What is Maker Protocol? Updated MKR review you shouldn’t miss in 2025

In the world of decentralized finance (DeFi), where stablecoins like USDT and USDC remain under centralized control, MakerDAO emerges as a symbol of true financial freedom. Maker is the first decentralized lending platform built on Ethereum, allowing users to borrow the DAI stablecoin without relying on banks or intermediaries. What makes Maker truly unique isn’t just Dai, but how the protocol operates: the entire system is governed by MKR holders, who vote transparently on all key decisions. At the heart of it all lies MKR – the governance token that shapes the future of Maker Protocol. In this article, Coin60s will explore what is Maker Protocol.

What is Maker Protocol?

Maker Protocol is a decentralized lending platform built on the Ethereum blockchain that allows users to generate the DAI stablecoin by collateralizing digital assets. Unlike traditional financial institutions, Maker is governed entirely by a decentralized autonomous organization (DAO), where all major decisions are made through votes by MKR token holders.

The protocol relies on smart contracts known as Vaults, which enable users to lock assets such as ETH or WBTC in order to mint DAI – a stablecoin soft-pegged to the US dollar. To retrieve their collateral, users must repay the borrowed DAI along with a stability fee.

With its decentralized, transparent, and highly scalable design, Maker stands as one of the earliest and most prominent platforms in the DeFi landscape, and a key player in the creation of stable digital currencies.

What is DAI and how does it work?

DAI is a decentralized stablecoin that maintains a soft peg to the US dollar at a 1:1 ratio, but unlike traditional stablecoins, it is not issued by any centralized financial institution. Instead, DAI is generated through a collateral-based system within the Maker Protocol.

To mint DAI, users deposit accepted digital assets such as ETH, WBTC, or other approved tokens into a Vault. The smart contract then enforces a collateralization ratio and issues a corresponding amount of DAI. For instance, with $150 worth of collateral, a user could generate up to 100 DAI if the ratio is 150%.

To retrieve their collateral, users must repay the DAI along with a Stability Fee – an annualized percentage fee. If the value of the collateral falls below the required threshold, the Vault is liquidated to preserve the system’s integrity.

DAI can be used for trading, saving (via the Dai Savings Rate), or as collateral in other DeFi protocols. With its transparency and decentralized nature, DAI has become one of the most widely used stablecoins in the crypto space.

What is MKR and its role in the Maker ecosystem?

MKR is the governance token of the Maker Protocol and plays a vital role in the operation and stability of the entire system. MKR holders participate in decentralized governance by voting on key decisions, including:

Adjusting risk parameters such as collateralization ratios, stability fees, and debt ceilings.
Adding or removing collateral asset types.
Changing the Dai Savings Rate.
Appointing or removing price oracles.
Approving upgrades or system changes via technical proposals.

What is MKR and its role in the Maker ecosystem?

Beyond governance, MKR serves as a last-resort recapitalization mechanism. If the system fails to cover outstanding Dai through asset liquidations, new MKR is minted and sold to offset the deficit. Conversely, when the protocol has a surplus, Dai is used to buy back and burn MKR, reducing the total supply and potentially increasing its market value.

With its blend of technical utility and economic incentive, MKR functions as the backbone of the Maker Protocol and aligns the interests of stakeholders to maintain the stability of Dai.

Maker Protocol architecture and ecosystem components

The Maker Protocol operates as a decentralized financial system powered by smart contracts on the Ethereum blockchain. Its architecture is built around a set of interconnected components that work together to ensure the stability, transparency, and security of the DAI stablecoin:

Vaults (formerly CDPs): Users lock collateral (e.g., ETH, WBTC) into Vaults to mint DAI. Each type of collateral has specific risk parameters to maintain system integrity.
DAI Stablecoin: A soft-pegged USD stablecoin generated by the protocol. It can be used for payments, trading, or yield farming across the DeFi ecosystem.
Oracles: External data providers that deliver real-time asset prices to the system, enabling accurate valuation of collateral.
Executive Voting & Governance Polling: Governance mechanisms through which MKR holders vote on changes such as interest rates, collateral types, and protocol upgrades.
Dai Savings Rate (DSR): Allows users to earn interest on their DAI holdings by locking them into a non-custodial smart contract.
Peg Stability Module (PSM): A mechanism that enables 1:1 swaps between DAI and other stablecoins like USDC to help maintain DAI’s peg during high volatility.
Liquidation & Auctions: If a Vault becomes undercollateralized, the system triggers an automated auction to sell the collateral and repay the generated DAI.

This structure ensures that the Maker Protocol can operate efficiently and adapt to market changes, all while maintaining its decentralized ethos.

Team, Investors, and Strategic Partners

Development Team: MakerDAO was founded by Rune Christensen, a Danish entrepreneur who studied International Business and Biochemistry at the University of Copenhagen. He laid the groundwork for CDP and the DAI stablecoin in 2014 — long before DeFi became a mainstream concept. Other notable contributors include Steven Becker (former COO of the Maker Foundation) and Shefali Roy, an economist who previously worked at Stripe and Apple.

Investors: MakerDAO has attracted major venture capital firms during its early fundraising rounds (2017–2019):

a16z (Andreessen Horowitz): Invested $15 million in 2018, acquiring 6% of the total MKR supply at just $250 per token.
Paradigm and Dragonfly Capital: Joined in 2019 to help expand MakerDAO’s presence in Asian markets.
Polychain Capital and other prominent VCs also participated early.

Strategic Partners: MakerDAO has built a robust DeFi network through key collaborations:

Aave: Integrated via the D3M module to stabilize DAI interest rates.
Curve, Uniswap: Major liquidity providers for DAI trading pairs.
Inverse Finance: Uses DAI to mint its stablecoin DOLA.

DAI is also widely accepted across dApps, gaming platforms, charities, and international commerce use cases.

This strong synergy between a visionary team, elite investors, and an expansive partnership network cements MakerDAO’s role as a cornerstone in the competitive DeFi landscape.

Roadmap and recent updates

2014-2017: Early Development and Vision: MakerDAO was established in 2014 with the goal of creating a decentralized stablecoin. By late 2017, DAI was officially launched on Ethereum as a stablecoin backed solely by ETH, known at the time as Sai (Single-Collateral DAI).
2019: Transition to Multi-Collateral DAI (MCD): MakerDAO introduced MCD, allowing users to collateralize DAI with multiple assets like ETH, USDC, BAT, etc. It also launched the Dai Savings Rate (DSR) to provide interest for DAI holders.
2020: Black Thursday Crash and Launch of PSM: In March 2020, ETH’s rapid crash caused mass CDP liquidations, pushing DAI’s price above $1.1. To stabilize the peg, MakerDAO launched the Peg Stability Module (PSM), enabling 1:1 USDC-to-DAI swaps.
2021-2022: Aave Integration and Real-World Assets (RWA): MakerDAO integrated D3M (Direct Deposit DAI Module) with Aave to dynamically control interest rates. The system also began accepting Real-World Assets like bonds and trade receivables as collateral.
2023-2024: Organizational Restructuring Toward Full DAO: MakerDAO dissolved the Maker Foundation, handing over complete governance to the DAO. It also initiated the Endgame Plan, aiming to de-risk the protocol, modularize functions, and evolve into a fully decentralized meta-DAO.
2025: Launch of SubDAOs and Layered Ecosystem: MakerDAO is expected to launch SubDAOs — semi-independent units managing specific asset classes, products, or regions, connected back to the main Maker Protocol. This marks a major milestone toward Maker’s decentralized future.

Should you invest in MKR?

Maker (MKR) is one of the few governance tokens tied to a proven DeFi ecosystem — the issuer of DAI, one of the most widely used decentralized stablecoins. With a solid track record dating back to 2017, MKR is not a “trend coin” but rather a representation of long-term decentralized financial governance and protocol stability.

That said, investing in MKR comes with both benefits and risks:

Strengths: MKR plays a central role in the MakerDAO ecosystem. As demand for DAI grows, so does the indirect demand for MKR as a governance and rebalancing tool. Additionally, MKR has a deflationary mechanism — it is burned when the protocol generates surplus revenue — supporting long-term value appreciation.
Risks: MKR’s price still fluctuates with the overall crypto market. Moreover, decentralized governance can sometimes lead to slower decision-making or centralization risks among large MKR holders.

In summary, MKR is a good fit for medium- to long-term investors who believe in the future of DeFi, decentralized stablecoins, and community-driven governance. If you’re looking for a strong DeFi project that’s less dependent on short-term hype, MKR is worth considering.

Conclusion

In a crypto market still fraught with volatility, real-world utility and robust governance models make Maker a project worth watching closely. With DAI remaining one of the top five stablecoins by market cap and MKR playing an essential role in its protocol operations, investors have a solid reason to believe Maker has long-term potential. While MKR may not promise a quick “10x” return, it offers a serious investment choice for those seeking exposure to a foundational pillar of the DeFi ecosystem.