Into the Maker

MakerDAO is probably the oldest DeFi protocol still existing and thriving. DAI is the most popular decentralized stablecoin, whose reach spreads across EVM chains. DAI is a foundational layer in the entire DeFi ecosystem.

Governing this system is MakerDAO. MakerDAO has a unique position in the space. It is the biggest DAO, with a committed team, a byzantine organizational structure, and complex political governance. Given that DAI is so vital for DeFi, a healthy functioning MakerDAO is essential.

DAI is essential to the DeFi puzzle, and MakerDAO is running the show.

MakerDAO is one of the few DAOs that collects and publishes yearly financial information on their performance. In this report, we analyze MakerDAO to see how it performed in 2022 and weathered current market conditions. Key things to look at are positive and negative catalysts, how the traditional markets may affect Maker, and how it’s stacking up compared to competitors.

An Overview of the Business Model

MakerDAO’s business model is simple.

The system creates vaults for assets with a set amount of mintable DAI attached. Users can deposit assets into these vaults to mint DAI up to a loan-to-value (LTV) ratio determined by Maker governance. This model is generally known as a CDP, or collateralized debt position, and is a popular mechanism for stablecoin issuance in DeFi. It allows users to post collateral and mint debt tokens (DAI) against it.

Collateral deposits in MakerDAO accrue interest, called a stability fee, which users pay when they pay down their loan. MKR token holders actively manage the stability fee — setting it lower or higher in response to DAI demand to help it maintain its peg to $1. If collateral drops in value and the LTV has reduced below the threshold of the vault, then liquidators can liquidate the position.

The CDP model has proven to be resilient and popular in DeFi. MakerDAO has a handful of competitors that copy their basic model but add in their own twists. MakerDAO remains the most popular protocol among its competitors. Notably, the protocol has expanded beyond crypto asset collateral to begin onboarding real-world assets.

Business Metrics

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