Sky (SKY and USDS)

Stability protocol. Maker is comprised of a stablecoin, collateral loans, and decentralized governance.

Basics

• Based in: The Foundation used to be located in Denmark. According to their website (18-1-2021) this has changed into the Cayman Islands:

"The various entities associated with the Maker Foundation are currently held under the Maker Ecosystem Growth Foundation (MEGF), a Cayman Islands foundation company limited by guarantee."

• Simple known as Maker.
• Started in: January 2018, but it started prior to the Ethereum mainnet.
• Network Layer, one of the building blocks on top of the Ethereum blockchain.
• ELI5 can be found here and a deeper break down of the vision here
• From this article (30-1-2020):

"Dai uses a governance mechanism to maintain its peg to the US Dollar. This mechanism would allow participants to vote on increasing or decreasing the supply of Dai; increasing supply if the price drifted too far upwards or decreasing it if the price slipped down from the peg. Simple supply-side economics predicts that an increase in an asset’s supply would reduce its price, while a decrease in supply would increase it.

This mechanism has proven extremely versatile, allowing Dai to [closely] maintain its peg despite the market crash of January 2018 and the volatility that followed However, the process is not as straightforward as adding or removing Dai from circulation. Instead, the system uses a number of risk parameters to maintain the peg – one of which, the Stability Fee, is used to organically manage the supply of Dai."

History

• Rebranded MKR to Sky (27-8-2024) and DAI to USDS.
• One of the oldest DAOs and arguably the start of DeFi. Also has a long history of insider issues.

 Audits & Exploits

• Bug bounty program can be found here. Max payout is $50,000 (29-6-2020).
• Used Certora's Prover tool with formal verification technology to complement/assist their manual audits (2-10-2022).
• Has, as of 4-2-2020, done 5 audits (three by Trail of Bits, one by White Hat Group and one by Bok Consulting).
• Scored 97% on DAOmeter (21-2-2023), only scoring a less then perfect score under voting, due to not having staking as a mechanism.
• Most reccently scored 81% on DeFi Safety (14-10-2021), again lower then before. With the comment: "More work in the access control information and general organization of materials will boost the score! 81% "
• Previousely scored an updated 84% (4-5-2020). It scored low on Access Controls.
• And before that it scored a 85% (9-2020); "Two detailed and comprehensive audits took place on the MakerDao contracts before deployment. Some vulnerabilities were found. We assume these were fixed, but actual evidence of the fixes were not seen. Overall an excellent securities effort."

Admin Key OpSec Risk Assessment

• Oasis claims to have turned off the admin keys (10-3-2023).
• Oasis turned out to have an admin key (25-2-2023):

"The @oasisdotapp admin controls that they self-hacked had a timelock, intended to delay any txs so anyone watching could see the queued malicious tx for hours/days before its mined. But - the timelock was configurable BY THE SAME MULTISIG. So they just removed it first."

They did it the counter exploit after getting court orders, setting a bad precedent for admin key usage.

• From DeFi Safety (11-2021):

"Maker's Governance and access controls documentations are clearly outlined in their docs.

a) All contracts are clearly labelled as upgradeable (or not) -- 30% -- contracts are labelled as upgradeable. b) The type of ownership is clearly indicated (OnlyOwner / MultiSig / Defined Roles) -- 30% -- governance is indicated as the owner. c) The capabilities for change in the contracts are described -- 30% -- there is detailed information as to what can change in these contracts.

A pause control is well documented, though there is no mention of testing. The GitHub repository seems to be mostly deprecated."

• The following information comes from a spreadsheet (4-2-2020) created by Chris Blec.

"Current Admin Key Config- Time Lock: Decentralized Gov

Current Admin Key Config- Multisig: Decentralized Gov

Claimed Admin Key OpSec: N/A

Verified Admin Key OpSec: No

Is security of deposited funds dependent on opsec of admin key?: No

Admin Key Address: N/A

Documentation on Admin Key Powers: N/A

Additional Info (if any)?Risk due to decentralized governance mechanism"

Bugs/Exploits

• MakerDAO deployer keys on Optimism and Arbitrum networks were compromised (9-2024) thanks to the good ole’ Profanity vanity generator bug.

Governance

• From a Blec Report (19-1-2023):

"Coinbase’s proposal to custody one-third of MakerDAO’s USDC was approved by MakerDAO in October 2022. One of the more concerning details that surfaced during a recent “legal review” was the fact that Coinbase stated it would need to retain “a 10 hour window to veto a withdrawal of USDC by Maker governance”. How can DAI possibly call itself decentralized if is not only primarily backed by centralized stablecoins, but it doesn’t even have access to those centralized stablecoins without the kind permission of a centralized custodian? Obviously, it can’t."

• From Crypto Briefing (15-8-2020):

"The original DeFi protocol, MakerDAO, is an established player and a pioneer of on-chain governance. Recently, the Maker Foundation migrated control of the MKR token over to the community. Unlike the Synthetix Foundation, the Maker Foundation didn’t dissolve. Instead, it was demoted to being just another governance participant. Changes to the Maker protocol is in the hands of token investors. Implementation of a proposal is only possible after ratifying it with on-chain votes. The DAO is now the sole decision-maker for Maker’s risk parameters and collateral asset inclusion.

However, voter apathy runs rife in the Maker ecosystem, with an average of less than 5% of tokens taking part in votes. Most votes get unilaterally swung in a particular direction because of whales with significant influence. Funds like a16z and Polychain Capital hold a substantial amount of MKR supply."

• From Footprint Analytics: Maker Dao's visual dashboard
• The Endgame proposal by Rune got accepted (10-2022) by governance but not without loads of criticism (26-10-2022):

"Only 15% of circulating MKR, Maker’s governance token, was mobilized to vote. Moreover, votes delegated by Christensen represented nearly three quarters of those cast. “The Endgame Plan is an exceptionally bad proposal, and it’s really sad for Maker that it passed the signal (shoved through by [Rune Christensen] single handedly in face of strong and justified criticism),” said Hasu, a MakerDAO governance delegate and strategy lead at Flashbots.

In Endgame, Christensen lamented that Maker’s decentralized governance was failing due to voter apathy, competing factional interests, and the increasing complexity of MakerDAO’s operations. He called for reorganizing Maker into a series of self-sustaining MetaDAOs that will autonomously develop their own business models and growth strategies and operate in parallel. Each MetaDAO will have its own token and voting committees, with tokens issued through yield farming to incentivise governance participation. The structure will also allow Maker to compartmentalize and manage risky activities such as real-world asset lending by designating the specific MetaDAOs. MakerDAO will now launch six MetaDAO “clusters” tasked with developing the governance process for MetaDAOs. Maker will also create a “Protocol-Owned Vault” tasked with accumulating stETH, and expand the scope of the project’s DAO-based governance to include issues relating to MetaDAOs. The proposals also transfer governance over onboarding and offboarding collateral assets from Maker’s existing governance structure to its Strategic Finance, Risk, and CES Core Units.

With the passing of poll#882, MakerDAO is expected to vote between three different strategies for managing its RWA exposure and DAI’s peg: “Pigeon Stance”, “Eagle Stance”, and “Phoenix Stance.”

Under Pigeon Stance, which assumes the threat of regulation is low, no limit would be placed on Maker’s RWA exposure and DAI’s peg to the dollar would be maintained for at least two-and-a-half years.

Eagle Stance would result in DAI become free floating after the same period, possibly alongside a “negative target rate” intended to reduce demand for the token. Phoenix Stance would prohibit any RWA exposure “to ensure maximal protection against regulatory crackdown.”"

• From Dose of DeFi (27-5-2022):

"Dai traded stubbornly above its peg for months after Black Thursday. Dai borrowers didn’t want to buy Dai above $1.00, and there were no borrowers to mint new Dai. Given the circumstances – the price of a barrel of oil traded below $0 during this time – it’s not surprising that market makers and arbitrageurs were not there to defend the Dai peg.

To solve the issue once and for all, Maker implemented the Peg Stability Module (PSM), which essentially is a modification to the protocol that always offers a 1:1 conversion between Dai and USDC. Maker learned the hard way an inescapable fact of stablecoins: access to dollar liquidity from the banking system is paramount to maintaining a peg."

Admin Key

• USDS will have a freezing function (27-8-2024). In addition, the Sky official website after upgrading from MakerDao also has a function that prohibits the use of VPN login, which is suspected to block some areas on the front end.

Three Part system

• From one of their blogs:

"There are three parts to Maker: the Makercoin holders that make up its government, the Keepers who “mine” margin calls and arbitrage opportunities, and the CDP '(Since 11-2019 called Vaults) engine. Each piece supports the other to create the Maker leverage platform and its stablecoin, dai:

1. Decentralized Governance model: “Maker has a governance token called Makercoin (MKR) which is used for voting on proposals. Voting is weighted based on MKR holdings. Reward comes from weekly buy-and-burns, in which Maker uses its profits to buy back MKR from MKR holders. Any bought-back MKR gets destroyed, lowering the overall supply of MKR and driving up the price for those still holding.”
2. Keeper: Right now Keeper is nothing more than a Docker image with a few programs that help keep the Collateralized Debt Position engine running. In particular, Keeper provides price feeds for Maker and performs margin calls on undercollateralized debt positions. We also plan on adding programs to help maintain other DAOs, such as the Ethereum Alarm Clock. Since Keepers are rewarded for these services, Keeper can be thought of as a sort of “meta-miner.” We eventually want to provide for sale a Raspberry Pi pre-loaded with the Keeper image to make the barrier to entry as low as possible, and to also help fund further Keeper development.
3. The Collateralized Debt Position Engine: The CDP engine helps dai maintain its peg with the IMF‘s Special Drawing Rights. It incentivizes untrusted, anonymous actors to drive the price of dai toward the price of SDRs. It also provides a platform by which those bullish on Maker-supported cryptocurrencies (such as ether or bitcoin) may take leveraged long positions on those currencies without having to trust an exchange. Collateralized Debt Positions on the Ethereum blockchain consist of some locked amount of cryptocurrency and some amount of issued dai. When one opens a CDP, the CDP issues one an amount of dai of lesser value than the cryptocurrency one locks up in the CDP. If one provides 150 dai worth of bitcoin for a CDP at 150% collateralization, for example, the CDP will create 100 dai for one out of thin air. One may then close out the CDP at any point in the future by paying in the amount of dai issued, which then returns to one the underlying collateral. To build on the previous example, 100 dai would release one’s bitcoin collateral. The 100 dai would then be destroyed. One caveat: there is a 2% APR associated with CDPs. If one wishes to close out a CDP which issued one 500 dai a year ago, for example, one must provide 510 dai. The 500 dai is destroyed as usual, while the extra 10 dai goes into Maker’s profit reserves.

In return for the significant value that the limited default insurance gives to the holders of DAI bonds, Makercoin holders earn a continuous insurance fee that is equal to 4% of all outstanding DAI bonds per year (The insurance rate varies over time depending on market conditions and user growth elasticity in order to maximize Makers income). This fee is transferred into the market cap of MKR through the use of a buy&burn contract that continuously buys up MKR from the market and burns it, reducing supply and increasing market price. This means that MKR will see a steadily decreasing supply and a steadily increasing market cap over time, except in situations where the Dai Credit System hasn't been properly governed and the debt ceiling for one or more risky collateral types has been set too high.

Makercoin holders are able to directly influence the governance of Maker and the Dai Credit System through a futarchy-like governance scheme. They are also able to indirectly influence the system by buying and selling based on how well they believe the risk parameters are set (i.e. a MKR holder who sees the debt ceiling of a risky asset type being raised to unsafe levels would want to dump their MKR as soon as possible to avoid the risk of forced inflation).

The result is that MKR is an extremely risky asset, but with a significant cash flow as long as its owners are able to competently set the debt ceilings of the Dai Credit System, and proactively vote or sell their MKR if the debt ceilings are mismanaged."

• From Token Tuesday (17-3-2020):

"Should a Vault fall below the required 150% collateralization ratio, the position is automatically liquidated, with a 13% penalty applied. The collateral stored in a Vault is then auctioned off to buy-back the lost Dai, generally resulting in the borrower losing ~50% of their collateral in the process."

• More on Maker Governance risk here

DAO

• Has Flipside, GFX Labs, Llama, Reverie, Stablenode (its founders come from the Maker Mafia) and Gauntlet as some of their professional delegates (30-11-2022).

Multi Collateral Dai

SAI

• In single collateral Dai (now called SAI), the MKR token is primarily used for two things, stability fees and governance. In single collateral Dai, MKR holders determine the stability fee. In multi-collateral dai (MCD) or later just DAI, governing rights will expand into deciding which assets can be used as collateral in CDPs. A post-migration write-up can be read here (31-1-2020).
• Over 70% of the Sai supply has been migrated to Dai so far (12-2019) Update: ~98% of the Sai supply has been migrated to Dai so far (12-1-2020).
• Update (29-4-2020): Maker is shutting down SAI.

Tokens in Multi Collateral DAI

• "Maker token holders have voted for which tokens will be prioritized in multi-collateral Dai; according to the votes the priority list will be Ethereum, Augur, Basic Attention Token, 0x, DigixDAO, OmiseGo, and Golem; between 39 and 50 unique voters participated in voting for each asset"
• "Note (31-1-2020): even though the BAT vote was overwhelmingly in favor of adding the token (99.82%), it was not the first choice of the voters for the first new collateral on Maker. Augur’s REP token initially won the vote (figure 1.5), but Maker’s risk team assessment concluded that Augur’s impending v2 launch and the possibility of the REP token’s worth going to 0 was too risky to add it as collateral."
• From this tweet (25-9-2020): "Out of the 891M circulating DAI: 541M (~60%) are minted from vaults using tokens requiring trust, such as $wBTC, $PAX $USDC $TUSD"

USDC

• Makerdao issued an emergency proposal following the USDC depegging incident that saw the stablecoin dip down to $0.877 per unit. At the time of writing, Makerdao commands $3.1 billion in USDC collateral that backs a portion of the project’s stablecoin, DAI.

• From Decrypt (25-10-2022):

"MakerDAO voted to custody $1.6 Billion in USDC with Coinbase. The MakerDAO pilot will run through the end of 2022 before the community needs to vote on whether to keep its USDC with Coinbase next year."

Some decried it as the end of DAI's trustlessness.

• After Black Thursday, Maker also added USDC, a centralised stablecoin as collateral. This has made Maker a bit less decentralised compared to before. “We want to spread the risk of liquidation across a variety of assets,” Christensen said. “It’s a balancing act between centralization and black swan events.”
• From Our Network #25 (12-6-2020):

"USDC vaults have been utilized mostly by arbitrageurs trying to make yield on shorting Dai when Dai experienced price premium. We can see how USDC debt owners repaid their vaults as soon as increased minting activity happened by either ETH or WBTC vaults. This shows how important USDC vaults are when Dai supply isn’t met with demand and price deviates. Debt exposure dynamics of USDC vaults hence tells us a lot about equilibrium of Dai demand and supply."

• From this tweet (6-10-2020):

"USDC has passed ETH as the largest source of MakerDAO collateral. Required to create more DAI & keep the peg near $1."

WBTC

• BitGo announced it would spin out/share the custody with a different partner that is connected to Justin Sun (8-2024), this led to MakerDAO disabling (16-8-2024) wBTC within it's protocol plus Coinbase to anounnce cbBTC.
• As a result of an Executive Vote held on 3-5-2020, MKR holders have accepted WBTC (wrapped Bitcoin) as a new collateral asset in the Maker Protocol. The risk parameters can be found in this link. tBTC was also proposed (3-5-2020) as another collateral token.
• From Our Network #22 (22-5-2020):

"Earlier this week, Nexo took the final step and locked up their remaining 997.4 WBTC (~$9.2m USD) in Maker, as expected. And just yesterday, Nexo minted another 1.5k(!) WBTC - beating their last record. This latest mint ultimately made it into Maker as well. The result is a massive spike on the "WBTC in Maker" In fact, 68% of the total WBTC supply is now locked in Maker! The total WBTC supply over time - currently at 3,851 WBTC. Finally, the DAI minted against this WBTC has maxed out the debt ceiling for WBTC. At the time of writing, it's sitting at ~95%."

Other Token Collateral

• KNC and ZRX also got added (28-6-2020) as collateral. MANA followed (30-7-2020).

RWA Collateral

• The percentage of RWA assets—mainly comprising U.S. T-bills—for DAI collateralization has increased from 23.3% at the end of May to 35.1% by July 27, per Dai Stats data (28-7-2023). RWA assets are also the leading breadwinners for the protocol, accounting for 54% of its total revenue, per a Dune dashboard.

• From CoinDesk (23-4-2021):

""Real world" assets have entered DeFi, as the Maker protocol reportedly just minted $38,000 of dai stablecoins to finance a mortgage loan. The proposal, passed April 14 and executed two days later, allows the Tinlake blockchain protocol to serve as a bridge between New Silver, a real estate loan company, and MakerDAO. Two tranches of interest-bearing tokens will be issued under the Ethereum blockchain’s ERC-20 token standard – DROP and TIN – against non-fungible tokens (NFTs) based on individual deposits from New Silver."

MKR Token Transfer

• From their own blog (20-12-2019):

"In the Maker Protocol, the MKR token plays two roles. First, as the governance token of the system, MKR allows those who hold it to vote on changes to the Protocol. One MKR token locked in a voting contract equals one vote. Second, through the automated Auction mechanisms of the system, the supply of MKR will fluctuate. During a Debt Auction, MKR is created by the Protocol and sold for Dai to cover outstanding debt, thereby increasing the total supply of MKR. By contrast, during a Surplus Auction, the Protocol sells surplus Dai for MKR, which the Protocol destroys, thereby decreasing the total supply of MKR.

Given the importance of MKR to a healthy and functioning Maker Protocol, safeguarding the MKR token contract has historically been the responsibility of the Maker Foundation. The plan from day one has been to transfer MKR token control to Maker governance shortly after the launch of Multi-Collateral Dai (MCD). With MCD released and the Protocol functioning as expected, the transfer of authority has now been scheduled. 

Beginning on December 20, control of MKR token will be handed to the contracts, and therefore to the governance community, in steps as we continue on the path to decentralization. The Foundation will share control of the token with the contracts for about one month to ensure a successful handover. After that time, MKR token holders will be given full control, meaning that decentralized governance will be the only avenue for changing MKR token authorizations."

• Update (27-3-2020):

"The MKR token contract is now in complete control of MKR holders, claims the Maker Foundation. First initiated on Jan. 10, the process took just over three months to complete. According to the foundation, the MKR token contract is now 100% in control of MKR holders."

Stability Fee Voting

• Fee's have been increased up to 16.5%% in a series of voting rounds since the 1 dollar peg was not being maintained due to supply. It went up to 20% and then back down to 16.5% again in 9-2019.
• “On October 28 (2019), Daniel Onggunhao, a software engineer at Binance, revealed that the dai stability fee was reduced to 5.5%. “A single whale (with 94.7% of voting power) made the decision — Went from 2,489 votes a few hours ago, to 44,539 votes,” One person disagreed with Onggunhao’s initial tweet and said that he didn’t think there was a “single ‘whale’ with 97% voting power.” “There could be a voter that represents 97% of this particular vote""
• Update: as of 4-2-2020 the fee is 9%.
• After Black Thursday there was a Maker governance proposal (15-3-2020) to change DSR to 0 and Stability Fee to 0.5%, GSM to 4 hours, and a decentralized circuitbreaker for auctions:

"The Interim Risk Team is proposing a DSR of 0% and a Stability Fee of 0.5%. This change will result in a tiny DSR spread which may mitigate any potential incentive issues that might arise from a stability fee of 0%.

Additionally, the proposal also includes an SCD debt ceiling reduction to 20 million."

How is the Dai Savings Rate decided?

• From this article (30-1-2020):

"The MakerDAO governance system and selection of the Dai Savings Rate is a multi-step process that begins with the Maker Foundation issuing a poll to MKR token holders. The poll is used to gather opinions on a number of risk parameters including the DSR. Once a poll has closed (after 2-3 days), it can be used to influence a subsequent “Executive Vote” that, once passed by MKR token holders, implements the changes voted on.

Ultimately the DSR is determined by the system’s token holders and can be set within a range outlined by the Maker Foundation. This range is typically between 0.25% and 8.00% but is capable of going higher should the community deem it necessary."

Flash Loans and Time Delay

• After the Flash Loan exploit on Fulcrum, the Maker community voted in (19-2-2020) a 24 hour time delay between a proposal being ‘passed’ and a proposal becoming ‘active’:

"This immediately shuts down flash loans, because there is no way for an attacker to abuse the change that they voted in within the same block that they voted it in.

Outside of the use of flash loans or borrowed MKR generally, having a GSM delay means that for 24 hours (or the length of the delay), other MKR Holders can see what change will be activated, and react if it is malicious."

• From The Block (28-10-2020):

"A MakerDAO governance vote was passed earlier this week with the use of a flash loan by an outside party that wanted its proposal passed. Essentially, B Protocol’s team wanted to be white-listed in order to access the MakerDAO’s price oracle. So, they submitted a proposal to Maker’s governance structure in order to receive that approval on October 23.

Three days later, a multi-step transaction was created and processed that began with a borrowing of synthetic Ether, which was then used as collateral to borrow $7 million worth of MKR tokens, which are used to vote on proposals. The newly-borrowed MKR was used to pass the vote and then returned to the markets from which they were lent.

At this point, it doesn’t appear that what occurred with Maker and B Protocol was malicious in nature, and the post states that B Protocol has been fully transparent in communicating their actions once the Foundation became aware of the voting irregularities."

Hackernoon Rating 2019

• Was classified Degree 3 DeFi on the HackerNoon rankings of 25-4-2019. "These DeFi products are non-custodial, have permissionless initiation of margin calls, and permissionless provision of margin call liquidity, while centrally administering price feeds, centrally controlling interest rates, and centrally controlling platform developments and updates."
• A BIG side note, is that the blog was written by Kyle J Kistner who is Chief Vision Officer at bZx. He gave his own project the highest ranking. What a surprise.
• From their comprehensive blog post:

"Custody: MakerDAO smart contracts are open source and non-custodial from the point of loan origination.

Initiating Margin Calls: Margin monitoring and margin call initiation is permissionless, incentivized, and decentralized.

Margin Call Liquidity: Provision of liquidity is permissionless, decentralized, and incentivized.

Price Feeds: MakerDAO price feeds are semi-centralized and imputed by a consortium of addresses voted on by MKR holders. Manipulation of the price feed by the consortium is mitigated by a sensitivity parameter that prevents updates from being moved outside a bounded range. The MakerDAO price feeds should be considered more decentralized than Compound’s price feeds.

Interest Rates: Called “stability fees” in the MakerDAO ecosystem. Stability fees are interest paid by Vault holders. The stability fee is voted for by MKR holders. This is a semi-decentralized approach. It should be noted that currently, because of differences in interest rate determination, MakerDAO should be considered more decentralized than Compound, however the difference is nuanced.

Development: MakerDAO contracts are centrally developed and open source. The contracts are not mutable. The release of MCD will require migration to a new contract.

Development Fund

• MakerDAO does not have a on-chain self funding mechanism. However, The Foundation has a development fund which it plans to use entirely (18-1-2021):

"The Development Fund is held in a multi-signature wallet owned and managed by the board of the Maker Ecosystem Growth Foundation. The plan is to fully distribute the holdings of the Development Fund in the coming years, thus fully decentralizing the ownership of MKR tokens. The Foundation is prohibited by its corporate charter from voting in MakerDAO governance."

Treasury & PMS

• Maker DAO deployed 500M DAI with Coinbase for 2.6% annual rewards (10-6-2023).
• From The Defiant (25-1-2023):

"The MakerDAO community has greenlit a proposal to deposit $100M of USDC from its Peg Stability Module (PSM), which holds reserve assets backing the DAI stablecoin, into a tailor-made noncustodial Yearn vault. The debt ceiling of the vault will be set at $100M, with an estimated yield of 2% APY. Last week, Paxos proposed to infuse MakerDAO’s PSM with $1.5B of USDP. If approved, the move could potentially generate $70M annually for Maker. In September 2022, Coinbase proposed that MakerDAO deposit $1.6B in USDC from its PSM into Coinbase’s institutional platform, Coinbase Prime, for a yield of 1.5% APY."

That proposal was successfully passed the following month.

• From Week in Ethereum (8-10-2022):

"Maker DAO $1 million bond investment pilot; aims to invest $500 million, 80% in US Treasury & 20% in corporate bonds."

• From Crypto Briefing (3-5-2021):

"No less than $450 million were transferred to its community-led DAO, around 10% of the circulating supply of Maker’s governance token. The Maker foundation has returned 84,000 MKR tokens to the MakerDAO."

Token

• From Rune (13-3-2024):

"NewStable and NewGovTokens (real names TBA) are optional upgrades for Dai and MKR with new features

MKR will redenominate 1:24,000 when upgrading to NewGovToken

NewStable holders can farm 600m NewGovToken per year"

Token allocation

• MKR is distributed in batches via crowd sales on the Maker forums. Can be bought through DEX's.

Utility

• From Decrypt (28-7-2023):

"The MakerDAO community has recently implemented a Maker Burn Engine program on July 18 to buyback a portion of the MakerDAO’s surplus revenue to increase MKR’s liquidity across various decentralized exchanges and burn a portion of it. Since the code’s execution, the projected amount of MKR buyback has increased by 1,622 MKR worth $2 million in less than ten days."

Within the actual program discussions, multiple commenters mentioned that actual burns were not happening, but instead MKR Uni V2 LP tokens were being bought and held.

• Interest accrued on the outstanding Dai is distributed to MKR holders in the form of token burns. 
• Governance participation is rewarded with MKR (2-4-2021). And staking is being discussed (3-2021).
• From Bankless (14-5-2020): 

"In 2019, Maker was the clear dominant force in terms of annualized earnings. The design simplicity in Single Collateral Dai (known as Sai) allowed the protocol to generate substantial earnings—even by today’s standard. In single collateral Dai, the protocol allocated all of the interest accrued from outstanding Dai for MKR burns - effectively providing MKR holders with significant cash flows in the first year of the protocol going live.

However, the introduction of Multi-Collateral Dai brought in a new dynamic. Instead of distributing the entirety of protocol earnings to MKR holders, the majority of it is now distributed to Dai holders in the form of the Dai Savings Rate (DSR). With that, the spread between the DSR and the Stability Fee is effectively the protocol’s “net profits”.

While Maker’s profits margins slimmed with its upgrade, the worst was yet to come. In response to Black Thursday in March 2020, all stability fees for supported assets (ETH, BAT, USDC) dropped to 0%. As a result, the Maker Protocol’s forecasted annualized earnings are at the lowest they’ve been since inception."

Token Details

• There is the MKR coin, and the DAI token. MKR is used for governance, DAI is a stablecoin used to keep the peg to SDR (the IMF‘s Special Drawing Rights).
• From this blog (31-1-2020):

"There are currently over 17k MKR token holders.* The top 3 largest holders collectively own 38% of the total supply (with just the top 6 holding over 50%). These top 3 addresses are: 1) MakerDAO’s governance contract (202k MKR), 2) MakerDAO’s Multi Sig wallet (117k), and 3) Andreessen Horowitz’s wallet 60k (purchased ~6% of the MKR supply in September last year at a 25% discount)."

• MKR is explained in depth here. As explained there:

"The MKR token holders function as the governors of the Maker system. They decide on the specific collateral assets for the system, set the amount of Dai that can be borrowed against that collateral, determine the collateralization ratios of these assets, and ultimately charge an interest rate called the “stability fee.” The stability fee exists because the MKR holders, in addition to their governance responsibilities, are effectively the underwriters of every loan and the collateral buyer of last resort. In the steady state of the system, when loans are being paid back and not being liquidated, the MKR holders collect the stability fee through supply contraction (Dai collected as an interest rate is auctioned off for MKR and then burned). Even after liquidating a loan due to not meeting the collateralization ratio, there is usually excess collateral in the CDP to provide a cushion for the 1–1 peg. However, if the price movement in an asset is sharp enough to cause a shortfall in collateral relative to the amount of Dai borrowed against it, the MKR token supply is diluted and sold onto the open market to purchase Dai and offset this imbalance. In turn, it encourages the MKR holders to govern the system well and charge an appropriate interest rate for the loans they are insuring. If the Maker governors issue bad debt, it is the Maker governors who pay. Yes, if all value in the MKR token is also wiped out, then Dai holders would ultimately suffer, but there is no situation where MKR holders are bailed out at the expense of Dai holders."

• From Token Tuesdays (20-8-2019):

"In December 2017, Maker sold $12 million MKR in a private round to a group of investors led by Andreessen Horowitz and Polychain capital in addition to receiving investments from Distributed Capital Partners, 1Confirmation, FBG Capital, Placeholder VC, Wyre Capital and others. A year later, in December 2018, Maker announced that Andreesen Horowitz had purchased an additional $15M in MKR. Even with the limited investors in the private sale, MKR still bolsters nearly 14,000 addresses holding the token. However, according to Etherscan, the top 100 holders control 89.71% of the supply including exchange wallets. 

By subtracting the Maker Foundation’s ~250,000 MKR, the distribution shifts to the top 100 addresses controlling around 64% of the supply."

Stablecoin 

• Dai is the Maker stablecoin built on the Ethereum blockchain. Launched 27-12-2017.
• Started with Single Collateral DAI (now called SAI) and moved to Multi Collateral DAI in 2019.

• From EthHub #86 (4-11-2019):

"Say goodbye to the term ‘Collateralized Debt Position’ or CDP in multi-collateral Dai - they’ll instead be called ‘Vaults’."

• From EthHub #87 (4-11-2019):

"It finally happened - 100 million Dai were minted using the MakerDAO system - hitting the “debt ceiling” that has been in place for several months. Due to this, MKR token holders voted to increase the ceiling to 120 million and lower the stability fee to 5%."

• From their August update (31-8-2020):

"We saw a few increases to the ceiling in the past several weeks, beginning with a historically large increase in late July, when MKR holders voted to raise it to 568 million. Shortly after, we saw another increase to 688 million. Now, as of this writing, the Dai debt ceiling stands at 588 million, with total Dai in existence over 435 million. Dai from ETH: 341,341,822.4 (77.79%), Dai from WBTC: 79,314,078.56 (18.08%)"

• MakerDAO’s stablecoin, Dai, has entered Beta testing on Wanchain (is live by now). This integration makes Dai the first ever cross-chain ERC20 token. The Dai token will utilize Wanchain’s cross-chain functionality allowing for Bitcoin to be exchanged for Dai in a fully decentralized manner and to potentially add Bitcoin to its collateralized debt position in addition to Ether.

Coin Distribution

• After Black Thursday, Paradigm bought a lot of MKR and now it is speculated that they hold 3% of the total supply.
• From The Defiant (4-4-2020):

"Long-time Maker supporter a16z owns about 6% of MKR, and Dragonfly Capital, which invested together with Paradigm in the project last year, also owns a decent chunk as the funding round announcement said Paradigm and Dragonfly together own 5.5% of MKR. The Maker Foundation holds almost 12% of MKR in a multisig contract."

• From this blog (29-4-2020):

"A single MakerDAO CDP holder #3088 has 127,274 ETH as collateral, 17x the amount of collateral as the next largest CDP holder."

• From Crypto Briefing (10-6-2020): 1% of the MKR addresses hold 90% of the MKR tokens.

Tech

• Besides a whitepaper, also has a purple paper on why they have a reference implementation using the Haskell language.
• Code can be viewed here.

How is it done?

• From Token Tuesdays (20-8-2019):

"The process for generating Dai is pretty straight forward. After following a few simple steps and agreeing to the various parameters described below, Dai is autonomously minted and sent to your wallet through a smart contract without having any interaction with a third party. In particular, some of the parameters defined in a contract’s creation include:

• Liquidation Price: The price at which your loan will be forced to liquidate, or “margin called”.
• Liquidation Penalty: The mandatory fee that is paid if you are liquidated. Penalties are charged as a portion of existing collateral and are dynamically adjusted based on Maker governance decisions.
• Collateralization Ratio: An indicator to see how leveraged your wallet is. It is recommended to maintain a ratio at least 50% above your forced liquidation to account for unexpected price swings.
• Minimum Ratio: The ratio at which you will be force-liquidated, should your collateralization ratio fall below this ratio.
• Stability Fee: A fee that needs to be paid in parallel with the DAI you borrowed to close your loan. As of writing, all stability fees must be paid in Maker’s native token (MKR) or Dai (DAI), with the expectation that these fees will be able to be paid in additional tokens in the future."

Stability Fee

• From this article (30-1-2020):

"Dai is issued, not by a central party, but by anyone who wishes to borrow Dai from the system. To borrow (issue) Dai, a user must deposit collateral (Ether) in the system, allowing them to take out a loan of Dai against this collateral. The interest rate that is applied to this newly created Dai is called the Stability Fee.

An increase in the Stability Fee would discourage users from borrowing Dai as it would be more expensive to do so. Those who had already borrowed from the system would also be more likely to pay back their loan, depositing the borrowed Dai into the contract and removing it from circulation. A decrease in the Stability Fee would have the opposite effect, encouraging users to deposit ETH and borrow (issue) Dai at a lower cost.

One of the primary use-cases of borrowing Dai is to invest the borrowed Dai in Ether, leveraging their existing position in the expectation that the price of ETH will increase greater than the cost of borrowing (Stability Fee).

[Therefor] the Stability Fee, which is voted on by MakerDAO, can be used to organically manipulate Dai supply and maintain the DAI-USD peg."

• "Maker leverages a Stability Fee, better known as an interest rate that accrues on a Maker loan over time. This stability fee must be paid back when a user closes their loan, in which debt repayments are used to purchase and burn MKR. To date (13-11-2019), just under 5,000 MKR (or roughly $3M) has been burned through stability fees."

No Negative Interest

• According to the announcement of Reflex-bonds (13-4-2020):

"Many in the Ethereum community asked why DAI’s rates cannot go negative so that governance can exert even more pressure on the market. The simple answer is that the 1 DAI = 1 USD meme has to be kept alive at all costs and so the system was not designed to support negative interest rates.

At least not the current system. In its initial design (as described in the Purple Paper), DAI did have negative rates. More importantly though, the design showed that DAI’s market price is not supposed to always come back to the same redemption price of one US dollar. Rather, the redemption price itself was meant to float. To put it bluntly, a stablecoin was defined as a low volatility asset (compared to its own collateral) whose redemption price and rates are determined by the market, not by “decentralized” governance.

The original motivation for having a floating redemption price anticipated Black Thursday scenarios. If the system were designed as per the original specification, it would have reacted more decisively to nullify the significant market price surge. Sadly, the sound mechanism design was abandoned.:"

Dai Savings Rate (DSR)

• From this article (30-1-2020):

"In November 2019 the MakerDAO system received a major upgrade. The upgrade introduced a number of new concepts including the Dai Savings Rate, an interest rate that is applied to all Dai deposited in a particular smart contract. This interest rate is paid from the funds generated by the Stability Fee and its rate is also decided by a MakerDAO vote.

[We know] how the Stability Fee can be used to manipulate the supply of Dai and maintain the DAI-USD peg. In a similar vein, the Dai Savings Rate can be used to manipulate the demand of Dai and maintain the DAI-USD peg.

The Dai Savings Rate, then, provides MakerDAO governance with another string to their bow. Rather than maintaining the peg through supply-side economics alone, it is now possible to use the DSR to influence the demand for Dai. An increase in the Dai Savings Rate will increase the demand for buying Dai at an exchange, depositing the purchased Dai in the DSR contract and earning interest. A decrease in the Dai Savings Rate has the opposite effect, encouraging users to sell Dai to invest elsewhere.

This has hopefully explained why the Dai Savings Rate exists and how it plays an important role in maintaining and fine-tuning the DAI-USD peg."

• From this tweet by Spencer Noon (23-2-2020):

"DSR utilization has reached an ATH of 57%

50+ new addresses lock DAI in DSR daily

Compound & Chai hold 18% of DAI in DSR"

Upgrades

• From Decrypt (28-7-2023):

"The MakerDAO community has recently implemented a Maker Burn Engine program on July 18 to buyback a portion of the MakerDAO’s surplus revenue to increase MKR’s liquidity across various decentralized exchanges and burn a portion of it. Since the code’s execution, the projected amount of MKR buyback has increased by 1,622 MKR worth $2 million in less than ten days."

• The Endgame proposal by Rune got accepted (10-2022) by governance but not without loads of criticism (26-10-2022):

"Only 15% of circulating MKR, Maker’s governance token, was mobilized to vote. Moreover, votes delegated by Christensen represented nearly three quarters of those cast. “The Endgame Plan is an exceptionally bad proposal, and it’s really sad for Maker that it passed the signal (shoved through by [Rune Christensen] single handedly in face of strong and justified criticism),” said Hasu, a MakerDAO governance delegate and strategy lead at Flashbots.

In Endgame, Christensen lamented that Maker’s decentralized governance was failing due to voter apathy, competing factional interests, and the increasing complexity of MakerDAO’s operations. He called for reorganizing Maker into a series of self-sustaining MetaDAOs that will autonomously develop their own business models and growth strategies and operate in parallel. Each MetaDAO will have its own token and voting committees, with tokens issued through yield farming to incentivise governance participation. The structure will also allow Maker to compartmentalize and manage risky activities such as real-world asset lending by designating the specific MetaDAOs. MakerDAO will now launch six MetaDAO “clusters” tasked with developing the governance process for MetaDAOs. Maker will also create a “Protocol-Owned Vault” tasked with accumulating stETH, and expand the scope of the project’s DAO-based governance to include issues relating to MetaDAOs. The proposals also transfer governance over onboarding and offboarding collateral assets from Maker’s existing governance structure to its Strategic Finance, Risk, and CES Core Units.

With the passing of poll#882, MakerDAO is expected to vote between three different strategies for managing its RWA exposure and DAI’s peg: “Pigeon Stance”, “Eagle Stance”, and “Phoenix Stance.”

Under Pigeon Stance, which assumes the threat of regulation is low, no limit would be placed on Maker’s RWA exposure and DAI’s peg to the dollar would be maintained for at least two-and-a-half years.

Eagle Stance would result in DAI become free floating after the same period, possibly alongside a “negative target rate” intended to reduce demand for the token. Phoenix Stance would prohibit any RWA exposure “to ensure maximal protection against regulatory crackdown.”"

• From Decrypt (25-10-2022):

"MakerDAO voted to custody $1.6 Billion in USDC with Coinbase. The MakerDAO pilot will run through the end of 2022 before the community needs to vote on whether to keep its USDC with Coinbase next year."

Some decried it as the end of DAI's trustlessness.

• From Dose of DeFi (27-5-2022):

"Dai traded stubbornly above its peg for months after Black Thursday. Dai borrowers didn’t want to buy Dai above $1.00, and there were no borrowers to mint new Dai. Given the circumstances – the price of a barrel of oil traded below $0 during this time – it’s not surprising that market makers and arbitrageurs were not there to defend the Dai peg.

To solve the issue once and for all, Maker implemented the Peg Stability Module (PSM), which essentially is a modification to the protocol that always offers a 1:1 conversion between Dai and USDC. Maker learned the hard way an inescapable fact of stablecoins: access to dollar liquidity from the banking system is paramount to maintaining a peg."

Other Details

Infura

• Is using Infura, according to their website (13-4-2020). Does run their own Parity full node as well for the Keepers.
• From the Infura website (18-5-2020):

"Infura is applied across a lot of the Maker portals. If a person enters the CDP portal and doesn’t have Metamask, MakerDAO use Infura as a way to populate all that data. MakerDAO also uses Infura as its ‘backup’ node solution to ensure all developers can use the MakerDAO toolkit. If a developer doesn’t have an active node, MakerDAO defaults to Infura. This reduces friction, particularly for new users."

Stability of DAI

• From Dose of DeFi (20-4-2021):

"MakerDAO has appeared to leave its peg problems in 2020 with Dai staying close to its peg for the last five months, even as Dai’s circulating supply increases 500% to more than $3.6bn. Of course, much of this can be attributed to the Peg Stability Module, which allows market makers to always mint 1 Dai with 1 USDC."

Oracle Method

• From The Block (9-2-2023):

"MakerDAO integrated Chainlink’s decentralized oracle into the framework that helps to maintain the stability of its DAI stablecoin, after a successful governance vote. With the vote passed, MakerDAO can now onboard Chainlink Automation to its Keeper Network. Chainlink Automation becomes the latest third-party protocol added to the technology stack that runs the DAI stablecoin. The Chainlink oracle will be put to work on functions like price updates, liquidity rebalancing and upgrading of the debt ceiling for DAI collateral assets."

• From this list curated by Linda Xie on Github (8-4-2020):

"The reference price (ETHUSD) for the Maker system is provided via an oracle (the medianizer), which collates price data from a number of external price feeds.

Independent price feed operators constantly monitor the reference price across a number of external sources and will submit updates to the blockchain when:

1. Source price differs to the most recently submitted price by more than the defined amount (currently 1%)
2. Last price update was more than 6 hours ago.

Price updates are written to the blockchain via price feed contracts which are deployed and owned by feed operators. Price feed contracts which have been whitelisted by the medianizer are able to forward their prices for inclusion in the medianized price.

The medianizer is the smart contract which provides Makers trusted reference price.

It maintains a whitelist of price feed contracts which are allowed to post price updates and a record of recent prices supplied by each address. Every time a new price update is received the median of all feed prices is re-computed and the medianized value is updated.

Permissions:

The adding and removal of whitelisted price feed addresses is controlled via governance, as is the setting of the min parameter - the minimum number of valid feeds required in order for the medianized value to be considered valid.

v2 introduces several new proposals:

1. Add a set of DeFi partners as Feeds
2. An Oracle Team Mandate to create an Oracle Team role. The mandate will empower MKR Governance to appoint Oracle Team(s) to perform certain tasks on their behalf.
3. MKR Governors’ control of the Oracles infrastructure be formalized via an Oracle Governance Framework.
4. New incentive structure for Oracles.

Contract Addresses

• Maker: 0x99041F808D598B782D5a3e498681C2452A31da08
• Ethereum: 0x81FE72B5A8d1A857d176C3E7d5Bd2679A9B85763
• Basic Attention Token: 0xB4eb54AF9Cc7882DF0121d26c5b97E802915ABe6

Source

• https://developer.makerdao.com/feeds
• https://blog.makerdao.com/introducing-oracles-v2-and-defi-feeds"

Oracles V2

• From this blog post on Oracles V2 (3-9-2019):

"The Maker Protocol uses Oracles to obtain the real-time price of assets. This price is used to determine whether a Vault has enough collateral locked up.

In order to decentralize the MakerDAO Oracles further, the release of Oracles V2 introduces significant changes to MKR Governance. Governance will become much more active in end-to-end ownership and management of the Oracle infrastructure. To ease this transition, the Foundation plans to submit several new proposals to MKR holders (voters in the Maker community) on the public Governance Call on September 5. The proposals will then be published on the MakerDAO Forum on September 9, with a request for community feedback. Submission of the proposals to the Governance Portal for ratification is planned for September 16.
The titles for these proposals are:

• DeFi Partner Feeds (0x, dYdX, Set, Gnosis)
• Oracle Team Mandate
• Oracle Governance Framework
• Oracles Incentive Restructuring

Oracle Team Mandate (OTM)

The Oracle Team Mandate is a proposal defining the responsibilities of a delegated party chosen by Maker voters to facilitate administration and technical development of the Oracles. The Maker Foundation will propose to governance that its internal Oracle team will occupy this position in an interim capacity until a suitable external Oracle team is elected. It is important to note that the Oracle Team does not have any special privileges to enact changes without voter approval; it is merely a facilitation mechanism for helping to craft proposals and guide the governance process.

Oracle Governance Framework (OGF)

The Oracle Governance Framework is a proposal that defines the rights and responsibilities of Maker governance with respect to Oracles. A blueprint that specifies the governance processes to administer the Oracles infrastructure, it is similar to how the Governance Risk Framework defines the rules for how Maker Governance functions. 

Some of the responsibilities of Maker Governors listed in the OGF are:

• Defining criteria for selecting new Feeds
• Defining criteria for selecting new Oracles
• Adding and removing Feeds
• Adding and removing Oracles
• Identifying performance metrics for Feeds and Oracles
• Selecting the Oracle price sensitivity parameters
• Selecting the Oracle Security Module (OSM) delay parameter

The full list of responsibilities and governance processes around Oracles will be included in the proposal and published on the MakerDAO Forum on September 9.

Feeds are compensated for the valuable service they provide and, therefore, discourage malicious behavior. Currently, compensation is funded by the Maker Development Fund. In the future, payment is expected to be sourced from the stability fees generated by the Maker Protocol, representing a transfer of value from MKR token holders to Feeds."

• From this Tezos forum (30-4-2020):

"MakerDAO uses a custom oracle managed by a group of 14 pseudonymous individuals and public organizations to determine asset prices and exchange rates for supported assets. The group of 14 participating feeds are determined by a DAO governance vote, and is subject to change.

The oracle itself consists of two modules, a broadcaster and relayer. Each feed runs a broadcaster which pulls asset prices, signs them with their private key, and broadcasts them through a secure network. A relayer monitors the broadcaster messages, ensures they are within a predetermined spread (1%), aggregates the data, and submits it to Ethereum as a single transaction. Before the Maker system updates with the new price, however, a time period enforced by the Oracle Security Module (OSM) must be waited. This ensures that new price values propagated by the system are not taken up until a specified time in the future.

Maker does not have an incentive structure for relayers or feeds, but has proposed one such model which would compensate feeds, relayers, and other participants for their contributions to the system. The current design also maintains a whitelist of specific addresses who can access the oracle’s data."

• From EthHub #122 (13-7-2020):

"Kyber Network, Infura, Etherscan and Gitcoin have all been added as Light Feed’s to the MakerDAO protocol."

Privacy Method

• DAI or MKR itself are not privacy centered coins, however, the AZTEC Protocol has plans to create the ZkDai (10-2-2020).

Compliance

• From Unchained (7-8-2023):

"MakerDAO’s decentralized DAI liquidity market Spark Protocol has taken every effort to restrict U.S.-based users from accessing the platform, which includes blocking those using Virtual Private Networks (VPNs). “Accessing this website via VPN is not allowed,” reads a message to users who make use of the service to access the Spark Protocol website."

• From their Terms of Service (18-1-2021):

"The Dai System and Software is global and by accessing the Content or Service, you are representing and warranting that, you are of the legal age of majority in your jurisdiction as is required to access such Service and Content and enter into arrangements as provided by the Service. You further represent that you are otherwise legally permitted to use the service in your jurisdiction including owning cryptographic tokens of value, and interacting with the Service or Content in any way. You further represent you are responsible for ensuring compliance with the laws of your jurisdiction and acknowledge that MakerDAO or any of the MakerDAO Volunteers (as defined below) is not liable for your compliance with such laws. Finally, you represent and warrant that you will not use the Service for any illegal activity."

• When asked about regulation, an interview with Rune gave some insight (13-12-2019):

"Maker has more than 400 different partnerships globally. These partners are already using DAI and collateralized debt positions (CDP), Arentoft stated that every single time a project is tied to any legal jurisdiction, compliance with local regulation must be made but he explained this process is often simplified by their active partners' foothold in that particular jurisdiction. He said, “For example, one of our partners is Wirex, which is a debit card company, and they have an e-money license in the UK to operate—so that's one way Maker becomes regulated in regards to the UK’s jurisdiction as that company uses our product within the local regulatory guidelines. Regulation is something that we're really on the forefront with and we try to ensure that we won't get ourselves or any of our partners in trouble with regulators.”"

Their Projects

Summer.fi (FKA Oasis.app)

Oasis (Interface for DSR)

• From EthHub #88 (19-11-2019):

"Maker has introduced an “all-in-one” DeFi hub ahead of it’s MCD launch which includes Oasis Trade (decentralized marketplace), Oasis Borrow (the new Vault portal for MCD) and Oasis Save (an interface for the Dai Savings Rate)."

OasisDex

• The market and trading platform derived from MakerDAO.

Spark Protocol

• Got announced without a MKR vote. From The Defiant (10-2-2023):

"Dubbed Phoenix Labs, the new company will build products leveraging the MakerDAO protocol and DAI, and it plans to start by launching a decentralized lending market called Spark Protocol. Spark Protocol would serve as a front-end interface for using DAI.

Phoenix Labs was first announced on Maker’s governance forum in October 2022 by MacPherson, who is with Maker’s Protocol Engineering Core Unit. MacPherson, who is also Phoenix Labs’ CTO, told The Defiant that the team formed last summer and began working on Spark Protocol towards the end of the year. He said Phoenix hasn’t received any funding and that the team is working on the project in their spare time.

Maker will own all products built by Spark. The code will be available for third-party teams to use under revenue-sharing agreements. Spark’s first product would be Spark Lend, a money market protocol supporting ETH, Lido’s wstETH liquid staking derivative, WBTC, DAI, and SavingsDAI tokens. The money market protocol would be built on Aave v3, with Phoenix planning to send 10% of the profits generated by Spark’s DAI market to AaveDAO for two years."

How is it used?

• From Token Tuesdays (20-8-2019):

"Users opening a CDP (Since 11-2019 called Vaults) through Maker generally do so to gain leverage. Users can collateralize ETH, generate Dai, and then purchase additional ETH with their newly minted Dai, resulting in the user having leveraged exposure to ETH. Since the debt is measured in Dai, if the price of ETH goes up, users can pay off their outstanding debt with less ETH, then hold onto the remaining ETH once the CDP is closed.

Dai holders can utilize a special mechanic known as the Dai Savings Rate to earn a steady, low-risk return on their holdings in the upcoming Multi Collateral Dai implementation.

A person who holds Dai can lock and unlock Dai into a DSR contract at any time. Once locked into the DSR contract, Dai continuously accrues, based on a global system variable called the DSR. There are no restrictions or fees for using DSR other than the gas required for locking and unlocking."

• "The core smart contract at Maker is the CDP. Let’s use an analogy to describe these. Pretend you are at the bank asking for a home equity loan. You put up your house as collateral and they give you cash as a loan in return. If the value of your house decreases, they’re going to ask you to pay the loan back. If you can’t pay the loan back, they’re going to take your house. To bring this back to Maker, just replace your house with ether, the bank with a smart contract, and the loan with Dai. That’s all there is to it. You give the Maker CDP smart contract your ether and it lets you take out a loan in Dai. If the value of your ether goes below a certain threshold, you either have to pay back the smart contract as you would a bank or it will auction off your ether to the highest bidder. In summary, CDPs are simply where the collateral (ether) in the Maker system is held."

Emergency Shutdown

• From their own blog (12-8-2019):

"Emergency Shutdown is a process that can be used as a last resort to directly enforce the Target Price to holders of Dai and CDPs, and protect the Maker Protocol against attacks on its infrastructure. Emergency Shutdown stops and gracefully settles the Maker Protocol while ensuring that all users, both Dai holders and CDP holders, receive the net value of assets they are entitled to. Effectively, it allows Dai holders to directly redeem Dai for collateral after an Emergency Shutdown processing period.

In Multi-Collateral Dai, the process of initiating Emergency Shutdown is decentralized and MKR holders (voters) can trigger it by depositing MKR in the Emergency Shutdown Module (ESM.) Emergency Shutdown is triggered when a quorum of the deposited MKR has been reached. The quorum is not meant to be a majority of the MKR in circulation, but it shall still be significant. MKR voters determine the quorum, which is initially proposed to be 50,000 MKR. "

For a full explanation I highly suggest reading the full blog. For a summarisation:

1. "The process of initiating Emergency Shutdown is decentralized and controlled by MKR voters, who can trigger it by depositing MKR into the Emergency Shutdown Module.
2. Emergency Shutdown is triggered in the case of serious emergencies, such as long-term market irrationality, hacks, or security breaches.
3. Emergency Shutdown stops and gracefully settles the Maker Protocol while ensuring that all users, both Dai holders and CDP users, receive the net value of assets they are entitled to.
4. CDP owners can retrieve excess collateral from their CDPs immediately after initialization of Emergency Shutdown. They can do this via CDP frontends, such as the CDP Portal, that have Emergency Shutdown support implemented, as well as via command-line tools.
5. Dai holders can, after a waiting period determined by MKR voters, swap their Dai for a relative share of all types of collateral in the system. The Maker Foundation will initially offer a web page for this purpose.
6. Dai holders always receive the same relative amount of collateral from the system, whether they are among the first or last people to process their claims.
7. Dai holders may also sell their Dai to Keepers (if available) to avoid self-management of the different collateral types in the system."

Roadmap

• Can be found [Insert link here].
• From Week in Ethereum (19-3-2024):

"Maker roadmap: phase 1 (mid year): launch new brand, stable & governance tokens, lockstake engine and Spark SubDAO; phase 2: scale; phase 3; new L1; phase 4: end game"

• From Week in Ethereum (5-10-2021):

"Rune pitches a vision for MakerDAO where Dai backed by solar, wind and ESG corporate bonds, plus updated tokenomics allowing locked MKR to have greater voting power with more attractive rates."

Working towards the dissolution of the Foundation

• From Messari (2-4-2020):

"In the weekly governance call, CEO of the Maker Foundation Rune Christensen presented the Self-Sustaining MakerDAO Initiative that would result in the dissolution of the Maker Foundation, the key entity leading development and governance of MakerDAO. As part of the new Governance Paradigm, Rune discussed three core pillars:

1. Elected Paid Contributors (EPCs) and Domain Teams. EPCs and Domain teams would effectively replace the various functional groups within the Foundation which has been funded through various token sales, but going forward will need to be paid through the protocol itself.
2. Maker Improvement Proposals (MIPs). MIPs will look similar to other improvement frameworks and are designed to standardize the upgrade process from both a technical and social perspective.
3. Vote Delegates. Delegates will have the ability to vote on behalf of MKR holders who don’t wish to actively participate in the governance process allowing them to have a say in governance without needing to stay informed enough to make decisions on complicated matters."

Revenue

• From Onchain Times (16-7-2024):

"Today, total DAI supply is 5.2B, off 55% from its historical all-time-highs of ~10B in the 2021 bull market. The protocol has generated $176M YTD. Based on Makerburn, the protocol makes $289M in annualized revenues. A significant portion of revenues (14.5%) in recent months is thanks to the DAO’s somewhat controversial decision in April to enable DAI loans against Ethena’s USDe collateral in a Morpho vault. RWA revenues are also fairly significant at $74M annualized, making up 25.6% of total revenues.

Not every DAI holder takes advantage of the DSR since it is also used throughout DeFi for various purposes. Assuming a 8% DSR at a stake-rate of 40%, that costs Maker ~$166M. Therefore Maker’s earnings can be estimated at roughly $73M annualized after accounting for another $50M in fixed operating costs."

• From Decrypt (28-7-2023):

"The revenues come from the fees for minting DAI and yields on collateral such as U.S. T-bills. RWA assets are also the leading breadwinners for the protocol, accounting for 54% of its total revenue, per a Dune dashboard. The percentage of RWA assets—mainly comprising U.S. T-bills—for DAI collateralization has increased from 23.3% at the end of May to 35.1% by July 27, per Dai Stats data. DeFiLlama data shows Maker’s revenue has increased tenfold since its started buying treasury bonds in October 2022, from $31,300 earned daily to over $320,000 in June.

The MakerDAO community has also recently implemented a Maker Burn Engine program on July 18 to buyback a portion of the MakerDAO’s surplus revenue to increase MKR’s liquidity across various decentralized exchanges and burn a portion of it. Since the code’s execution, the projected amount of MKR buyback has increased by 1,622 MKR worth $2 million in less than ten days."

Within the actual program discussions, multiple commenters mentioned that actual burns were not happening, but instead MKR Uni V2 LP tokens were being bought and held.

• According to their 2022 financial report:

"Although the Maker protocol closed 2022 with positive earnings, it experienced a sharp decline in revenues due to headwinds in the crypto-lending sector. An 80% reduction in net protocol operating earnings, from 90m DAI in 2021 to 19m DAI in 2022, driven by a 42% reduction in total net revenues from 112m DAI in 2021 to 65m DAI in 2022 and an increase in operating expenses from 21m DAI in 2021 to 46m DAI in 2022."

• From Kerman Kohli (4-8-2022):

"$24m in the past 180 days. However they have two major issues that get them. The first is the fact that they spend close to $40m-$50m a year so they’re maybe just break-even which destroys all the revenue. The second is the fact that they also have a buy and burn model which happens in real time which sucks because when market goes up, MKR goes up, fees go up but then the number of MKR that is purchased with fees is small. In the past 5 years of MakerDAO’s existence they’ve only burned 2.24% of the supply and that number changes very slowly."

• From Our Network (1-4-2022):

"MakerDAO has seen its DAI supply increase by 350m (4%) YTD. DAI supply peaked at 10.3b on February 15, 2022 and has been in a supply contraction since, falling 6% from its all-time-high. As a result, DAI's stablecoin market cap share has fallen from 6.3% to 5.6% YTD. Since February, DAI's market share has been crowded out by algorithmic USD-pegged stablecoins like FRAX and UST. MKR is burned once MakerDAO's system surplus reaches 250m DAI from protocol profits (27% is filled). Annualized profits have fallen to $69m (37%) YTD, although higher stability fees have paused this downtrend for now. However, at current rates, fees will start burning MKR after 1,660 days (4.5 years)."

Usage

• From Our Network #32 (31-7-2020):

"DAI supply increased by 244m from 115m to 359m in just 45 days, which coincides with Compound starting the yield farming craze. During this period, the ETH debt ceiling was increased 5 times, from 140m to 340m."

• DAI supply is 868.4 million today (6-10-2020) — a 90.8% increase over the past 30 days.
• From Into The Block (26-11-2019):

"Over Half of MKR Holders Are Making Money 'IntoTheBlock’s machine learning algorithm identifies the average cost at which each address purchased a token. The In/Out of The Money chart compares current price of a cryptoasset to the average purchasing costs to determine what percentage of holders are making money, breaking even and losing money on their positions. As can be seen above, 71.3% of holders are either breaking even or making money on their positions, at least on paper.

This is particularly impressive taking into account that Maker launched in November 2017 right before the peak of the 2017 bubble and 2018 bust. In contrast, other ERC-20 tokens had very different outcomes for holders, with tokens like ZRX and OmiseGo (OMG) having only 24.5% and 1.1% in the money, respectively.

MKR is Heavily Concentrated Amongst Whales

Whales, which IntoTheBlock defines as addresses that hold more than 1% of the circulating supply, account for roughly two thirds of MKR tokens. Addresses considered as investors, which also represent a significant 21.8%, are those that hold between 0.1% and 1% of the circulating supply.

Out of a total of 8 whales holding 66.5% of the total circulating supply, we can identify the Maker Foundation and a16z crypto as key stakeholders in the MKR decision-making process. This is not necessarily a negative sign, but could be seen as something going against the industry’s ethos of decentralization.

Growing Stability for DAI

As inferred by the name, it is essential for a stablecoin to maintain, well, stable relative to the asset they are pegged to. DAI, which had an all-time high price of $4.77 in February 2018, has improved remarkably on this end. As can be seen in the graph below, DAI’s peg to the dollar has become more robust.

DAI has a large amount of active and new users

A proxy to adoption of a cryptocurrency is the number of addresses utilizing the asset on a given day. In the case of Maker’s stablecoin DAI, the number of active addresses has increased from around 700 a day at the beginning of the year to over 3,000 recently.

What stands out is the percentage of addresses that are new to DAI on a daily basis — 34% of addresses using DAI in the last 24 hours are new addresses, those that were just recently created. This could be seen as a sign of growing interest and attraction of new participants. In comparison, only 17% of addresses using ETH in the last 24 hours are new users.

Overall, the on-chain indicators covered through IntoTheBlock data provide a healthy outlook on the Maker ecosystem."

• From Our Network (22-5-2021):

"Protocol changes in 2021 have led to increased revenues along with MKR being burned — to date, ~7100 MKR has been burned. MKR price has grown alongside the increase in revenues (liquidations are a major source)."

• From Rune Christensen (1-10-2021):

"Société Générale, the third largest bank in France, just made a collateral onboarding application to Maker for 20 million USD. Backed by EUR bonds, proposed by their blockchain subsidiary."

• From their forum (6-12-2021):

"Borrower concentration at MakerDAO is increasing over time. 3 borrowers are currently ~55% of our crypto-loans exposure and ~60% of our crypto-loans revenues. 2 of those borrowers are CeDeFi platforms and represent 45% of our crypto-loans exposure and ~50% of our crypto-loans revenues."

Projects that use or built on it

• yEarn has DAI vaults.
• From The Defiant (13-4-2022):

"Maple Finance, which has funded over $1 billion in undercollateralized loans since launching 11 months ago, announced plans to partner with MakerDAO to issue loans to institutional borrowers. Maple says these loans will be “backed by enforceable legal agreements… represent[ing] a diversified lending portfolio that is backed by real-world assets.” Maple’s proposal to create a pool to finance DAI loans in December received 96% support from the MakerDAO community in December.

And on April 11, TrueFi, a lending protocol that’s facilitated $1.3 billion of uncollateralized loans since November 2020, launched a signal request for a pool of between 50 million and 100 million DAI. TrueFi wants to earmark the pool for “diversified lending and credit opportunities,” with an emphasis on “traditional credit opportunities” that have a low correlation with the crypto market. Maker community members will be able to vote on TrueFi’s signal request until April 25.

Earlier this month, MakerDAO issued an $7.8 million loan to fund a repair centre for Elon Musk’s electric car company, Tesla."

Pros and Cons

Pros

• First real decentralized stable coin out there. A true OG in DeFi. Lost its decentralized purity when Multi Collateral Dai got introduced.

• When KuCoin got hacked (28-9-2020), many projects showed their centralized powers, however Maker did not fork its contracts or froze certain wallets, showing real decentralization.

Cons 

• Got in the news (26-2-2023) when Oasis, the front end of MakerDAO, and Jump used its admin keys and "not only back doored the hackers wallets but they snatched a few million dollars more than what was actually stolen".
• Chris Blec has written about multiple centralized risks with the setup of MakerDAO as of 12-2022. They involve Circle holding most of Maker's USDC and the collateralization risk of real world assets. From a Blec Report (19-1-2023): "Coinbase’s proposal to custody one-third of MakerDAO’s USDC was approved by MakerDAO in October 2022. One of the more concerning details that surfaced during a recent “legal review” was the fact that Coinbase stated it would need to retain “a 10 hour window to veto a withdrawal of USDC by Maker governance”. How can DAI possibly call itself decentralized if is not only primarily backed by centralized stablecoins, but it doesn’t even have access to those centralized stablecoins without the kind permission of a centralized custodian? Obviously, it can’t."
• From Token Tuesdays (12-2-2020):

"Some of the biggest critiques of the Maker system are its centralized points of failure with governance, the price oracle, and introducing collateralization with non-trustless assets through Multi-Collateral Dai. With that said, governance is one of the bigger issues right now.

As outlined in this article, it is entirely possible for wealthy, but malicious actors to collapse the Maker system by stealing all of the Ether locked in the system through a governance loophole. The malicious attackers could also steal all of the liquidity within ETH/DAI pairs (like on Uniswap) by printing quadrillions in Dai and purchasing the entire liquid supply in a single transaction.

One of the other major critique includes the introduction of non-trustless assets in Multi-Collateral Dai. Non-trustless assets create potential counterparty risks for off-chain assets like real estate or equities as well as the ability to collateralize with relatively illiquid and centralized utility tokens (like BAT). "

• From this article (30-1-2020):

1. "Smart Contract Risk – while the Ethereum platform is extremely secure, the applications built atop its blockchain might not be. Despite MakerDAO having undergone a number of smart contract audits, exploits and loopholes can potentially break the system with little recourse. The Maker Foundation have somewhat mitigated this with their “Emergency Shutdown” feature in the event of catastrophe.
2. Governance Risk – the governance mechanism behind MakerDAO has previously been flagged as a possible security hole. While that particular hole was sealed, the plutocracy that governs MakerDAO (more tokens equals more power) could lead to a possible hijacking of the system. Given the current lack of liquidity and the centralization of coins among a number of heavily-invested entities, it is unlikely that such an attack could take place or be effective.
3. Regulatory Risk – the risk of regulators upending the system is vague and hard to quantify. Dai is a representation of US Dollars on the blockchain but without any oversight from US regulators. This is arguably one of Dai’s strongest features, providing fair access for all to the world’s most widely-accepted currency, however it is likely to frustrate the powers that be in US government.
4. Platform Risk – Ethereum, at this point, has proven itself to be an unbreakable world computer. That said, there are a number of software upgrades on the horizon that could introduce new risks not yet accounted for."

• From Token Tuesdays (20-8-2019):

"Furthermore, governance participation has generally ranged from 2-5% of the total supply averaging less than 50 unique votes per decision, a common occurrence for blockchain ecosystems at large.

While Maker’s governance system may be more active than most other projects, this limited range of engagement shows that only a minor percentage MKR holders are using the token for one of it’s core use-cases."

Update from Token Tuesdays (13-11-2019):

"Generally seen less than 10% of the supply participate in governance decisions with an average of less than 100 individual voters."

Which is, still, a 100% increase in 3 months.

• In one vote a 'whale' made the final decision by having 94.7 voting power.
• Some claim it is not scalable.
• Had quite some internal struggles
• From Token Tuesdays (13-11-2019):

"It remains quite clear that the community is still divided over whether or not introducing trusted assets defies the project’s decentralized nature. As such, there remains a chance that Maker’s governance schema may stagnate future growth in the event that the broader community decides to not allow for real-world assets to be included as future collateral."

And also:

"Finally, we noted above that MCD will cause SF’s to be used to fund a wider number of operations in the system. For MKR holders, this is definitely somewhat discouraging as the token value would be likely to be influenced more heavily by the entirety of SFs used to burn MKR as it’s currently designed. With this being said, there’s no denying that using SFs to fund the Dai Savings Rate (DSR) and oracles is a logical and intuitive decision."

• From DeFi Weekly (19-3-2020):

"Believe me when I say that I was one of the biggest fans of MakerDAO when I first heard about it two years ago. However, the following factors in aggregate concern me about its future and possible viability:

1. Large MKR holders increasingly participating on doing whatever they want. VC interests dominate community interests.
2. All core developers have left. Having been an engineer myself, whenever this happens it takes a tremendous amount of work from the leaders to turn the ship around. I do not have confidence this is happening at the moment.
3. Introduction of increasingly more illiquid/securitised assets. Real estate, bonds and much more. All in the name of "diversification". Liquidity is king and not many assets have good on-chain liquidity. Don't forget this.
4. Lack of an aggressive innovative roadmap. Compared to other projects which are hungry to continually innovate, Maker simply does not posses this trait. Execution is continually overlooked in crypto, I think it is here as well.
5. Tokenomics that really don't make sense. It took MakerDAO two years to burn a tiny percentage of MKR. The upcoming MKR auction will reset that to 0. Considering MKR appreciates only if ETH appreciates (or looks like it will appreciate), you should probably hold ETH.

If I was to sum all of this up, it really comes down to what I've mentioned in previous DeFi Weekly posts: when you're trying to be half-decentralised and half-centralised, you die."

• From AlfaBlok (4-5-2020):

"For Maker to generate profits that justify a market cap of $350M, a key barrier to break is the amount of DAI in circulation. Under optimistic assumptions, figures show that growth in circulation needs to be over 70%+ per year, reaching hundreds of billions to trillions by 2040.

Demand for Dai has clearly been there so far. So much so, that it’s been difficult to keep the peg close to $1. The big challenge remains to be the increase in supply in a structural way that allows to reach hundreds of billions of Dai in circulation over the next decades.

One additional challenge for MKR holders are the current low spreads. Maker governors need to think about how to bring spreads back into a healthy margin, coherent with bad-debt levels, without hurting supply levels. Very tricky indeed!"

• From the Synthetix blog (13-11-2020):

"The most well known example of direct token voting is Maker governance, which to put it frankly is a bit of a dumpster fire. Voter apathy is extremely high, participation is low, the consensus view is large MKR holders have completely captured protocol governance."

Internal Power Struggles (Red Pill and Purple Pill)

• From DeFi Weekly (19-3-2020):

"In a 10,000 word story (26-4-2019) known as "Zandy's story", we learn about the political turmoil going on internally at MakerDAO where two ideological struggles are beginning to play out. One side is know as the red pill and the other is known as the purple pill. Unfortunately the story ends with most of Maker's core believers leaving the project as the "red pill" prevails. The idea around the red pill is to bridge the gap between legacy and traditional financial systems through introducing securities as collateral and leading Maker to be more dependent on the existing financial system. This was the beginning of what we know as multi-collateral DAI (~2 years ago). Based on various parameters and factors, BAT was the second collateral type added to MCD even though its on-chain liquidity is sub-par to say the least."

• According to Cointelegraph (13-6-2019) Maker had quite some internal power struggles from the start of 2019, however Cointelegraph is known to be sensational, so read with caution:

"It all started with the fact that Andy Milenius, the company’s chief technology officer, left the project, as reported by Cointelegraph on April 28. Internal conflicts have been aggravated by the recently found vulnerability and trials between the key members.

Between April 22 and 26, a critical vulnerability was discovered and analyzed on the MakerDAO platform by the security audit firm Zeppelin. The vulnerability impacted the very functioning of MakerDAO by making user funds irretrievable. By exploiting the system’s vulnerable coding, attackers could gain access to the system and freely move the tokens staked in favor of one MakerDAO governance proposal to another — perhaps even a competing proposal — and lock them in place forever. On May 6, the MakerDAO team released an appeal to its community on Reddit:

“In partnership with Coinbase and Zeppelin, the Maker Foundation has been participating in a second round of audits of the Maker Voting Contract. During this process, we discovered the need to make a critical update. [...] You are advised to move your MKR out of the old contract and back into your personal wallet immediately.”

What could have seemed as a routine error in code at the inception of MakerDAO turned out to be much more as the plot thickened with the sudden departure of Andy Milenius, the project’s CTO, in early April. His departure was preceded by a voluminous 24 page-long letter published on April 3, which begins with the words, “Currently, the Maker development team is going through its most difficult challenge that I have witnessed during my 3.5 years with the project.”

In his letter Milenius outlined his long-standing conflict with MakerDAO CEO Rune Christensen and the former’s attempts to usurp the platform, which began back to January 2017:

“He [Christensen] told me it was necessary that he have full unilateral control over the Dev Fund from that point forward.”

As stated by Milenius, though later Rune abandoned this idea, the whole situation led to the creation of the opposition, aimed at preventing Rune from ruining the project and at protecting the community’s funds.

Another event that affected the professional relations inside the company, according to Milenius, was the appearance of Matt Richards, who, in the spring of 2017, assumed the responsibility of the chief operating officer. According to Milenius, Richards was not only not familiar with the technical side of the project, but did not support the very idea of DappHub, the separate project led by the MakerDAO developers and initiated by Christensen to better manage the company’s processes. In addition, his invasion of the project interfered with the work of designers and developers, which soon led to internal conflicts and affected the platform’s development

“I told him that Matt was consistently a distraction and wasted my time by proposing stupid ideas that needed constant rebuttal. I told him Matt’s opinion that the core developers were ‘my developers’ was preposterous and that I refused to control them and get them to ‘report’ to me like he wanted. I told him that Matt had done a lot of good for the project but that it was time for him to go.”

However, even with Richards’s departure, the atmosphere inside the company did not improve. According to Milenius, Christensen was dissatisfied with the work of key developers — and they, in turn, tried to resist his attempts to monopolize the developers fund and spend all the money on his strategic initiatives.

As the conflict inside the company smouldered further and involved new people, more and more people began to disagree with the way Christensen tried to take control of the decentralized autonomous organization (DAO), with the result that the main project developers from DappHub stopped cooperating. As stated by Milenius, his ideas of equal working space and democratization inherent in DAO, and the desire of his fellow executives to traditional corporate efficiency hadn’t been accepted by Christensen. Later, Milenius confirmed to the media that he is no longer the technical director of MakerDAO.

When the company’s infrastructure expanded and disagreements began to arise, Christensen offered the developers two options for cooperation: the Red Pill and the Blue Pill.

Those who chose Red Pill were supposed to work for him inside the Maker Ecosystem Growth Group (MEGG) on the initiatives that “he was going to eventually document in the much-promised Strategic Plan.” The tasks were aimed at delivering government compliance and integrating Maker into the existing global financial system. The Blue Pill was prepared for those who didn’t want to work on those initiatives. Their primary duty was the implementation of Multi-Collateral DAI (MCD) core contracts needed to launch a fully autonomous system, after which their relationships with the company would cease.

According to Milenius, nobody accepted those binary options since they conflicted with the main idea of the decentralized company. General discontent led to the creation of an opposition group that called itself the Purple Pill in March 2018. Members include former MakerDAO business development executive Ashleigh Schap, who proclaimed that they aimed to make the company more decentralized. Schap, who has allegedly created the group, is now suing MakerDAO in a $1 million lawsuit.

As the Purple Pill group was growing, tension was also rising on the Foundation Board. Christensen requested a large amount of MKR tokens from the Foundation Board for allegedly funding and expanding operations. When the members asked for more transparency and requested documents that could confirm his demands, he was surprised. This event could also become the reason why he later accused board members of conspiracy, when he found out there was a Signal group. As a result, some board members who participated in the Purple Pill group were fired.

MakerDAO has seen its fair share of woes, and they were only aggravated when five of the nine board members requested the Campbells law firm for assistance after they had been forced by Christensen to leave the company. The letter also refers to the Purple Pill affair. All five claim that the discussions were neither conspiratorial nor clandestine, and involved a large group of people engaged in the project in various capacities, exploring ideas with a shared goal of protecting and advancing the project.

On April 27, Richards published an answer to Milenius’s accusations in a Reddit thread — thus, providing a chance to address the story from a different angle. Richards also referred to Milenius as the person who was mainly interested in technical nuances and coding, rather than in the project’s development.

The biggest risk thus far is the vulnerability found in the system, since it could be only a matter of time before someone, somewhere tries to take advantage of it. The company has already announced that it has developed a fix together with Zeppelin and the implementation of it was underway."

Corona Crash and Black Thursday

• From Token Tuesdays (17-3-2020):

"Well what happens when the price of Ether drops by ~50% within 24 hours like what we saw on Thursday in light of the global pandemic? To state it plainly, a very large number of Vaults get liquidated, effectively triggering a mass Keeper auction. Now while Keepers were swarming to bid on the first round of liquidations (while ETH was still around $190), the price kept dropping, going all the way down to $80.
This effectively created the largest list of liquidation auctions to date. While Keepers fought to participate in tandem with mass margin calls on DEXs like dYdX, gas prices went as high as 200 gwei, roughly 10x their normal costs.
Seeing as Keepers bid on auctions using Dai, the market suffered from an extreme shortage due to demand drastically outpacing supply. What resulted was 99% of Keepers buying what they could, still leaving a large gap in auction capacity. This is when one Keeper decided to do the unthinkable - bidding to buy all the liquidated collateral at $0/ETH.

Seeing as there was no other Keepers with Dai left to counter this bid, the auction *succeeded* and one Keeper made off roughly $4.5M worth of ETH for $0.*"

• From this Medium article (14-3-2020):

"The drop in Ether price along with the blockchain congestion led to emergence of the negative MakerDAO Protocol’s System Surplus (a debt to the platform), which appeared due to 5.67 million DAI being uncollateralized. This problem arose not because of a sharp drop in price and the lack of collateral, but due to manipulations of initiative keepers (liquidators). This happened due to the opportunity to win liquidation auctions with zero bids, which was 36% of all liquidations.

The greatest Vault has lost ~35 000 ETH whereas the most successful liquidator has had a profit of 30 000 ETH.

$8.32 million was withdrawn through zero bids auctions in total. Having examined the data, we found four addresses that used a strategy with zero bids. Together they have earned 62 892.93 Ether.

People, concerned about MakerDAO governance, quickly noticed a problem, dubbing this day as a Black Thursday, and gathered on the Risk Call to plan future actions for eliminating system debt. Instead of Emergency Global Shutdown, a less uncompromising option for the ecosystem was chosen, namely the launch of Debt Auction. At this auction, users will be able to buy freshly minted MKRs for DAI. Auction will dilute the token share of current MKR holders. Dharma created Maker Backstop Syndicate to help them. The Paradigm crypto fund has already gathered to compete with them.

At the same time, new system parameters were selected at the MakerDAO forum, which should eliminate the possibility of repeating such liquidation scenario. The maximum lot size was increased from 50 to 500 ETH, and the duration of the auction rounds was prolonged as well. It is difficult to say how this will affect the system, because such parameters create additional risk and require more capital, but they certainly make it more complicated to carry out fraudulent manipulations in the future. At the moment, these parameters have been implemented, but it took a whole day. The reason of this lag is GSM that was activated three weeks ago, — a module that creates a delay between receiving the required number of votes and the proposal execution.

Maker Reaction and Changes to Black Thursday

• From Token Tuesdays (17-3-2020):

"MakerDAO has also proposed a handful of system changes to combat the issues and return Dai’s peg to its rightful place. These changes include:

1. Lowering the DSR to 0% 
2. Reducing Governance Security Module to 4 hours, instead of the current 24 hour window
3. Implementing a “decentralized circuit breaker” 

Even though the recent introduction of the 24-hour GSM was a safeguard against flash loans, it constrained the ability for MKR holders to react swiftly during times of volatility. In turn, MakerDAO submitted to the proposal to reduce the GSM to 4 hours as a measure to ensure protection against governance attacks while speeding up the turnaround time for new executive votes.

The last major addition to the suite of executive votes includes what effectively is a decentralized circuit breaker, to be utilized only by the authority of MKR holders. The proposed solution, engineered by the Maker Foundation, will enable the ability to temporarily disable Vaults from being sent to the auction liquidation module. To re-enable liquidations, MKR holders would have to pass a subsequent executive vote. It’s important to note that the proposed module lives outside of the GSM and is not subject to the aforementioned 4-hour delay."

Adding USDC

• From CoinDesk (19-3-2020):

"MakerDAO has added a third asset to its decentralized finance (DeFi) platform, USD Coin (USDC), in response to the system’s flagship stablecoin, dai, continuing to float above its dollar peg."

More details and discussion on the implications on decentralization can be read in the link.

• Here’s a thread on why USDC was chosen as the newest form of collateral.

• From Our Network #14 (26-3-2020):

"As of March 24th, Dai is currently still trading above the peg at around $1.03 but the situation has improved by at least $0.02 since USDC collateral was introduced and market makers arbitraged the price."

Maker taking blame or not?

• Some people argued that the Maker Foundation should redeem losses of users. From CoinDesk (25-3-2020):

“A well-funded project, like MakerDAO, should own up to these mistakes and take responsibility for them.

The Oasis Dapp, created by MakerDAO, clearly stated that the liquidation penalty would only be 13 percent. This instruction was highly misleading and underrepresented the risk to users."

Aftermath

• From Our Network #14 (26-3-2020):

"Stats during this period of extreme volatility from March 12-16:

1. During the 3 days of liquidations, Maker lost $5.8m and Vaults lost $7.1m (or 90% of remaining collateral value), while Keepers earned $10.7m (83% ROI). Note: the difference between the higher overall loss vs. total profits is due to falling prices during the auction duration as well as an oracle price delay. Also, Vault losses include penalty fees and price exposure loss during auctions for their remaining collateral.
2. The loss for Maker equals 2.3x its yearly burn rate if we extrapolate the first 3 month of MCD net revenue cashflow ($624k). The Maker system also lost more than it has earned since inception, as total MKR supply after debt auction has now surpassed 1m MKR.
3. If auctions would have worked as planned (i.e. bid from keepers would be at least 13% above all debt that was liquidated), Maker would have instead earned $2.4m in penalty fees and incurred zero loss. That said, Maker still earned almost $1m in penalty fees on some loans.
4. While most of the losses came from ETH-collateralized Vaults from March 12-13, there was also an insignificant amount of losses generated on March 16 from BAT-collateralized loans. On that day, keepers bid ~50% below debt value as BAT’s price and liquidity worsened heavily. Losses from BAT loans amounted to $340k for Maker and $410k for Vault owners."

MakerDAO Token Holders Vote to Compensate Vault Owners

• From The Defiant (10-4-2020):

"Most holders of MakerDAO’s MKR tokens are voting to compensate borrowers who lost 100% of their collateral stemming from the March 12 crash when the loan liquidation system broke down.

The poll, which started on Aril 6 and will be live for 7 days, had 65% of holders voting to compensate so called- Vault owners."

Critics

• From this post by Preston Byrne:

"It is my belief, and the belief of every professional person I know and respect, that MakerDAO is a shitcoin and Dai is a trash fire. The language scheme promoters use to describe it is confusing (e.g. “stability fee” instead of “withdrawal penalty”), the promises they make are overblown, the representations they have made for the scheme have changed multiple times over the past 20-odd months to match the observed behavior of the scheme, and the behavior of the USD peg was and remains highly unnatural, with little evidence of an organic market and considerable evidence of artificial trading activity.

The second-layer solutions being built on top of it are amateurish, even reckless, and the investors funding these solutions and companies seeking to rely on them are as foolish as anyone who believes that repackaged Ether is safer than AAA-rated debt. Which is what these people actually believe.

In my 35 years of life the practice of market making has not escaped my notice. I do not take issue with market makers or market making. I take issue with the fact, as I explained on the podcast, that in January 2018, on Dai’s largest market, with daily volumes of $2.6 million, the loss of one bot eliminated all but $300 of volume, being 99.9998846% of the volume on that market. I especially take issue with the fact that Rune Christensen explained this away as “a bot going down” and gullible and inexperienced young grasshoppers such as Leibowitz accepted the explanation on faith without bothering to actually do any follow up. 20 months later, I’m still waiting for someone, anyone, to do the follow up."

Possible Treasury Attack

• Micah Zoltu published a blog post (9-12-2019) describing an attack on MakerDAO that, he argued, could empty all the ETH from the system. From CoinDesk:

"The problem, Zoltu writes, is in how Maker is governed: “Some group of plutocrats can control how the system behaves.” The attack would only be feasible for a few MKR whales if they wanted to act quickly. Zoltu said that 40,000 MKR would be enough if the attack had some sophistication. As of this writing, 48,400 MKR, based on the staking approach of the Maker voting system, could do it right away.

The best thing MKR holders who care about securing the protocol can do, according to Kampmann, is stake their MKR on votes. The more that's staked, the more expensive this attack will be, and there is a lot of MKR on the sidelines right now."

a16z as of time of writing did have enough coins to do such an attack.

UPDATE: The Maker Foundation has introduced a new security proposal (9-12-2019) to set a 24-hour governance delay on new executive contracts.

MetaCoin and Centralized points of failure

• From this announcement (10-2-2020) of launching "MetaCoin—The Governance-Minimized Decentralized Stablecoin", which would become a competitor of Maker:

"The complexity [of MakerDAO] also hides centralized points of failure, some of which are exceptionally severe and can result in a catastrophic and instant loss of all ETH in the system. Case in point, MakerDAO currently has at least four custodians , each of whom can, at will, steal 100% of the ETH collateral deposited in MakerDAO, also print a gajillion DAI, and then use that DAI to steal 100% of the ETH liquidity offered for the ETH/DAI pair across all decentralized exchanges (e.g. Uniswap) and lending protocols (e.g. Compound). The custodians, the Maker Foundation, a16z, PolyChain, and Dragonfly, could execute this entire heist in a single atomic Ethereum transaction, before anyone has a chance to respond."

DSR doesn't have negative interest rates

• From this blog's comment section (10-2-2020):

"One of the major oversights of the DSR is the fact that the interest rate (as far as I know) cannot be negative. Although a negative interest rate might seem counter - intuitive it actually is quite reasonable in this system, since the collateral is quite volatile and is prone to large and swift price drops. In the situation of a large expected price decrease, the stablecoin (DAI/COIN) can see heavy buying pressure (as a safe asset) at the same time that CDP holders/ depositors what to burn the stablecoin and cover their longs to prevent loses. In this situation, the market clearing interest rate to hold COIN at $1 (and not break upward) might be significantly negative to cover the expected losses of ETH holders in the system (eg. COIN holders paying for the safety of the stablecoin). The post doesn’t mention if interest rates can be negative, but I think it’s important to keep this scenario in mind and not assume the interest rate must be positive in all cases."

Adding Centralized Collateral

• From this piece (12-5-2020):

"MakerDAO and Compound recently introduced support for crypto dollars such as USDT and USDC. This was welcomed with some critique, which we think is partly unfair. Using crypto dollars as collateral does not affect the open-source nature of a project like MakerDAO or Compound in the long-run.

First, the support for those assets is decided through governance, which means that the support can always be withdrawn later.

Second, should the crypto dollars in question be seized, this would only affect the specific synthetic assets backed by them — the protocol itself would not be affected (potential reputational harm aside).

Third, since a majority of Main Street will enter crypto to improve transaction efficiency — not because of a distrust in the US dollar — adopting crypto dollars makes sense. The demand for crypto-native money (BTC & ETH) will most likely be a result of Main Street users experiencing issues or limitations when transacting with crypto dollars.

Finally, if the governing stakeholders think that the pros of adding crypto dollars outweigh the risks, they should be incentivized to add size, diversification, and liquidity to their collateral pools using crypto dollars."

Team, investors, partners, etc.

Team

• Has a big team. Maker Ecosystem Growth Holdings, Inc. is located in the Cayman Islands.
• Rune Christensen; CEO, founder, de facto legal responsibility for the project.
• Andy Milenius; old CTO, left 28-4-2019
• Steven Becker; President & COO, previously Head of Risk
• Matt Richards; old COO, left 9-8-2018.
• Wouter Kampmann; Head of Engineering
• Ethan Bennett; Developer
• 'Coulter'
• Primož Kordež; Part of MakerDAO Interim Risk Team
• Qijun; Advisor - China
• Casey, Ryan; one of the creators, worked on Maker together with Nexus
• Martin Lundfall; Formal Verification Researcher @ Ethereum Foundation & DappHub
• The Dai Foundation, as it will be called, is going to be located in the small Swiss town of Zug. Update: (31-12-2019): "The Dai Foundation is based in Denmark and is independent of the Maker Foundation. Currently, its application to operate as a non-profit entity is under Danish government review."
• Nikolai Mushegian; co-founder and also founder of Balancer
• Fernando Martinelli; was early on involved and is now co-founder and CEO of Balancer Labs (16-11-2020). 
• Mike McDonald; was early on involved and is now CTO of Balancer and met Fernando at MakerDAO. 
• Jacek Czarnecki; Global Legal Counsel (27-4-2021).
• The Maker Growth Core Unit; "The Maker Growth Core Unit is a company born out of the MakerDAO community, dedicated to the continued growth of the Dai stablecoin and the Maker protocol through strategic partnerships and business development." (6-2021)
• Bartek Kiepuszewski; has been a blockchain architect at MakerDAO since 2017.

Funding

• Is being backed and advised by Polychain Capital
• The newly created, a16z crypto, dedicated crypto fund by Andreessen Horowitz has purchased 6% of the total MKR token supply for $15 million USD. "The strategic purchase in MakerDAO is one of the first from a16z crypto, the newly created, dedicated crypto fund from Andreessen Horowitz. The move was driven by General Partner Katie Haun, an accomplished former federal prosecutor who led the first government task force on cryptocurrencies and also led the investigation into the Mt. Gox hacks and into the federal task force investigating Silk Road. “As a first mover and innovator in stablecoins, MakerDAO represents a very compelling opportunity in the crypto space,” said Katie Haun, “MakerDAO’s technology, ecosystem and talent have put theory into action to deliver a decentralized stablecoin that we believe will help drive the future of the crypto economy.” As part of this partnership, MakerDAO will receive operating capital through the next growth stage, 3 years of support for the MakerDAO community, and most importantly, full operational support from the 80+ person Andreessen Horowitz a16z team. Specifically, Dai Stablecoin adoption and regulatory support are two of the first priorities.
• From this CoinDesk article (19-12-2019):

"Venture funds Dragonfly Capital and Paradigm have acquired $27.5 million worth of MKR tokens and plan to take part in the Maker Protocol's governance system. Announced Thursday by the Maker Foundation, the $27.5 million raised will fund the foundation's efforts to promote dai adoption in China and the broader Asia region. It's expected Dragonfly and Paradigm, who already have a strong presence in the region, will advise on the expansion.The joint purchase means Dragonfly and Paradigm now control approximately 5.5 percent of the total MKR token supply. Combined, the acquisition makes Dragonfly and Paradigm the second-largest private holder of MKR tokens. VC firm Andreessen Horowitz remains the single largest private holder with the 6 percent stake it acquired in September 2018."

• "The Stable Fund is an investment fund started by L4, in partnership with MakerDAO. We help startups using the Dai Stablecoin System with business development, financing, and strategic introductions.

Our team and immediate network is comprised of Ethereum founders and early backers and founders of billion dollar companies. When Stable Fund startups get funding, they're joining that network."

• From Token Tuesdays (20-8-2019):

"In December 2017, Maker sold $12 million MKR in a private round to a group of investors led by Andreessen Horowitz and Polychain capital in addition to receiving investments from Distributed Capital Partners, 1Confirmation, FBG Capital, Placeholder VC, Wyre Capital and others. A year later, in December 2018, Maker announced that Andreesen Horowitz had purchased an additional $15M in MKR. Even with the limited investors in the private sale, MKR still bolsters nearly 14,000 addresses holding the token. However, according to Etherscan, the top 100 holders control 89.71% of the supply including exchange wallets. 

• Is part of the portfolio (9-3-2020) of 1confirmation. 
• Is an investor in Tellor (16-8-2020). 
• ConsenSys announced (19-4-2021) a $65m fundraising round which this project was a backer for.
• Has a bunch of less known VC investors owning a stake of Oasis, even though it was promised this would not happen (11-2021).

Partners

• Has a partnership with MARKET Protocol (still as of 8-2019)
• Has a partnership with Digi Global (still as of 8-2019)
• Part of the WBTC community (still as of 8-2019)
• Is a founding member of the ECF
• Using the 0x protocol
• Works together with Loom Network (19-9-2019)
• Partners with Wyre (As of 28-10-2019 on the website of Wyre)
• Is a part of a larger team that is participating (4-3-2020) in building Baseline Protocol (announced by ConsenSys and EY).
• Partners with Request Network according to their website (21-4-2020).
• Partners with Groundhog, according to their website (21-4-2020).
• Partners with Mosendo, according to their website (21-4-2020).
• Is a member of the Ren Alliance (19-6-2020).
• Is a member of the Global DeFi Alliance of Huobi (17-8-2020).
• Is mentioned as a protocol that will work with Skale (10-8-2020).
• Is mentioned as a partner on Ontology's website (2-11-2020).
• Created xDai in partnership with POSDAO (7-3-2021).
• Partnered with Mask Network (17-11-2021).
• MAMA, a member, according to their website (27-4-2021).
• Integrated with Maple (12-4-2022).
• Runs a validator on Klaytn (1-9-2022).