[Research] Maker - a16z

9/24/2018

Executive Summary

Price stability is a key feature for the adoption of crypto, unlocking use cases including payments, lending, derivatives and betting. One approach is backing a token 1-1 with the U.S. dollar, however that eliminates the censorship resistance as a regulated entity needs to custody the dollars. Another approach is to over collateralize with digital assets, maintaining the key feature of trustlessness.

The MakerDAO platform allows anyone to take out an over-collateralized loan receiving a stablecoin Dai in the process, which can then be used in a permissionless fashion. If the collateral begins to lose value and falls below the 150% collateralization ratio, it is sold off to repay the debt ensuring loans do not go into default.

The governance token Maker ($MKR) offers voting rights over critical network parameters such as the stability fee, collateral type and amount required, amount of debt that can be issued, etc. It is also used to pay the stability fee which is then burned acting somewhat like a share buyback allowing holders financial exposure to the growth of the network.