MakerDAO also known as “Maker” is one of the oldest and most important projects in the DeFi space.
The system allows users to use a tool called Oasis to deposit Ethereum and in-turn take out collateralized loans in a stablecoin called DAI.
DAI was the first “decentralized stablecoin”. While most stablecoins historically were based on being worth $1 USD because an actual US dollar was deposited with the company that issued the coin, DAI is instead based on a smart contract and is not backed by real US dollars.
Users deposit Ethereum and other cryptocurrency assets, and in turn get to generate a set amount of DAI. They pay an annual fee for the amount of outstanding DAI, and if they fail to pay back the DAI loan then their collateral (that Ethereum or other cryptocurrency assets they deposited) is liquidated, or sold, to pay back the balance.
DAI is the equivalent of the US dollar in the decentralized finance space and is one of the most important cryptocurrencies used in other DeFi products.