$MKR MakerDAO is a cryptocurrency protocol – a set of rules and actions that determine how a specific type of cryptocurrency works. MakerDAO (which stands for “Decentralized Autonomous Organization”) started in 2014 and operates on the Ethereum blockchain. MakerDAO issues governance tokens, called MKR, which allow token holders to participate in the governance and policymaking of the DAO, as well as the stablecoin DAI.
DAI is a specific type of cryptocurrency that is governed by the rules[1] of MakerDAO. DAI is a type of cryptocurrency token known as a stablecoin, which means that the value of 1 DAI is “soft-pegged” to $1 USD at all times. DAI is a form of cryptocurrency that is more stable because its value does not fluctuate constantly – hence it is called a “stablecoin”.
This peg is maintained because anyone who wants to create or borrow DAI must open a Maker collateral vault and deposit Ethereum-based assets as collateral. The value of the collateral held in the vault must always exceed the value of the DAI issued. If the value of the collateral falls below the value of the DAI generated, the collateral will be automatically liquidated by a smart contract to ensure that the value of DAI does not fall below the soft peg of $1 USD.
This makes DAI an algorithmic stablecoin that also has some characteristics of crypto-backed stablecoins.
