MakerDAO Overview (SUMMARY) ⤵️ Full Version

MakerDAO is a key player in the decentralized finance space, known for its Dai stablecoin, pegged to the US dollar and backed by a mix of cryptocurrencies.

It is minted on the Ethereum blockchain (and bridged to almost every chain), using smart contracts for management.

Its approach to Dai's stability involves Collateralized Debt Positions (CDPs), stability fees, and automated mechanisms.

Key Points:

• Dai Stablecoin: Maintains a 1:1 value ratio with the US dollar.

• Decentralization: Operates on the Ethereum blockchain.

• Smart Contracts: Manages operations through complex smart contracts.

Use Case

• DeFi Ecosystem Integration: Integral in DeFi applications.

• Yield Farming and Liquidity Pools: Used for yield farming strategies.

• Lending and Borrowing Platforms: For borrowing against crypto assets or lending Dai.

• Collateralized Debt Positions (CDPs): Locking up Ethereum or other assets to mint Dai.

• Governance and Voting: Dai holders participate in MakerDAO's governance.

• Merchant Adoption: Increasingly accepted by merchants.

• Remittances and International Transfers: Stable and decentralized for cross-border transactions.

• Smart Contracts and DApps: Integrated into various decentralized applications.

Adoption

• DeFi Platforms: Integrated into DeFi platforms like Compound, Aave, and Uniswap.

• Global Reach: Traction in regions with volatile currencies or capital controls.

• Partnerships and Integrations: Partnerships to expand Dai's utility.

• Community and Governance: Active community in governance.

• Institutional Interest: Growing institutional investment.

• Retail Adoption: Increasing use for transactions and savings.

• Educational Initiatives: Spreading DeFi and stablecoin awareness.

Revenue Model

• Real World Assets (RWAs): Significant revenue from RWAs.

• Stability Fees: Major revenue from stability fees associated with RWAs.

• Risk Considerations: Default risks with RWAs as collateral.

Competitors

• Frax Finance: Competing with yield-bearing stablecoin sFRAX.

• Other Competitors: Compound, Aave, Synthetix, Curve Finance, Uniswap.

Risks & Audits

• Stability Fee and Revenue Strategy: Transitioned to yield-generating assets like treasury bonds.

• Decentralization and Regulatory Exposure: Risks due to RWAs.

• Market Cap Decline and Adoption Challenges: Declining market cap and adoption issues.

• SubDAOs and Governance Complexity: Challenges in coordination and governance.

• Financial and Governance Concerns: Treasury reserves and cost management.

• Risks from Strategic Decisions: Risks with treasury reserve management and RWA exposure.

Summary

MakerDAO's evolution through its Endgame Plan highlights innovation and decentralization, facing challenges in governance complexity and market competition.

It's a pivotal player in DeFi, known for its stablecoin, governance model, and platform integration.

Always remember, this is Not Financial Advice (NFA), and Do Your Own Research (DYOR) is essential.

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MakerDao Thesis

MakerDAO Overview

MakerDAO stands as a beacon in the decentralized finance (DeFi) space, primarily recognized for its innovative Dai stablecoin.

Pegged to the US dollar, Dai offers a stable value in the often volatile cryptocurrency market. The backbone of MakerDAO's operation is the Ethereum blockchain, where it utilizes intricate smart contracts to manage its ecosystem.

A standout feature of MakerDAO is its implementation of Collateralized Debt Positions (CDPs), alongside stability fees and automated feedback mechanisms, which collectively ensure Dai's unwavering value.

Key Highlights:

• Dai Stablecoin: Strategically designed to maintain a 1:1 value ratio with the US dollar, providing a stable digital currency in the fluctuating crypto world.

• Decentralization: Rooted in the Ethereum blockchain, MakerDAO embodies the essence of decentralized control, free from traditional financial institutions' influence.

• Smart Contracts: Complex and automated contracts are pivotal in managing the various aspects of the platform, from issuance to stability mechanisms.

Use Cases of MakerDAO

MakerDAO's Dai stablecoin is intricately connected to the DeFi ecosystem, serving a multitude of purposes:

• Yield Farming and Liquidity Pools: Dai's stability makes it a popular choice in yield farming, where it's used to provide liquidity in return for potentially lucrative rewards.

• Lending and Borrowing Platforms: Dai serves as a trustworthy medium for users looking to borrow against their crypto assets or lend their holdings to earn interest.

• Collateralized Debt Positions (CDPs): This innovative feature allows users to lock up Ethereum or other assets to generate new Dai, providing a method to leverage cryptocurrency holdings creatively.

• Governance and Voting: Holding Dai equates to having a say in the governance of the MakerDAO ecosystem, influencing vital decisions about the platform's future.

• Merchant Adoption: Its price stability turns Dai into a preferred cryptocurrency for merchants, offering an alternative to more volatile options like Bitcoin.

• Remittances and International Transfers: In regions with unstable currencies, Dai offers a dependable option for remittances and international transactions.

• Smart Contracts and DApps: Dai's integration into various decentralized applications showcases its versatility and broad applicability.

MakerDAO Adoption

MakerDAO's Dai stablecoin is currently well-adopted:

• DeFi Platform Integration: Dai is a cornerstone in many DeFi platforms, facilitating transactions, lending, and borrowing.

• Global Reach: It has become a go-to digital currency in regions plagued by currency volatility, providing a semblance of financial stability.

• Partnerships and Integrations: MakerDAO's collaborations with blockchain and fintech companies have enhanced Dai's accessibility in payment systems and other financial services.

• Community Engagement in Governance: The active participation of the MakerDAO community in governance reflects a deep-seated trust and commitment to the platform.

• Institutional and Retail Interest: The stability of Dai has garnered attention from both institutional investors and retail users.

• Educational Initiatives: MakerDAO is committed to spreading knowledge about DeFi and stablecoins, thereby nurturing an informed user base.

Protocols Using Dai

Dai's adoption across various protocols demonstrates its central role in the DeFi ecosystem:

1. Spark Protocol: A decentralized finance (DeFi) lending platform, Spark Protocol leverages MakerDAO's credit facility and integrates Dai.

   This integration has contributed to a significant increase in the total value of assets locked in the protocol, reflecting the strong utility and trust in Dai within the DeFi lending space​​.

2. Chainlink Integration for Stability: MakerDAO has onboarded Chainlink's smart contract automation into its Keeper system, which is crucial for maintaining the stability of the Dai stablecoin.

   Chainlink Automation is responsible for tasks like price updates, liquidity balancing for the Dai Direct Deposit Module (D3M), and debt ceiling upgrades for assets held as collateral.

   This integration underscores the importance of accurate and reliable data feeds in ensuring Dai's stability​​​​.

3. Dai Savings Rate (DSR) Contracts: Accessible through Oasis Save and integrated into other projects like the OKEx marketplace and the Argent wallet, the Dai Savings Rate contract allows Dai holders to earn interest on their holdings.

   This feature has been instrumental in propelling financial freedom and control for Dai users and has been a game-changing addition to the DeFi movement​​.

These examples demonstrate Dai's versatility and its critical role in various aspects of the DeFi ecosystem, from lending platforms to data integration and savings mechanisms.

MAKERDAO REVENUE MODEL

MakerDAO's Revenue Model (2023)

2023 marks a significant evolution in MakerDAO’s revenue model, with a notable shift towards Real World Assets (RWAs).

This strategic pivot is expected to diversify the revenue streams of MakerDAO, introducing a new dimension of financial operations and risk management.

Treasury

Investment in U.S. Treasury Bonds

MakerDAO's purchase of U.S. Treasury bonds is a significant strategic move in the realm of decentralized finance. Here's a detailed explanation:

Initial Investment and Expansion Plans:

• MakerDAO initially invested in government and corporate bonds, totaling $1.1 billion, via a vault managed by asset manager Monetalis Clysdale.

• Following this, MakerDAO, governed by its community, approved a proposal to open a new real-world asset (RWA) vault named BlockTower Andromeda. This vault is dedicated to investing up to $1.28 billion in short-dated U.S. Treasury bonds, funded by Maker’s overcollateralized DAI stablecoin. BlockTower Capital is the crypto asset manager for this vault.

• For the execution of this plan, MakerDAO pays a 0.15% arranger fee to BlockTower, with Celadon Financial Group acting as a broker and Wedbush Securities as the custodian of the assets​​​​.

Strategic Shift and Yield Generation:

• In 2022, MakerDAO decided to diversify the assets backing its stablecoin, DAI. This shift involved moving away from cryptocurrencies to more stable and traditional financial instruments like short-term U.S. Treasury and corporate bonds. This decision was influenced by the extreme downturn in the crypto market during the previous year, prompting MakerDAO to seek more stable yields.

• As part of this strategy, MakerDAO had plans to double its investment in short-term U.S. Treasuries to up to $6 billion, following the success of its initial investments. This expansion was seen as a move to boost the backing for its $5 billion stablecoin DAI and to enhance protocol revenues by investing in yield-generating strategies​​​​​​.

Impact and Financial Stability:

• The decision to invest in U.S. Treasury bonds came after MakerDAO’s governance coin, MKR, reached an 18-month high, evidencing the success of its initial foray into traditional financial instruments. This move underscores the growing demand among crypto-native entities like DAOs for traditional financial instruments as a means to earn stable yields.

• The investment in U.S. Treasuries is part of MakerDAO's broader plan to weather market volatility and provide a more stable backing for its DAI stablecoin. The protocol's ability to adapt and diversify its investment strategies has been a key factor in its resilience and growth​​​​.

In-Depth Analysis of MKR Token

The MKR token is a cornerstone of the MakerDAO ecosystem, serving a multipurpose role in governance, risk management, and as an investment vehicle.

Its market dynamics, influenced by the broader DeFi environment and MakerDAO's internal policies, make it a complex yet integral component of the ecosystem.

Initial Token Distribution:

• Founders & Project: 69.50%

• Team: 15.00%

• Seed Round 1: 4.00%

• Seed Round 2: 6.00%

• Seed Round 3: 5.50%​​.

Supply Schedule:

• MakerDAO started with 1,000,000 MKR tokens.

• The total supply can fluctuate:

  • Increases if the system runs a deficit and needs to dilute MKR as a recapitalization source.

  • Decreases as MKR is destroyed in exchange for excess Dai from the system’s surplus​​.

Funding Rounds:

• December 2017: Raised $12M, average price of $300.

• April 2019 (first round): Raised $15M, average price of $250.

• April 2019 (second round): Raised $27.5M​​.

MKR Emissions under the Endgame Plan:

• Annually, 60,000 MKR is emitted to benefit its subDAOs.

• 5,000 MKR is also emitted each year for incubating new SubDAOs and decentralized workforce bonuses​​​​.

Smart Burn Engine:

• Accumulates Elixir using Maker Core protocol surplus.

• Used for buying and burning undervalued MKR according to a valuation model​​.

Roles of MKR Token:

• Governance: Holders participate in decision-making, with voting power proportional to MKR held.

• Risk Management: Essential for managing the Maker’s risk, including auctioning MKR to cover losses and maintain stability.

• Stability Fees: Paid by users generating DAI stablecoins, incentivizing MKR holders to maintain system stability.

• Token Burning: Occurs to reduce total supply, maintaining scarcity and potential value increase.

• Governance Rewards: Active MKR holders participating in governance may receive rewards​​.

MakerDAO Governance

MakerDAO's governance is a paradigm of decentralized decision-making, driven by the community of MKR token holders.

This democratic model fosters a transparent and inclusive environment for protocol development, although it faces challenges such as voter engagement and the influence of large stakeholders.

MakerDAO's Organizational Changes in 2023

2023 is a year of transformative change for MakerDAO, aligning with the visionary “Endgame” plan.

The transition towards a metaDAO structure symbolizes a deeper commitment to decentralization and community-driven governance, albeit accompanied by significant operational challenges.

MakerDAO Competitors

MakerDAO operates in a dynamic DeFi landscape, contending with platforms like Compound, Aave, Synthetix, Curve Finance, and Uniswap.

Each competitor brings unique offerings to the table, creating a vibrant and competitive environment in the DeFi space.

Risks & Audits of MakerDAO in 2023

1. Runtime Verification:

   • Focus: Creating high-level formal models and specifications for the MCD core.

   • Activities: Reviewed DSS source code, developed K specification, reproduced issues found in other reviews, and implemented a random tester and bounded model checker.

   • Outcomes: While more focused on building specifications than traditional code audit, it identified several code improvements and integrated known bugs.

2. Trail of Bits (ToB):

   • Focus: Conducted a comprehensive audit of MCD smart contracts.

   • Approach: Included manual review, automated analysis, and development of bespoke tooling.

   • Findings: Uncovered two medium-severity issues, four low-severity issues, and eight informational security issues.

   • Contributions: Developed specialized security analysis tools tailored to the MCD codebase and noted the effectiveness of formal verification in mitigating basic vulnerabilities.

3. PeckShield:

   • Background: Had previously identified the Maker DSChief vulnerability.

   • Focus: Performed a formal audit of the MCD system.

   • Findings: Identified one high-severity issue, one medium-severity issue, four low-severity issues, and 10 informational security issues.

   • Recommendations: Emphasized the value of conducting multiple independent audits and maintaining a public bug bounty program for enhanced security.

Each auditor brought unique expertise and methodologies to the table, collectively contributing to a thorough and multi-faceted evaluation of the MCD system's security.

The risk profile of MakerDAO in 2023 is multifaceted, encompassing strategic, operational, and market-related risks.

These range from revenue strategy adjustments and regulatory challenges to governance complexities and financial management concerns, necessitating vigilant risk assessment and mitigation strategies.

MakerDAO Summary

MakerDAO's journey through the DeFi landscape is marked by innovation, adaptation, and resilience.

Its Dai stablecoin serves as a linchpin in various DeFi applications, with widespread adoption and integration.

The platform's evolution, especially through the Endgame Plan, highlights its commitment to staying at the forefront of DeFi innovation, despite facing challenges in governance and market competition.

Note: This is Not Financial Advice (NFA), and readers are always encouraged to Do Their Own Research (DYOR).

SOURCES

1. Corporate Finance Institute: MakerDAO and DAI Overview

2. Crypto.com: What Is MakerDAO (DAI)?

3. AMBCrypto: MakerDAO's Revenue in 2023

4. Shrimpy Academy: MakerDAO Tokenomics

5. MakerDAO Governance: MakerDAO Governance 101

6. The Currency Analytics: MakerDAO's DAI on Ethereum Blockchain

7. CoinDesk: Spark Protocol and DAI Integration

8. MakerDAO Blog: Use Cases of DAI

9. Maker Tokenomics on CoinGecko: https://www.coingecko.com/en/coins/maker/tokenomics

10. MKR Tokenomics - Maker Endgame Documentation: https://endgame.makerdao.com/en/tokenomics/mkr

11. MakerDAO (MKR) Tokenomics and Roadmap - Pintu Academy: https://academy.pintu.co.id/makerdao-mkr-tokenomics-and-roadmap/

12. CoinDesk - MakerDAO Paves Way for Additional $1.28B U.S. Treasury Purchase

13. 24/7 Wall St. - MakerDAO Weathered Volatility With US Bonds, Plans to Buy $6B More

14. IMMUNEFI Bounty

15. Audit Reports: Here