Dai is the largest decentralized stablecoin on Ethereum, developed and managed by MakerDAO, and is the infrastructure of decentralized finance (DeFi). Dai is issued as a guarantee of full collateralization of assets on the chain, and maintains a 1:1 anchor with the U.S. dollar, 1Dai=1 U.S. dollar. Individuals and businesses can obtain safe-haven assets and liquidity by exchanging Dai or mortgage Dai. Dai has been applied in mortgage loans, margin transactions, international transfers, supply chain finance, etc.

The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, allows users to generate Dai by leveraging "Maker Governance"-approved collateral assets. Maker governance is the process by which the community organizes and operates to manage all aspects of the Maker protocol. Dai is a decentralized, unbiased, collateral-backed cryptocurrency pegged to the U.S. dollar. Dai's low volatility is resistant to hyperinflation, providing economic freedom and opportunity to anyone, anywhere.

1. Project introduction

Dai stable currency is a digital currency backed by collateral assets, and its price and US dollar remain stable. Maker is a smart contract platform on Ethereum that supports and stabilizes the price of Dai through collateralized debt positions (CDP), automated feedback mechanisms, and appropriate external incentives.

The Maker platform allows anyone to use Ethereum assets to generate DAI for leverage. When Dai is created, it can be used like any other digital currency asset: freely sent to others, used as a means of payment for goods and services, or long-term stored. Importantly, the presence of Dai is also a requirement for a robust decentralized leveraged trading platform.

Project Features
In Maker's system, the Dai target price has two important functions: 1. It is used to calculate the mortgage debt ratio of the mortgage debt position; 2. Determine the Dai holders The collateralized asset value that will be received upon global liquidation. The initial target price will be set at 1:1 with the U.S. dollar, and will gradually be softly anchored with the U.S. dollar.

Application Scenario
MKR holders can vote to participate in the following risk system behaviors:
Add new types of collateralized debt positions: create a new collateralized debt position with unique risk parameters type. A new type of collateralized debt position can be a new mortgage asset or a new combination of existing mortgage asset types.

Modify Existing Mortgage Position Types: Modify the risk parameters of one or more existing Mortgage Position types.

Modify sensitive parameters: Change the sensitivity of the target price change rate feedback mechanism.

Modify target price change rate: managers can adjust target price change rate. In practice, adjusting the rate of change of the target price can only be achieved in one case: when MKR holders want to peg the price of Dai to the current target price. This will be achieved by adjusting sensitive parameters together. By setting the sensitive parameters and target price change rate to zero, the target price change feedback mechanism will be invalid, and the target price of Dai will be anchored to its current value.

Choose trusted oracle machines (Oracles): The Maker platform obtains the internal price of the collateral and the market price of Dai through the decentralized oracle machine infrastructure, which includes a wide range of oracle machine individual nodes. MKR holders control which nodes can act as trusted oracles and how many. As long as more than half of the oracles are running normally, the security of the system will not be compromised.

Adjust Price Feed Sensitivity: Change the extent to which the decision price feed can affect the system's internal prices.

Choose a global liquidator: The global liquidator is a key mechanism for the Maker platform to resist attacks from oracle machines or management steps. The management mechanism selects global liquidators and decides how many liquidators are needed to initiate global liquidation.

Risk Parameters
Collateralized Debt Positions (CDPs) in the Dai stablecoin system have multiple risk parameters. Each CDP type has its own unique set of risk parameters that determine the risk profile of that CDP type. These parameters are determined by MKR holders voting (one MKR represents one vote).

Key CDP risk parameters include:
Debt ceiling: The debt ceiling is the maximum amount of debt that a single type of CDP can create. Once the debt created by a certain type of CDP reaches the limit, no new Dai can be created unless the existing CDP is redeemed. The debt ceiling is used to ensure sufficient diversification in the portfolio of mortgage assets.

Liquidation Ratio: The Liquidation Ratio is the collateral/debt ratio of a CDP when it is liquidated. A lower liquidation ratio means that MKR voters expect lower price volatility of the staked asset, and a higher liquidation ratio means MKR voters expect higher price volatility of the staked asset.

Stability Fee: The Stability Fee is a fee that is charged per CDP. An annualized percentage based on the debt incurred by the CDP that must be paid by the CDP holder. Stability fees are denominated in Dai, but can only be paid in MKR tokens. The amount of MKR that needs to be paid depends on the market feed price of MKR. After payment is made, MKR is destroyed and completely removed from circulation.

Penalty ratio: The penalty ratio is used to determine the maximum amount of Dai used to purchase and burn MKR supply in the liquidation auction, and the remaining collateral assets in the CDP will be returned to the holders of the CDP before the liquidation. The penalty ratio is to improve the efficiency of the liquidation system. In the case of a single collateral asset Dai, the liquidation penalty will be used to purchase and destroy PETH, increasing the ratio of PETH convertible to ETH.

Technical Overview

MKR Token Governance System:
In addition to receiving stable fees from CDPs, MKR holders play an important role in the governance of the Maker platform.
Governance of the platform is through valid proposal voting by MKR holders. Valid proposals are smart contracts voted on by MKR to modify internal governance variables of the Maker platform. Proposals can be broken down into two forms: single-action proposal contracts and proxy proposal contracts.

Single-action proposal contracts can only be executed after gaining root access. Immediately after execution, internal management variables are changed. After one execution, single action proposals are deleted and become invalid. This proposal will be used in the first phase of the system, it is not very complicated to use, but the flexibility is relatively small.

The Proxy Action Proposal Contract is a second layer of management logic through continuous use of root privileges. The second layer of management logic can be relatively simple, such as designing a weekly vote on risk parameters. At the same time, more advanced logic can also be adopted, such as limiting the scope of management actions within a set period of time, or even deleting the permission of its lower-level proxy action proposal contracts under restrictions.

Any Ethereum account can deploy a valid proposal smart contract. MKR holders can vote for one or more proposals to be valid through MKR tokens. The smart contract with the most approval votes will become the valid proposal.

MKR and multiple collateral assets Dai:
After upgrading to multiple collateral assets Dai, MKR will replace PETH and play a more important role in the process of asset restructuring. When the market crashes and CDP is undercollateralized, MKR will automatically increase the supply and repurchase enough funds from the market to restructure the system.

Each CDP type has its own unique liquidation ratio, which is determined by MKR holders and based on the specific collateral asset risk of that CDP type. When the CDP falls below its liquidation ratio, liquidation will start. The Maker platform will automatically purchase the collateral assets in the CDP and gradually sell them. In the stage of single mortgage asset Dai, there will be a transition mechanism called liquidity supply contract, and in the stage of multiple mortgage asset Dai, an auction mechanism will be launched.

Liquidity supply contract (transitional mechanism for single mortgage stage):
In the stage of single mortgage asset Dai, the liquidation process is called liquidity supply contract. A smart contract that trades directly with Ethereum users and caretakers based on system feed prices. When a CDP is liquidated, the system will immediately recover its collateral. CDP holders receive the remaining collateral assets after deducting debt, stabilization fees and liquidation penalties.

The PETH mortgage assets will be sold in the liquidity supply contract, and the care machine can automatically trade Dai to buy PETH. All Dai paid are immediately destroyed from circulation until the CDP debt amount is eliminated. If there is still Dai left after the CDP debt is removed, this part of Dai will be used to buy and destroy PETH, thereby increasing the ratio of PETH to ETH. This will be beneficial for PETH holders.

If the sold PETH fails to raise enough Dai to pay off the entire debt, the system will continuously issue and sell PETH. The newly created PETH in this way will reduce the ratio of PETH convertible to ETH, thereby reducing the income of PETH holders.

Debt auction and mortgage asset auction (multiple mortgage stage mechanisms):
When liquidation occurs, the Maker platform will purchase the collateral in the CDP and gradually sell it through automatic auctions . The auction mechanism allows the system to process CDPs even when price information is unavailable.

In order to be able to repurchase the collateral assets in the CDP and sell them, the system will first raise enough Dai to pay off the debt of the CDP. This process is called a debt auction, and the supply of MKR is issued and sold to auction participants in an auction.

At the same time, the mortgage assets in the CDP will be sold in a mortgage asset auction, and part of the CDP debt and liquidation penalty will be used to repurchase and destroy MKR. This can directly offset the additional MKR issued in the debt auction. If there is enough Dai to cover the debt in the CDP plus the liquidation penalty, then the mortgage auction switches to a reverse auction mechanism where the minimum amount of collateral is auctioned off - any remaining collateral is returned to the original owner of the CDP.

Other Participants
In addition to the smart contract infrastructure, the Maker platform relies on a number of external participants to keep it running. Caregivers and external actors will take advantage of the economic incentives of the Maker platform to act. Oracles and global liquidators are special external actors appointed by MKR holders.

Keepers:
Keepers are independent actors (often run automatically) motivated by economic incentives to contribute to a decentralized system. In the Dai stable currency system, the caretaker participates in debt auctions and mortgage asset auctions during CDP liquidation.

Guardian will also trade Dai around the target price. When the market price is higher than the target price, the caretaker will sell Dai. Similarly, when the market price is lower than the target price, the management machine will buy Dai. This is done to benefit from the market's long-term price convergence target price.

Oracles:
The Maker platform needs real-time price information of collateral assets to decide when to trigger liquidation. The Maker platform also needs the market price of Dai to trigger the target price change rate feedback mechanism when it deviates from the target price. MKR holders choose to trust the oracle to feed the price of the Maker platform based on Ether transactions.

In order to protect the oracles in the system from being controlled by attackers, or other collisions, the price feed sensitivity index as a global variable will control the maximum price feed change that the system receives.

Global liquidator:
The global liquidator is an external participant like the price feed oracle, and it is the last line of defense after the Dai stable currency system is attacked. MKR holders select and authorize global liquidators to trigger global liquidation. Apart from this authorization, the global liquidator does not have any other special control over the system.

Centralization issues:
The Maker team will play a major role in the development and governance of the Dai stablecoin system in its early stages—budgeting expenses, hiring new developers, seeking Partners and institutional users, communicating with regulators and external key stakeholders. If the Maker team fails due to insufficient capacity, legal reasons, or management external issues, the Dai stable currency system will be at risk of having no backup plan.

Mitigations:
Part of the function of the Maker community is to act as a decentralized counterparty to the Maker team. It is a loose collective of independent parties. By holding MKR digital assets, they have a strong incentive to see the success of the Dai stablecoin system. During the early stages of MKR distribution, core developers received a significant amount of MKR stake. When the Maker team is no longer the front-line development focus of the Dai stable currency system, a large number of individual MKR holders will fund developers because of economic incentives, or develop by themselves to ensure their investment security.

Two. Comments

Maker DAO, known as the decentralized "central bank" on the blockchain, is a smart contract platform built on Ethereum. Through this smart contract platform, users can mortgage other types of tokens in exchange for DAI, a token with a relatively stable price. By utilizing smart contracts, Maker realizes the decentralization of the whole process. No single entity can control the amount of DAI circulating in the market, and its circulation depends on the exchange volume of users in the market using the Maker platform. In this way, Maker tries to always balance the supply and demand of circulating DAI in order to stabilize its price.

The price of DAI is pegged to the U.S. dollar, and the exchange ratio is 1:1. The DAI obtained through mortgage can be used as a medium of exchange with stable prices. When the user no longer needs DAI, the user can redeem the mortgage with the same amount of DAI as the mortgage, or sell it. In the current token market, the price of almost all tokens fluctuates greatly, so the price of DAI obtained through mortgage will naturally be affected by the price of collateral. In order to solve this problem, Maker uses excess collateral (greater than 150%) to absorb the risk brought by the price fluctuation of the collateral itself, so as to stabilize the price of DAI obtained by mortgage. When the price of DAI fluctuates, the caretakers in the Maker platform can make profits by buying and selling DAI and stabilize the price of DAI. When the price fluctuation of the collateral exceeds a certain range and most mechanisms in the system cannot stabilize the price of DAI, the global liquidation system will start to recover DAI and return the collateral to the user, protecting the interests of the user to the greatest extent .

There is an annualized fee of 3.5% (currently) for generating the stablecoin DAI, which can be paid in MKR or DAI, and if your collateralized debt position (CDP) is liquidated, your collateral will be deducted a 13% penalty.

Related links:
https://makerdao.com/zh-CN/
https://awesome.makerdao.com/
https://makerdao.com/zh-CN/whitepaper /#abstract
http://www.qukuaiwang.com.cn/szhb/2683.html#jj
http://www.genesisfor.com/life1/show/454.html