MakerDAO: An Overview
MakerDAO (now Sky) is the decentralised protocol behind DAI — one of the oldest and most trusted decentralised stablecoins — and one of DeFi's foundational governance organisations, having pioneered collateralised debt positions and on-chain governance since 2017.
Quick answer
MakerDAO (now Sky) is the decentralised protocol behind DAI — one of the oldest and most trusted decentralised stablecoins — and one of DeFi's foundational governance organisations, having pioneered collateralised debt positions and on-chain governance since 2017.
MakerDAO is a decentralised autonomous organisation and smart contract platform on Ethereum that issues and manages DAI — a decentralised stablecoin pegged to the US dollar through a system of overcollateralised debt positions. Founded by Rune Christensen in 2014 and launching its Single-Collateral DAI system in December 2017, MakerDAO is one of the oldest continuously operating DeFi protocols and a foundational piece of the decentralised financial ecosystem.
DAI is fundamentally different from centralised stablecoins like USDC or USDT: rather than being backed by actual dollar deposits in a bank account, each DAI is minted by a user who deposits cryptocurrency collateral worth more than the DAI they create. This overcollateralisation provides a buffer against collateral price declines, and the protocol's liquidation mechanism ensures that DAI remains fully backed even during sharp market downturns.
Collateralised Debt Positions and Vaults
The mechanism through which DAI is created is a Collateralised Debt Position (CDP), now called a Vault. A user deposits an accepted collateral asset — ETH, wBTC, stETH, LP tokens, and others — into a Maker Vault smart contract and receives DAI in an amount up to a protocol-defined percentage of their collateral's value. For example, with a 150% minimum collateralisation ratio, a user can create 100 DAI by depositing at least $150 worth of ETH.
If the value of the deposited collateral falls below the minimum collateralisation ratio (due to a declining collateral price), the Vault becomes eligible for liquidation. Keepers — automated bots monitoring the system — trigger liquidations and purchase the collateral at a discount through an auction process. The stability fee — an annual interest rate charged on outstanding DAI debt — is paid in MKR tokens, which are burned, creating a deflationary mechanism for MKR when the system operates profitably.
Multi-Collateral DAI and Real-World Assets
MakerDAO's transition from Single-Collateral DAI (backed only by ETH) to Multi-Collateral DAI in November 2019 significantly expanded the system's capacity and resilience by diversifying the collateral base. In subsequent years, MakerDAO has been at the forefront of integrating real-world assets (RWAs) into DeFi: the protocol now holds billions of dollars in US Treasury bills and other fixed-income instruments as DAI backing, accessed through institutional partners and trust structures.
This RWA integration has made DAI's backing partially centralised — US Treasuries are held by regulated entities subject to governmental jurisdiction — prompting significant debate within the Maker community about the appropriate balance between censorship resistance and capital efficiency. The stability fee income from RWA vaults has, however, made Maker one of the most profitable DeFi protocols, generating substantial revenue for MKR holders.
The Sky Rebrand and Endgame
In 2023, MakerDAO founder Rune Christensen introduced the 'Endgame Plan' — a comprehensive restructuring of Maker's governance and product architecture. As part of Endgame, MakerDAO rebranded to Sky, with the MKR governance token migrating to SKY and DAI evolving toward USDS (Sky Dollar). The Endgame plan also introduced 'Sky Stars' — semi-autonomous sub-DAOs each responsible for a specific product or market segment within the Sky ecosystem.
Sky/MakerDAO remains one of the largest and most important DeFi protocols by any measure: DAI consistently ranks among the largest decentralised stablecoins by market capitalisation, and the Maker protocol's governance processes — conducted through on-chain MKR votes — represent some of the most consequential decisions in decentralised finance, affecting billions of dollars in TVL and the DAI peg that countless other DeFi protocols depend upon.
Frequently Asked Questions
What is MakerDAO?
MakerDAO (now Sky) is the decentralised protocol behind DAI — one of the oldest and most trusted decentralised stablecoins — and one of DeFi's foundational governance organisations, having pioneered collateralised debt positions and on-chain governance since 2017.
How does MakerDAO work?
MakerDAO operates through smart contracts deployed on the Ethereum blockchain. Users interact directly with the protocol via a web interface or wallet integration — no account creation or KYC is required. All operations are settled on-chain and are publicly verifiable.
Is MakerDAO safe to use?
MakerDAO has undergone smart contract audits and is among the more established protocols in DeFi. However, all DeFi protocols carry inherent risks including smart contract vulnerabilities, oracle failures, and liquidation risk. Users should only commit funds they can afford to lose and review the protocol's audit reports before participating.
What blockchain is MakerDAO built on?
MakerDAO is primarily deployed on Ethereum. Many leading DeFi protocols are also expanding to Layer-2 networks such as Arbitrum, Optimism, and Base to reduce transaction costs and improve throughput.
What are the risks of using MakerDAO?
Key risks include smart contract exploits, governance attacks, oracle manipulation, liquidity crises, and regulatory uncertainty. DeFi protocols are uninsured — losses from exploits are typically not recoverable. Always review audits and understand the mechanism before depositing funds.
How do I get started with MakerDAO?
To use MakerDAO, you need a self-custody wallet (such as MetaMask or Rabby), ETH for gas fees, and the relevant tokens for the action you want to perform. Visit the official protocol interface, connect your wallet, and follow the on-screen steps. Start with a small amount to familiarise yourself with the UX.
What token does MakerDAO use?
MakerDAO typically has a native governance token that allows holders to vote on protocol parameters, fee structures, and treasury allocations. Check the protocol's documentation for the current token ticker, total supply, and distribution schedule.
Who created MakerDAO?
MakerDAO was founded by a team of blockchain developers and DeFi researchers. The protocol is typically governed by a decentralised autonomous organisation (DAO), meaning ongoing development and parameter changes are decided collectively by token holders rather than a central company.
What is the total value locked (TVL) in MakerDAO?
MakerDAO's TVL fluctuates with market conditions and can be tracked in real time on DeFiLlama (defillama.com). TVL measures the total value of assets deposited into the protocol and is a key indicator of user confidence and liquidity depth.
How does MakerDAO compare to other DeFi protocols?
MakerDAO is differentiated by its specific mechanism, fee structure, and supported assets. Comparing protocols should include factors such as audited security posture, capital efficiency, governance maturity, cross-chain availability, and historical uptime. DeFiLlama and Dune Analytics provide side-by-side comparative data.