A stable coin to kill traditional secured loans: Ladies and Gents meet Maker Dai
Ethereum, smart contracts and a stable coin. the perfect setup for disruptive innovation, in this case: Maker DAO. But first, lets go through some basics.
What is a loan?
We all know that one: A loan is the lending of money by one or more individuals. The borrower incurs a debt and usually pays interest on that debt until it the amount borrowed is repaid.
What is a secured loan?
A secured loan is a type of loan in which the borrower places some asset (e.g. a car or property) as collateral for the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset, example: mortgage.
How much does a personal secured loan cost?
Prices for secured loans vary according to the financial institution, loan amount and period. But they can go as high as 36% interest rate per year.
I don’t know about you, but I think it’s s!$%@.
Could it be possible to have a decentralized and transparent loan platform?
Ladies and Gents: meet “MakerDAO”
In Summary, what is MakerDAO?
- Maker has 2 tokens: MKR and Dai. Both built on the Ethereum blockchain.
- 1 Dai = 1 USD, Dai is a stable coin its value is pegged to $1 by economic mechanisms and smart contracts. The best part is that its 100% decentralized. How the stable price is achieve deservers an article of its own, so I will leave it for another talk, for now trust me it works.
- I’m not talking BS, its really working pretty well, take a look at the price graph:
- The MKR token is the main token of the platform. It’s price can fluctuate like any other crypto. MKR is used to pay interest of the loans and as a governance token.
- MKR and Dai work together with smart contracts and CDP “Collateralized Debt Position”. The CDP needs to have an excess on collateral to guarantee the debt position.
Whats the main deal?!
Im gonna be straight, using Maker you can take loans at 0.5% annual interest. (at time of writing).
Yep, that’s right 0.5%, far better from 36%… Example: you take a 1000 USD loan, after 1 year you will have to pay $5 on interest. Good deal I’ll say.
How does it work?
The main flow is the following: (I’ll assume you know how to use Metamask and have eth in your wallet, if not there are plenty of tutorials).
- Enter dai dashboard (https://dai.makerdao.com/)
- Create a CDP by locking ETH on a smart contract
- Withdraw your loan (in dai)
You can do these for steps using dai platform, as of 2018 it looks like photo bellow. It’s not the best UX. I’ll say right now you must be an advance crypto user to use it. But things will get easier and simpler for more people to use, just give it time.
So you collateralize debt by creating a CDP and locking ETH ( further tokens will be added in the near future). Once you lock ETH, you can withdraw Dai, which has a value of 1 USD. You can then sell Dai on an exchange and use the money as you want. After you have enough parties you can pay your loan back whenever you want at an anual interest rate of 0.5%.
You can do more cool stuff with Maker System (more advanced):
- Arbitrage
- Levarage
- Hedge
My personal experience
I was able to get a $1000 loan in less than 5 minutes, didn’t have to sign any papers or make any stupid waiting line. No government or financial institution had to approve or review my loan. I’m free to pay my debt or withdraw more dai at any time. “I felt really exited for getting my first decentralized loan” — — geeky comment I know.. ¯\_(ツ)_/¯
Recently I attended the global ETH hackathon (Argentinean Team wins “Best Aragon Network Project” at the ethglobal). During the hackathon, we met a dude who had taken a loan using MKR and Dai to buy his car, after purchasing the car, he payed his debt and it was all done. No Banks, government or financial institution on its way, just peer to peer.
So is this working already?
Oh, yeah baby. You can check out Maker stats at MKR Tools. Right now we are sitting on 160M USD locked as collateral. Not bad, not bad..
Top CDP has 21K ETH locked in, thats around 9.870.000 USD. That guy is definitely not fooling around.
Conclusion
Right now we are sitting on the cradle of the next technological generation. A big wave of innovation is coming to us really fast since the creation of Bitcoin. The development of blockchain projects has been exponential over the last 2 years. Decentralization as it’s main engine.
On one hand we have a stable coin, Dai. Bitcoin is constantly criticized for its natural fluctuation and we don’t have many arguments to throw back. With Dai we can make the long transition from “Fiat to Crypto” much better by having a 1$ coin. Business and smart contracts can use Dai for prices and transactions.
On the other hand we have MKR and CDPs. A very fast, secured and transparent platformto make secured loans in just minutes.
Both tokens work side by side to achieve their goal.
Maker has proven to be one the best blockchain projects at the moment for the working product they have. I recommend everyone in crypto right now to try it out. Claps to Maker team and community, lets keep it coming!
with lov, M.
— — — — — — — — — — —
Sources and further reading:
https://makerdao.com/ https://makerdao.com/whitepaper/DaiDec17WP.pdf
Also take a look at Dai’s introduction video:
#ethereum #smartcontracts #makerdai #decentralization #maker #dai
