MakerDAO is a decentralized lending structure established on the Ethereum blockchain. The Maker platform makes use of smart contracts to automate its lending functions and support its stablecoin DAI anchored to the US dollar (USD).
Therefore, unlike other lending and stablecoin projects, MakerDAO does not need any central company or entity to manage the overall lending process or store collateral in fiat currency to ensure DAI’s stability.
To access, any user can deposit or send Ether (ETH or other supported tokens such as BAT) to Maker’s smart contract, creating a Collateralized Debt Positions (CDP) and generating the corresponding DAI.
The ETH or other tokens are locked into the CDP as collateral and the generated DAI act as a debt against that collateral with the corresponding collateralization ratio (stability fee or interest rate) which is paid in Maker (MKR) when the borrowed DAI is repaid.
The Maker token (MKR) is the governance token of the MakerDAO platform, whose value derives both from the governance role and from the collateralization ratio, paid by the borrowers who create DAI. When the DAI are repaid, the MKR used are burnt.