collateral locked in vaults rather than against fiat reserves. Its governance sets which collateral is accepted, at what ratios, and what interest debt accrues.
Worked example
Locking ETH in a vault lets you mint the stablecoin up to a collateralisation ratio. Repaying the debt plus its accrued stability fee burns the tokens and releases the ETH. Total supply equals the sum of everyone's outstanding debt.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
The stability fee accrues continuously, so closing a position costs more than was minted. Governance can also change collateral requirements and fees on live positions, which is why timelocks matter.
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MakerDAO: common questions
- What is MakerDAO?
- One of the oldest DeFi protocols, responsible for the DAI and USDS stablecoins. Users lock collateral (ETH, wBTC, RWAs) into Maker Vaults to mint DAI. MakerDAO rebranded to Sky in 2024 and introduced the USDS stablecoin and SKY governance token.
- How does MakerDAO work in practice?
- MakerDAO created the first widely used decentralised stablecoin, minted as debt against collateral locked in vaults rather than against fiat reserves. Its governance sets which collateral is accepted, at what ratios, and what interest debt accrues.
- Can you give an example of MakerDAO?
- Locking ETH in a vault lets you mint the stablecoin up to a collateralisation ratio. Repaying the debt plus its accrued stability fee burns the tokens and releases the ETH. Total supply equals the sum of everyone's outstanding debt.
- What do people get wrong about MakerDAO?
- The stability fee accrues continuously, so closing a position costs more than was minted. Governance can also change collateral requirements and fees on live positions, which is why timelocks matter.