Foundational · v0
MakerDAO
CDP-backed DAI stablecoin. On-chain repo desk with code-enforced margin calls.
TradFi →Collateralized repo + currency board
Prerequisites
01 · Concept — what problem does it solve?
DeFi needs a dollar that doesn't depend on a bank. MakerDAO mints DAI, a soft-pegged , against overcollateralized on-chain debt positions — a repo desk where the borrower is anonymous, the haircut is enforced by code, and margin calls are executed by keepers instead of a credit officer.
02 · Mechanics
- Vault (): lock collateral (ETH, wBTC, tokens…), mint DAI up to the collateral ratio floor.
- Stability fee: continuously compounding interest on minted DAI, set by MKR governance per collateral type.
- Liquidation: if CR falls below the liquidation ratio, the vault is auctioned (collateral sold for DAI) plus a penalty (~13%).
- Peg defense: DAI Savings Rate (DSR) modulates demand; the Peg Stability Module swaps USDC↔DAI 1:1 at the margin.
03 · Formulas
// collateralization ratio — must hold
CR = (collateral · price_oracle) / debt ≥ LR
e.g. LR(ETH-A) ≈ 145–170% over time
// stability fee accrual (per-second compounding)
debt(t) = debt₀ · (1 + fee)ᵗ
// max mintable DAI
DAI_max = collateral · price / LR
04 · Edge cases & risks
- Black Thursday (Mar 2020) — ETH −50%, spiked, keepers stalled; zero-bid auctions liquidated vaults for ~$0. Led to auction redesign (Liquidations 2.0).
- risk — the whole system is downstream of the price feed; Maker uses delayed (1hr) oracle security modules to allow reaction time.
- Governance risk — MKR holders control parameters; a malicious vote could mint unbacked DAI (mitigated by the GSM pause delay).
- Emergency Shutdown — final backstop: freeze system, let DAI holders redeem collateral pro-rata.