EP 53: The Mechanism Design of Maker (DAI and MKR) | The OG #StableCoin

In line with our recent focus on stablecoins, today we're going
to explore the OG onchain stablecoin: MakerDAO. We will dive
deeper into the economics of Maker, and understand how the $DAI
ecosystem works.


MakerDAO is a novel and innovative protocol that allows for
on-chain collateralised borrowing, while also creating a
reasonably effective stablecoin. This gives the crypto community
an alternative to fiat-backed stablecoins like $USDT.
Furthermore, $MKR holders continue to make continual improvements
to the protocol, that make MakerDAO better.


MakerDAO is an alternative source of leverage. Because it is an
alternative way to gain access to leverage for those who do not
wish to custody assets with a centralised exchange. Borrowing
from Maker could also be cheaper when stability fees are low.


Any losses incurred by $DAI holders are backstopped implicitly by
$MKR holders, who will be diluted in case the system as a whole
becomes under-collateralised. This is a major advantage that
Maker has versus other lending platforms on the market, where any
losses are borne by the lender.





0:00 – Intro & Contents


0:34 – Analysing Maker


2:01 – Maker's Dual-Token Mechanism


3:42 – Maker's Reserve Mechanism


4:35 – Creating $DAI: How it works


6:47 – Maintaining Stability


11:40 – How Maker deals with market crashes


13:07 – Opinion: Maker vs Lending/Borrowing


14:38 – Opinion: Transparency


15:45 – Opinion: Multi-collateral & Past performance





Want more in-depth content?


1) Support us on our Patreon: www.patreon.com/economicsdesign


2) (Textbook) The Economics and Math of Token Engineering and
DeFi https://book.economicsdesign.com/


3) Academy: https://academy.economicsdesign.com/


4) Newsletter: https://economicsdesign.substack.com


Connect with us and the ED community:


Discord – https://discord.gg/ZqgpzdbZP2


Twitter – https://twitter.com/econsdesign


Reddit – https://reddit.com/u/economicsdesign