Maker
$677.59 0.37%
MKR · 7w

Just curious, could the gray area mentioned in the article pose any threat to the concept?

MakerDAO’s stablecoin, Dai, seems to be doing well despite Ether's price fluctuations. But MakerDAO is more than just a stablecoin; it appears to be a lending service, albeit lending virtual currency that can be exchanged for fiat. It's not clear that it's licensed as such.

Many have argued that stablecoins are the key to cryptocurrency's mass adoption.

The reasoning is that the price volatility of most digital currencies, such as Ether and bitcoin, presents too much of a risk for payment processers, banks, businesses, and lenders. It's also fair to say that most consumers would prefer to know how much their money is worth so that they can be reasonably confident their rent will cost the same this month as it did last.

How MakerDAO Works

MakerDAO is the creator of Dai, a decentralized stablecoin pegged to the US dollar and used for Ether-backed loans. There are a lot of stablecoins out there, but what makes Dai different is that rather than being "backed" by USD in a third-party bank account somewhere, it's backed by Ether held in a "collateralized debt position" (CDP), a MakerDAO-created an EDCC (or smart contract).

This is how Dai works at its most basic: You put a certain amount of Ether into the CDP. For the sake of simplicity, let's say it's 1 ETH. Let's say, again for simplicity's sake, that at this time, 1 ETH is worth $500 (optimism, folks). The CDP then holds your ETH as collateral and issues you a loan/line of credit in Dai.

You would not get the full $500 worth of Dai, though, because something needs to be held as collateral against the loan/line of credit, and the price of ETH fluctuates. Because of this fluctuation, your collateral must always be at least 150 percent of your loan. So maybe you get $300 worth of Dai. You can then convert that Dai to USD and purchase whatever you'd like.

Your ETH then stays locked in that contract until you pay back the Dai, or until the value of ETH drops below 150 perc...

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