Cryptocurrency in Focus: Maker-ing Decentralized Finance Possible

MakerDAO is the darling of the decentralized finance movement. Unlike its competitors, it’s backed not by other government-issued currencies, but by other crypto currencies.

MakerDAO’s currency, DAI, falls into the category of the so-called “stablecoins.” That means it’s supposed to serve as an alternative to established currencies such as the U.S. dollar. But while many competing crypto “stablecoins” on the market are backed by “fiat” reserves of government-issued currencies, the DAI stablecoin is backed by other crypto currencies, Ethereum (ETH) and, now, the Basic Attention Token (BAT).

This means MakerDAO has in effect created a “crypto-backed” stablecoin controlled by a unique DAO governance structure that is enabling a broad “tokenized” economy that can exist solely on the blockchain.

But to better understand MakerDAO, let’s dissect it a bit. Maker, or MKR, is a “governance” token in MakerDAO’s protocol. This token underpins the first crypto-backed stablecoin on Ethereum, called DAI. Previously, to generate DAI, users deposited ETH and received DAI in return, while getting charged a fee, kind of like interest. The currency is pegged to the U.S. dollar.

MakerDAO, the project, functions as a dual-token system, in which the MKR token behaves as a governance token to vote on proposals within the ecosystem, most commonly in regard to the DAI Stability Fee, and the DAI stablecoin is a product of the system’s loan mechanisms. MKR tokens are also minted or burned in accordance with price fluctuations.

This system, however, has now improved. The Multi-Collateral DAI (MCD) was adopted on Monday through an executive proposal. The Basic Attention Token (BAT) can now be used along with ETH as collateral to generate DAI stablecoins in MakerDAO CDP contracts. The old single-collateral stablecoin will be renamed to SAI (single-collateral DAI), and the new MCD version will bear the flagship DAI name.

This new MCD system also introduces opportunities…

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