On October 27, the 6th Global Blockchain Summit hosted by Wanxiang Blockchain Lab was held in Shanghai. On the afternoon of October 28th, Rune Christensen, founder of MakerDAO, shared the topic of "The Next Jump in DeFi - Introducing Real Assets" in the Digital Finance Forum.
Rune systematically introduced the principles of Maker and Dai stablecoins, as well as the next leap in DeFi - the introduction of physical assets. Rune mentioned that the real goal of MakerDAO is to provide real-world solutions, bringing all the advantages of blockchain technology to the ground in a way that can truly solve practical problems for people. Provide financial inclusion for those currently excluded from the global financial system. Let those 1.7 billion people who don't even have bank accounts can truly obtain a stable and reliable currency through Dai.
The following is the speech video and record 👇
Hello everyone, I am Rune Christensen, CEO of the Maker Foundation and co-founder of the MakerDAO project. I believe you have had a very good meeting so far.
Today, I want to give a brief speech about how Maker brings real-world assets into DeFi. First of all, let's introduce the basic situation of DeFi or decentralized finance. DeFi is an ecosystem primarily built on the Ethereum blockchain, consisting of interconnected and composable financial components that connect and build on each other to form this very interesting ecosystem of financial innovation.
At the bottom of this ecosystem is the basic DeFi protocol, like some lending platforms, such as Compound or Aave; decentralized exchanges, such as Uniswap; decentralized currencies, such as MakerDAO. Next there is decentralized insurance. What's even more exciting is the myriad of projects, applications, and services that build on top of these underlying protocols and connect them together in creative ways to create entirely new financial products.
Because everything is built on the blockchain, everything is composable, and permissionless, so the speed of innovation is completely different from before. Today, I will focus on MakerDAO and gain an in-depth understanding of the principles of the MakerDAO protocol. Basically, MakerDAO is a protocol for decentralized currencies. It creates and underpins the value of the Dai stablecoin, softly pegged to $1.
The Dai stablecoin is a decentralized asset that works on the same principles as Bitcoin, but with the advantage that it borrows stability from traditional finance. This kind of certainty allows you to hold the Dai stable currency without worrying that the assets will shrink by half overnight. This means that Dai has more potential to become a real currency.
This is the goal of the Dai stablecoin, to create an unbiased world currency that can provide financial services to anyone, anywhere, no matter who they are, how much capital they have, what status or authority they are, etc. A currency that everyone can use, from which everyone can obtain high-quality financial services.
This has actually been realized in the MakerDAO project and the Dai stablecoin, especially in South America and Argentina, where many ordinary people are using the Dai stablecoin as a means of storing wealth to avoid inflation of the local currency.
In Argentina, for example, the Argentine peso could easily have 50% or 60% annual inflation. Using the Dai stablecoin to avoid this extreme inflation could make a big difference to everyday life. For example, on a mobile phone, you can really hold assets in a safe way that will not shrink over time, and it can be used by anyone in Argentina, no matter who they are, no matter what they have. How many ways the financial system has is a very convenient thing.
Below I explain exactly how MakerDAO works and how it keeps Dai stable. The basic idea is that the Maker protocol supported by smart contracts and the Ethereum blockchain locks valuable blockchain assets as reserves in the protocol to support the value of the Dai stablecoin. When you hold a hundred Dai in an encrypted wallet, what you actually hold is an asset, the right to redeem a basket of other blockchain assets. These assets, such as Ethereum, Bitcoin or other stablecoins, such as USDC, are combined to form a diversified asset basket that fundamentally supports the value of Dai.
The way assets are brought into the protocol is through vaults. Vault users are different from ordinary Dai users who just use Dai as money or as a stablecoin. Vault users are effectively using Dai and the Maker protocol as a source of loans. What they do is lock their own assets in the agreement, and directly generate Dai through the value of the assets locked in the agreement.
In other words, they are lending Dai by depositing collateral into the protocol. This is actually very similar to how normal banks operate in the real world. You can compare it to taking out a mortgage from a bank, because when you take out a mortgage from a bank, you basically lock your house into the bank. You mortgage your house to the bank, and the bank gives you a loan.
In the event that you don't pay back the loan, or the value of the house drops precipitously, the bank actually has the power to foreclose on your house, essentially seizing the asset and eventually selling it at auction to get back what they gave you in the first place value of the loan. This is exactly how the MakerDAO protocol works. The Maker protocol can automatically detect when the collateral assets in the protocol are not at risk enough to support the value of Dai, and then sell them to ensure that no matter what happens in the market, the Dai stablecoin remains solvent.
MakerDAO and the Dai stablecoin are among the oldest blockchain projects, nearly six years old now. Therefore, it has a long history. For this reason, it is used by almost every other DeFi protocol, which is powered by Dai, and there are even some protocols that rely entirely on Dai. This is both due to the long track record of the project and the enormous value that can be derived from a decentralized stablecoin with the power of the blockchain.
Because this means that when you look at the Dai stablecoin, or want to figure out the risks in it, and whether you should use it, anyone can review the collateral status behind the Dai stablecoin in real time. Here, on this slide, shown in the lower left corner is a screenshot of the Daistats.com website, through which anyone can monitor the health of the Maker protocol, including the type of collateral currently locked in the protocol to support the circulation of Dai. This is a huge difference compared to banks, which are basically a black box and you need to trust them that your money is safe.
On the graph to the right, you can see a curve graph showing the total supply and circulation of Dai, and as you can see, there has been a massive increase in the total supply of Dai over the past few months increase. This coincides with the recent boom in the DeFi ecosystem. This also illustrates how all DeFi components are interconnected. When DeFi grows, the Dai stablecoin will also grow, because the Dai stablecoin is an integral part of most DeFi applications, and everything in DeFi can be connected to each other, which is where the value of DeFi lies.
It should be pointed out that the real goal of MakerDAO is to provide real-world solutions. The goal and vision of the project is to bring all the advantages of blockchain technology to the ground in a way that can truly solve practical problems for people. Provide financial inclusion for those currently excluded from the global financial system. Let those 1.7 billion people who don't even have bank accounts can truly obtain a stable and reliable currency through Dai.
I mentioned earlier the example of ordinary people in Argentina avoiding inflation through Dai. Another use case is to improve the existing financial system. Through faster transaction times, lower fees, remove the barriers to financial innovation that currently exist. Existing banks and institutions, actually don't really want any innovation. They just want to hold onto their piece of cake. Blockchains and open financial systems like MakerDAO have completely changed the rules of the game.
Through the massive growth of DeFi, we have seen that once financial innovation is opened up, unexpected growth and incredible innovation will be obtained. It also means that we can try to undo the inequities that exist in finance today. Now only the privileged class or large companies with special connections can obtain capital, but it is precisely in the way of consuming capital, while others must pay additional fees through banks, middlemen, and institutions, and the existence of these fees is fundamentally Because the financial system is so centralized in nature.
The core is that under the system of privileged players and large companies, they can get good interest rates, while others must go through them and pay the middleman's share. If you want to solve all the above problems through a decentralized financial system, the biggest challenge is scale.
Specifically, the real challenge is how to grow an unbiased world currency to multi-billion dollar scale while stripping out non-performing assets as collateral. This is the really big question, how to avoid low quality assets locked up as collateral in the protocol, because if these assets become worthless, it may lead to undercollateralization of Dai.
The most important thing is how to choose the right asset type and manage risks reasonably. This is why we discuss real-world assets today, because it turns out that if you want to create a currency that provides financial services to real people in the real world, you must also anchor this stability and value in the real world, When you think about it, it makes sense.
What is a real-world asset? I mean everyday assets, like real estate, stocks, commodities, anything that really comes from the real world, assets that we take for granted, but can be represented through the blockchain in a way that interacts with DeFi. For example, the security tokens that everyone is familiar with, or the tokenized gold that already exists on the blockchain. The Maker community found that the greatest potential of the blockchain is to figure out how to interact the blockchain and DeFi protocols with real-world projects and assets, and truly achieve large-scale applications.
We find that the main opportunity exists in illiquid real-world assets, precisely because these assets face more friction in financing. The bottom image here is an example of an auto parts store under construction, which is exactly the category of real-world financial products that the Maker protocol is adding collateral to.
First, let's talk about how this can be achieved. Basically, the core process is Maker governance. Specifically, the MakerDAO protocol is overseen and governed by a MKR token holder. These MKR holders, they vote on which types of collateral, which assets are included in the protocol, and the corresponding appropriate parameters.
In other words, to whom is the credit granted? For example, what kind of real-world assets can obtain credits from the Maker protocol. What’s important here is that the final decision is made by MKR holders, and they also get paid if the protocol performs well. In turn, they also bear the full risk. MKR holders must demonstrate commitment with actual actions. If because of some of their decisions, they end up incorporating low-quality collateral into the system and eventually become worthless, some of the Dai in circulation will be under-collateralized.
Then MKR holders must pay for themselves by diluting the MKR tokens, and all of this is completely realized by the agreement. When the agreement detects a capital shortage, it will immediately recapitalize, dilute the MKR tokens, and Auction sales on the blockchain to fundamentally recapitalize and ensure the stability of Dai and the solvency of the collateral portfolio, even if some of the collateral assets fail.
Here, are screenshots of the actual process for some real-world assets currently being enlisted into the protocol. The cool thing about decentralized governance is that you can follow everything that happens in real time. You can see all the real assets added to the Maker protocol on the MakerDAO forum, breaking incredible boundaries and thresholds, and these achievements have been achieved in the past few months.
