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MakerDAO Review 2026
Last updated: March 2026
Quick Summary
MakerDAO (now Sky) is the protocol behind DAI stablecoin, allowing users to open Vaults and borrow DAI against crypto collateral. It pioneered the concept of decentralized stablecoin lending with over-collateralized positions.
Table of Contents
Overview
MakerDAO is the protocol behind DAI, one of the most important decentralized stablecoins in crypto. Founded in 2015 and launched on Ethereum mainnet in 2017, MakerDAO pioneered the concept of overcollateralized stablecoin lending. Users open Vaults (formerly CDPs) by depositing crypto collateral and minting DAI against it. The protocol has rebranded to Sky, though the core functionality remains the same. MakerDAO has processed billions in DAI loans since inception, maintained DAI's peg through multiple market crashes, and built one of the most battle-tested protocols in all of DeFi.
Pros & Cons
Pros
- ✓Borrow DAI stablecoin directly
- ✓Multiple collateral types accepted
- ✓Pioneer in decentralized lending
- ✓Governance-controlled stability fees
Cons
- ✗Can only borrow DAI
- ✗Higher collateralization ratios required
- ✗Complex vault management
Vault Mechanics
MakerDAO Vaults allow users to lock crypto collateral and generate (mint) DAI stablecoins. Each collateral type has specific parameters: the liquidation ratio determines how much collateral you need relative to the DAI minted, and the stability fee is the annual interest rate on your borrowed DAI. Unlike lending protocols where you borrow from a pool, MakerDAO creates new DAI tokens when you borrow, which means there is no liquidity constraint on borrowing.
Supported Collateral
MakerDAO accepts a wide range of collateral types including ETH, WBTC, stETH, various LP tokens, and even real-world assets (RWAs) like US Treasury bonds. Each collateral type has its own Vault type with specific risk parameters. ETH vaults are the most popular, with multiple variants offering different collateralization ratios and stability fees. The diversity of accepted collateral makes MakerDAO one of the most flexible borrowing options in DeFi.
Stability Fees & DSR
The stability fee is MakerDAO's equivalent of an interest rate on borrowed DAI. It is set by governance and can vary by collateral type. Governance adjusts stability fees to manage DAI supply and demand, target the DAI peg, and control protocol revenue. The DAI Savings Rate (DSR) is the yield paid to DAI depositors, funded by stability fee income. The interplay between stability fees and the DSR is a key mechanism for maintaining DAI's stability.
Liquidation System
MakerDAO uses a Dutch auction liquidation system called Liquidations 2.0. When a Vault's collateral ratio drops below the liquidation ratio, an auction is triggered where the collateral is sold starting at a high price and decreasing over time until bidders step in. This system is more efficient than earlier versions and typically results in better outcomes for Vault owners. A liquidation penalty (currently 13% for most Vault types) is charged on liquidated positions.
MKR Governance
MakerDAO is governed by MKR token holders who vote on all protocol parameters including collateral types, risk parameters, stability fees, and the DSR. The governance process involves executive votes that directly modify protocol smart contracts. MKR serves as a backstop: if the protocol becomes undercollateralized, new MKR is minted and sold to cover the deficit. This makes MKR holders the ultimate risk-bearers for the system.
Fees
| Fee Type | Amount |
|---|---|
| Stability Fee | Variable by vault type (0.5-8%) |
| Liquidation Penalty | 13% on most vault types |
| Flash Mint Fee | 0% |
| Vault Opening | Gas costs only |
| DSR Yield | Variable (governance-set) |
Security
- Operating since 2017 without protocol-level exploit
- Most battle-tested DeFi protocol
- Multiple security audits over the years
- MKR token backstop for undercollateralization
- Emergency shutdown mechanism
- Extensive formal verification
- Community of security researchers
Key Features
- Mint DAI against diverse collateral types
- Governance-controlled stability fees
- DAI Savings Rate for depositors
- Dutch auction liquidation system
- Real-world asset collateral support
- Flash minting for DAI
- MKR governance token
- Spark Protocol lending interface
Final Verdict
With a rating of 4.6/5, MakerDAO is best suited for dai stablecoin borrowers. MakerDAO (now Sky) is the protocol behind DAI stablecoin, allowing users to open Vaults and borrow DAI against crypto collateral. It pioneered the concept of decentralized stablecoin lending with over-collateralized positions.
Frequently Asked Questions
Is MakerDAO the same as Sky?
MakerDAO has undergone a rebranding to Sky, with DAI potentially transitioning to USDS and MKR to SKY. The core protocol functionality remains the same. The rebranding is part of the Endgame plan to restructure governance. Both old and new names may be used during the transition.
What is the minimum collateral to open a Vault?
There is no protocol-enforced minimum, but the dust limit (minimum DAI that can be generated per Vault) is typically 15,000 DAI for ETH Vaults, meaning you need sufficient collateral to generate at least that amount. Smaller users may find Spark Protocol's interface more accessible.
How does DAI maintain its $1 peg?
DAI maintains its peg through overcollateralization (all DAI is backed by excess collateral), governance-adjusted stability fees (raise fees to reduce DAI supply, lower to increase it), the DSR (incentivizes holding DAI), and market arbitrage opportunities when DAI trades above or below $1.
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