Maker Protocol

The Maker Protocol is a decentralized credit platform built on Ethereum that enables users to generate Dai, a stablecoin soft-pegged to the US dollar. Users deposit cryptocurrency collateral (typically ETH or other approved assets) into smart contracts called Vaults, which then allow them to mint Dai against that collateral. The protocol maintains Dai's stability through a system of incentives, including stability fees paid by borrowers and savings rates offered through the Dai Savings Rate. Governance of the protocol is managed by MKR token holders, who vote on critical parameters like collateralization ratios and risk management decisions. Example: A user deposits 10 ETH into a Maker Vault when ETH trades at $2,000, providing $20,000 in collateral. They can then generate up to 13,000 Dai (maintaining a 154% collateralization ratio) and use those stablecoins for trading, lending, or spending while maintaining their long-term ETH position. Why it matters for DeFi: Maker Protocol pioneered decentralized stablecoin issuance, eliminating reliance on centralized custodians and enabling users to access liquidity without selling their crypto assets. This foundational infrastructure powers billions in DeFi activity and demonstrates how overcollateralization can sustain algorithmic stability mechanisms.

Explore the full Web3 Glossary — 2,062+ expert-curated definitions. Need guidance? Talk to our consultants.