MakerDAO Tutorial: How to Get Started With DeFi Services
October 16, 2020
Add: Veronica Zubrii
A veteran of the DeFi industry, the MakerDao platform opens the potential of blockchain and decentralization. It features two cryptocurrencies: MKR and DAI stablecoin. Let’s find out how they enable loaning and borrowing on the platform.
To start with, we should distinguish between MKR and DAI. The latter is a stablecoin – a collateralized cryptocurrency that’s pegged to the price of USD at a 1:1 ratio. Unlike stablecoins such as USDC and Tether, DAO is fully decentralized and based on Ethereum. The price of DAI is stabilized with the help of ‘Collateralized Debt Positions’ – a concept that has been developed by the MakerDAO project since 2014.
This means any Ethereum holder can generate DAI and take out low-interest loans using cryptocurrencies as collateral. Dan Khomenko from Platinum Software Development company admits that MakerDAO has introduced multi-collateral DAI, which means that various crypto assets can be used as collateral together with ETH. This feature is leveraged in Oasis APP. Consequently, Single-Collateral DAI was discontinued.
What about Maker coin (MKR)? It performs several utility operations:
- MKR tokens are generated and destroyed so as to maintain the price of DAI at close to $1
- The coin can be used to pay transaction fees in the system
- It provides holders with voting rights in the Maker voting system
Thus, MKR allows you to take part in all decisions, thereby governing the platform’s development and DAI offers safe & secure savings in crypto. DAI can also be used like regular cryptocurrency for trading, making payments and so on.
How does it work?
- You make an investment by putting your cryptocurrency in the pool.
- The price of DAI is being stabilized with the help of CDP’s.
- You earn interest from your deposit knowing that your savings are protected against inflation and price fluctuations.
Besides this, borrowing DAI is much safer than borrowing unstable coins. You will always only owe what you borrowed plus some interest. If you use ETH as collateral, you get it back in the full volume. It minimizes losses.
Step-by-step guide on how to use MakerDAO
Note that there is no Single Collateral Dai (SDC) option – it was shut down on 12th May 2020. If you have already used the Maker platform, you can redeem Sai and CDP from the official MakerDAO Migration Portal. You need to connect your wallet and follow the instructions provided.
You can create a new Multi-Collateral Vault in the MakerDao Oasis app. Start by connecting your wallet. Currently, it supports browser wallets, Ledger Nano and Trezor hardware wallets, Coinbase, Wallet Connect and D’Cent.
Proceed to the Dashboard. Here, you can see your wallet balance, the exchange ratio of some crypto pairs and system info. Click on ‘Get Started’ to generate DAI.
Select the type of collateral. Currently, it supports eight cryptocurrencies including ETH and USDC. If you want to use BTC as collateral, consider the services of QDAO DeFi.
Pro Tip: Since the liquidation ratio might get high, it’s recommended that you put in a collateral cryptocurrency amount that’s 2-3 times higher than the amount of DAI you want to generate. For example, if you want to generate 100 DAI, keeping ETH worth $200-300 in your wallet is highly recommended.
Here comes the next step called ‘Vault setup and management’. Click on ‘Setup’.
Note that the platform charges a fee for the creation of a vault: as of 08/25/2020, the fee is around $40 in ETH.
Vault creation fee in April 2020 vs fee in August 2020
When the transaction is completed, click on ‘Continue’. Once you proceed to the next window, you will see the collateralization ratio (which depends on the vault/generation ratio), liquidation price and the stability fee. Select the amount of Ethereum you want to lock in your Vault. Take care to set a reasonable buffer between your vault and the liquidation rate.
Double-check and confirm the details of your deposit. You will be connected to your wallet again to approve the transaction.
You will see the following notification after the payment is successfully processed:
After that, you can enter your Vault and see the following information:
- Liquidation price
- Collateralization ratio
- Crypto locked
- Vault history
- Outstanding DAI debt (allows you to generate DAI or pay back)
- Wallet balances
You can manage your Vault by going to Dashboard → Overview → Manage Vault. You can create a different vault for each collateral cryptocurrency.
Your DAI savings in Oasis can be displayed in your crypto wallet by doing the following:
- Open your wallet
- Click on ‘Add Token’
- Choose ‘DAI’ from the list and confirm it
It will appear in the wallet automatically.
How to withdraw funds from your Oasis account
Open your Dashboard and click on ‘Save’. You will proceed to the Balance section where you can deposit and withdraw DAI. Click on ‘Withdraw’ and enter the amount of DAI you want to send to your wallet or you can click on ‘Max’ to withdraw everything. The transaction is instant – DAI will be shown in your wallet balance.
How to close the vault
In order to close the vault, you can pay back the DAI tokens. Open your vault and check Outstanding DAI debt. Click on ‘Pay back’. In the right window, you need to unlock DAI (this is only needed once). The amount that needs to be paid back will be slightly higher than the amount you minted for your vault – this is because of the Stability fee. To pay back the whole amount of DAI, click on ‘Set max’. After the instant payment, you will be able to withdraw your cryptocurrency using the same Dashboard.
Anton Dzyatkovskii from Platinum Software Development company clarified that the process of making deposits and borrowing in Oasis is pretty much the same as in other DeFi platforms; the intuitive interface makes it comprehensive even for beginners. However, if you have problems with the transactions, you can find some detailed instructions in the official community https://awesome.makerdao.com/.
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