Collateral Impact

MakerDAO is a peer-to-peer organization created on the Ethereum network to allow people to lend and borrow using cryptocurrencies. The p2p organization is also known as Decentralized Autonomous Organization (DAO As an open sourced blockchain ledger, Decentralized Autonomous Organization (DAO) is determined by a clear set of rules ... ). The process of lending and borrowing is controlled by smart contracts. Because cryptocurrencies are highly volatile, MakerDAO uses a stablecoin known as Dai to determine lending rates and repayable amounts. Simply speaking, MakerDAO is a crypto lending credit facility that gives loans at predetermined interest rates. If a MakerDAO user wants to borrow, they would first deposit the Ethereum into a Maker smart contract. The smart contract creates a Collateralized Debt Position (CDP). Assuming asset A trading at $100. If the user deposits asset A at a collateralized rate of 150%, they would receive 40 Dai tokens. However, if asset A depreciates and its price falls below $100, the borrower is automatically closed out of their position. For them to get back their initial deposits from the MakerDAO ecosystem, they would have to pay back the amount they received, plus a fee.