MakerDAO is “Decentralized Autonomous Organization” (“DAO”) operating on the Ethereum blockchain. MakerDAO permits the creation of a decentralized ‘stablecoin’ on Ethereum called Dai.
A stablecoin is a token that seeks to eliminate price volatility, effectively tracking the price of a fiat currency like the US dollar. 1 Dai = 1 USD.
Dai is an Ethereum ERC20 token that is pegged to $1 USD — every Dai is worth $1,
Dai is created by users borrowing against locked collateral and destroyed when loans are repaid. Anyone can create new dai by depositing ether as collateral and drawing an appropriate amount of dai. Locked collateral can be recovered at any time by paying back the borrowed dai (plus a stability fee). Thus, all dai in circulation is at all times backed by at least as much collateral. You can also exchange for Dai at both traditional exchanges and decentralized exchanges.
How to Use MakerDAO
Using MakerDAO may seem difficult for any newbie. To use MakerDAO, I will put it simple:
- Wrap your Ether to get WETH (Wrapped Ether)
- Switch that WETH for PETH (Pooled Ether)
- Open a CDP (Collateralized Debt Position)
- Lock PETH into the CDP
- Draw DAI from the CDP
All these steps are done simply on the MakerDao site (https://dai.makerdao.com)