MakerDAO is the oldest major DeFi protocol and the creator of DAI, the first widely adopted decentralized stablecoin. Since 2017, Maker has facilitated billions in DAI issuance through its overcollateralized vault system. In 2023, MakerDAO announced a rebranding to "Sky" with new tokens USDS (rebranded DAI) and SKY (rebranded MKR), though the transition is gradual and both DAI and MKR remain widely used.
How MakerDAO Works
Unlike pooled lending protocols, MakerDAO works through individual Vaults (formerly called CDPs — Collateralized Debt Positions). Users lock collateral — ETH, WBTC, stETH, LP tokens, real-world assets — and mint DAI against it. DAI is always created as new supply and must be burned (repaid) to retrieve collateral. The system maintains DAI's $1 peg through the Stability Fee (interest on borrowed DAI) and the DAI Savings Rate (yield paid to DAI holders who lock it in the DSR contract).
Collateral Types
MakerDAO has expanded far beyond ETH collateral. It now accepts: - Liquid staking tokens (stETH, rETH) - LP tokens (Uniswap, Curve positions) - Real-World Assets (RWA): US Treasury Bills via Centrifuge, Monetalis, BlockTower - Institutional credit facilities
RWA has become Maker's largest revenue source, with over $2.5B in treasury bills generating ~5% yield that flows back to MKR holders and the DAI Savings Rate. This shift toward real-world yield has been controversial — it introduces counterparty risk and regulatory exposure.
The Stability Fee and DSR
The Stability Fee is an annual interest rate charged on DAI minted from each vault type. Rates differ by collateral: ETH vaults typically run 5–7% SF, while RWA vaults may have lower rates due to their yield directly funding the protocol. The DAI Savings Rate — currently 6–8% — pays holders who deposit DAI into the DSR, making it a compelling alternative to bank savings accounts.
Sky Rebranding
The Sky rebrand introduces USDS as an upgraded version of DAI with enhanced compliance features (including a potential freeze capability for regulatory purposes) and SKY as a higher-supply governance token replacing MKR at a 1:24,000 ratio. The Spark Protocol — a separate lending protocol built on top of Maker — is now the primary interface for users to borrow USDS/DAI.
MKR Token Economics
MKR functions as the lender of last resort. If DAI becomes undercollateralized (e.g., during a rapid ETH price crash before liquidations clear), the protocol mints and auctions new MKR to cover the deficit. Conversely, when the protocol accumulates surplus, it buys and burns MKR — historically one of DeFi's most consistent token burn mechanisms. Over $500M in MKR has been burned through surplus auctions.