How To Build Decentralized Finance (DeFi) Lending Protocol Like MakerDAO

DeFi lending protocol like Maker

Create DeFi Lending Protocol Like Maker

With a big boom in demand for Decentralized Finance (DeFi) applications, the total value locked has crossed $33.95 billion, indicating the sector’s rapid growth. The industry will expand more in the future with better interoperability, the collaboration between different protocols, and the use of layer 2 technology.

MakerDAO is one of the ambitious projects out there in the industry. Built on the robust Ethereum blockchain network and launched in December 2017, it mainly focuses on lending credit to borrowers. It has received more than $5.89 billion of funds into its platform. The Maker (MKR), an ERC20 token, is currently trading at $2285 and is the largest DeFi token in the market.

A Brief History and Must-Know Facts About MakerDAO

  • The brain behind the Maker DeFi protocol is an entrepreneur named Rune Christensen who is also the CEO of the DeFi platform. He founded the project in 2014.
  • It received a capital investment of $15 million from a venture capital company located in Silicon Valley named Andreessen Horowitz in 2018. It was done in exchange for a 6% in the total circulation of the MKR crypto token.
  • The main aim of the platform is to create an unbiased and non-volatile currency for the entire world.

How Does MakerDAO Work?

Create DeFi protocol like Maker

It issues loans to users at a specific interest rate for a certain period without the involvement of any middlemen. The value of loans is monitored by DAI and MKR. Depending on the amount of credit granted, enough capital must be locked in the form of collateral submitted by the borrower. The holders of MKR tokens can influence the stability fees and the collateralization ratio.

Lower the stability fee, greater would be the amount of DAI sold in the markets leading to an increase in the number of collateralized debt positions (CDPs) being opened. The supply of MKR can be increased depending on the level of stability in DAI. It has attractive incentive mechanisms and values feedback from the investors in aspects like the expansion of the platform.

Governance proposals involve voting by the users, and Executive proposals will take care of risk management while distributing credit. In case there is an emergency shutdown of the platform, there will be three phases. Vault owners can withdraw all their assets from Maker, an auction will happen to distribute the collateral, and holders of the DAI stablecoin have the right to claim their remaining funds.

Analyzing the Important Features of the DeFi Protocol Like Maker

  • Access to the DAI stablecoin for the users. Its value is pegged directly to the US Dollar. DAI is offered to the users whenever they deposit Ethereum cryptos as a form of collateral in their debt position.
  • DAI has a multitude of use cases like payments, as a medium of exchange, as a unit of account, trading, and investment.
  • DAI can be obtained from platforms like Coinbase, InstaDApp, and wallets like MyEtherWallet, and Argent. It can be bought and sold on 144 cryptocurrency exchanges in the world.
  • Maker token is available for trading on leading cryptocurrency exchanges like Binance, Huobi, and OKEx.
  • The holders of the DAI stablecoin get variable interest rates as their returns in the form of DAI Savings Rate (DSR).
  • The price of DAI is maintained by the platform using Ethereum-based smart contracts.
  • Voting rights for the holders of MKR token is given to take part in the governance of Maker’s DeFi platform.
  • Integration is provided with various DApps, DeFi projects, and games for the users.
  • Oracles that supply information about prices of assets in the form of off-chain data to the entire Maker ecosystem.
  • MKR’s value depends on the market conditions, the rate of burning of MKR tokens, and total supply.
  • DAI can be borrowed by the users for up to 66% of the value of their collateral, and the ratio of collateralization must be 150%.
  • The stability fees have to be paid by the borrowers to ensure that the price of DAI does not fall below the $1 mark.
  • It has a dedicated portal named Oasis that is utilized by the users to manage their vaults, for depositing DAI into the DSR, and obtaining all the latest information.
  • Users cannot supply the MKR token or exchange it with each other.
  • Since the user base is large and there is strong community support, the network fees may be high for the traders sometimes.

The Latest Developments Witnessed in the DeFi Lending Protocol Maker

  • Community Gaming, a platform that conducts a lot of Esports tournaments, recently teamed up with MakerDAO. The participating players will receive their prizes instantly in DAI. The tournament has been named the League of Legends with a total prize pool of 1200 DAI.
  • Breach, a cyber insurance and risk management solution provider, partnered with Maker, offers a cyber insurance policy with collateral in Bitcoin supported by MakerDAO’s platform. This will be used by retail investors, institutional traders, and custodians of assets.
  • Maker joined hands with FirstBlood Technologies to allow users to play competitive games on PlayStation and Xbox. Along with FirstBlood’s token named $Dawn, DAI will be used to distribute rewards and prizes to the players. Users will be encouraged to register and compete as 10000 DAI will be offered as prizes.
  • MakerDAO and another DeFi platform named Dharma launched a contest to reward users in DAI for their creative memes posted on Twitter. Around 1 to 5 DAI will be offered for every meme.
  • DAI was offered as one of the payment methods on Coinbase Commerce that is also integrated with the users of Shopify and WooCommerce. It can be used by merchants anytime.
  • The demand for DAI stablecoin has skyrocketed in Argentina as the Peso fiat currency has been performing very badly. The currency’’s value has been devalued frequently, and the inflation rate in the country has crossed 30%. DAI has been increasingly bought by traders in the nation’s cryptocurrency exchanges like Bitso, Ripio, Decrypto.
  • Maker collaborated with Simplex, a digital payment service provider, for creating a fiat-on ramp for the DAI stablecoin. Users can purchase DAI using debit and credit cards through Simplex’s platform. It will also provide access to various digital assets.

The Future in Store for MakerDAO Lending Protocol

Last year, there was a flash loan attack that led to the loss of funds for some users on the platform. Hence, the platform was made secure with changes in the governance system by Maker. Since it was used to modify the election results of MakerDAO, the members have decided to extend the time for reviewing a proposal from 12 hours to 72 hours to remove unfair votes from the system.

Hereafter, if there are any security risks on Maker’s platform, the oracle service and the liquidation engine will be automatically deactivated to ensure user safety. DAI is the third-largest stablecoin in the market behind Tether (USDT) and USD Coin (USDC).

The Maker Foundation that manages MakerDAO will become more decentralized in the years to come. The long-term structuring of the organization will revolve around elected paid contributors and domain teams who will take care of approving Maker Improvement Proposals and delegation of votes of MKR token holders.

As the DeFi space becomes more competitive and the market starts maturing in the long run, Maker will play an important role as the leader of the decentralized lending industry. This will make DAI a vital player in the global financial system.

How to Build DeFi Lending and Borrowing Protocol Like Maker

The market conditions are highly favourable now to launch a Lending and borrowing platform like Maker by teaming up with experienced blockchain developers of Blockchain App Factory.

An easy-to-use platform with top-notch features will be delivered, leading to a heavy inflow of revenue. This will achieve all the desired results for the business firm successfully.

The users have to go to the Collateralized Debt Position (CDP), and they can start earning interest on their DAI holdings. Digital wallets like MetaMask can be used to store their funds safely. The investors have to keep a close watch over the liquidation price, liquidation penalty, collateralization ratio, the DAI savings rate, and the stability fees. Then, the users can get a loan in DAI by using the Ethereum-based smart contracts.

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VanessaJane is a Blockchain Consultant, been in the Software Development Industry for the last 4+ years.

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