Overview
MakerDAO is one of the foundational protocols in DeFi, launching in 2017 as the creator of DAI — the most widely used decentralized stablecoin. The protocol operates as a collateralized debt position (CDP) system where users deposit collateral (ETH, WBTC, stablecoins, real-world assets) to mint DAI, which maintains a soft peg to the US dollar. Unlike pool-based lending protocols, Maker directly issues a stablecoin against collateral.
In 2023, MakerDAO embarked on a controversial "Endgame" plan spearheaded by co-founder Rune Christensen, culminating in a rebrand to "Sky" with new tokens — USDS (replacing DAI) and SKY (replacing MKR). The rebrand has been divisive: proponents see it as necessary modernization for mainstream adoption, while critics view it as unnecessary brand destruction that fragments liquidity and confuses users. Both DAI/MKR and USDS/SKY now coexist, creating market confusion.
Despite the governance turmoil, MakerDAO/Sky remains enormously significant. DAI + USDS together represent over $8B in stablecoins, and the protocol's revenue from stability fees and real-world asset (RWA) yields makes it one of the most profitable DeFi protocols. The integration of US Treasury exposure through RWA vaults has transformed Maker's revenue profile.
Smart Contracts
Architecture
Maker uses a CDP (Collateralized Debt Position) architecture — fundamentally different from pool-based lenders like Aave. Users open "Vaults" (formerly CDPs), deposit collateral, and mint DAI. Each collateral type has its own vault configuration. The Multi-Collateral DAI (MCD) system supports dozens of collateral types including LP tokens and RWAs.
Code Quality
Maker's core contracts are open source and written in a formal, math-heavy Solidity style. The protocol was among the first to use formal verification extensively. The codebase is mature but complex, with the Endgame transition adding new contract layers (Sky protocol contracts) on top of legacy Maker infrastructure.
Upgradeability
Maker's governance can modify system parameters and deploy new collateral adapters through executive votes. The governance module uses a continuous approval voting system. The dual-token coexistence (MKR/SKY, DAI/USDS) has introduced additional smart contract complexity through migration wrappers.
Security
Audit History
Maker has been audited by Trail of Bits, PwC, Runtime Verification, and others. The protocol has undergone formal verification of core contracts. The Sky transition contracts received additional audits, though the migration complexity introduces new integration risks.
Oracle Design
Maker operates its own oracle system with a network of authorized feed providers. Price feeds use a median of multiple reporters with a one-hour delay (Oracle Security Module) to prevent flash manipulation. This proprietary oracle approach provides independence from Chainlink but requires ongoing governance of feed providers.
Liquidation Engine
Maker V2 uses a Dutch auction liquidation system (Clipper) that replaced the original English auction model (Flipper). Liquidations are triggered when a vault's collateral ratio falls below the liquidation threshold. The system has handled major market crashes effectively, though Black Thursday (March 2020) exposed flaws in the original auction design.
Track Record
Maker's most significant incident was Black Thursday in March 2020, when a market crash combined with Ethereum network congestion allowed liquidators to win auctions with zero-DAI bids, resulting in ~$8.3M in bad debt. The protocol responded with system reforms including the new auction mechanism and debt ceiling adjustments. No major exploits have occurred since.
Risk Management
Asset Listing
Maker's collateral onboarding process involves risk assessments from the Risk Core Unit and community evaluation. The Endgame restructuring introduced "SubDAOs" (now "Stars") that manage specific vault categories. RWA onboarding involves legal structuring and off-chain counterparty due diligence.
Risk Parameters
Each vault type has configurable stability fees (interest rates), liquidation ratios (typically 130-175%), debt ceilings, and auction parameters. Maker's risk framework is comprehensive but the governance overhead for parameter changes is high.
Isolation Modes
Maker naturally isolates risk by vault type — each collateral class has independent debt ceilings and parameters. The D3M (Direct Deposit Module) that pipes liquidity to Aave and Spark introduces protocol-to-protocol risk that requires careful monitoring.
Adoption
TVL & Usage
MakerDAO/Sky holds approximately $8-12B in TVL, making it one of the largest DeFi protocols. DAI and USDS combined circulating supply exceeds $8B. The protocol generates $150-300M in annualized revenue from stability fees and RWA yields.
Multichain Presence
Maker/Sky is primarily Ethereum-based, though DAI is bridged to virtually every major chain. Native multichain deployment has been limited, with the Spark sub-protocol handling L2 expansion. The USDS token is being deployed to additional chains.
Integrations
DAI is one of the most integrated tokens in DeFi, supported by virtually every DEX, lending protocol, and yield aggregator. Major centralized exchanges also list DAI. The Spark protocol serves as Maker's lending frontend, competing with Aave.
Tokenomics
Token Overview
MKR (total supply ~900K, deflationary via buyback-and-burn) is the legacy governance token. SKY is the new governance token at a 1:24,000 exchange ratio. The dual-token situation has fragmented governance attention and liquidity. MKR's burn mechanism historically made it one of the few deflationary DeFi tokens.
Revenue Model
Maker generates revenue through stability fees (interest on DAI/USDS minting), liquidation penalties, and RWA yields. The protocol allocates revenue to surplus buffers, MKR buybacks, and operational expenses. RWA exposure (primarily US Treasuries) now represents the majority of revenue.
Governance
Maker's governance is one of the most complex in DeFi, using continuous approval voting for executive proposals. The Endgame plan restructured governance into SubDAOs/Stars with delegated authority. Governance participation has been contentious, with Rune Christensen's outsized influence drawing criticism. The MKR-to-SKY migration further complicates voter coordination.
Risk Factors
- Rebrand Confusion: The MakerDAO-to-Sky transition has created market confusion with dual tokens (MKR/SKY, DAI/USDS) and fragmented community attention. The rebrand's value proposition remains unclear to many users.
- Governance Centralization: Rune Christensen and aligned delegates hold significant influence over governance direction. The Endgame plan was pushed through despite substantial community opposition.
- RWA Counterparty Risk: Heavy reliance on real-world asset yields introduces off-chain counterparty risk, legal jurisdictional issues, and regulatory exposure that pure DeFi protocols avoid.
- Black Thursday Precedent: While the liquidation system was reformed, extreme market conditions could again stress the auction mechanism, especially with increased RWA collateral that cannot be liquidated on-chain.
- Complexity Risk: The Endgame architecture (Stars, Chronicles, etc.) adds organizational and technical complexity that may slow decision-making and increase attack surface.
Conclusion
MakerDAO/Sky occupies a unique and essential position in DeFi as the issuer of the most established decentralized stablecoin. Its revenue-generating capability, driven increasingly by RWA exposure, is genuinely impressive and sets it apart from most DeFi protocols. The protocol has demonstrated resilience through multiple market cycles and crises.
However, the Sky rebrand represents a significant self-inflicted wound. The dual-token confusion, community fracture, and governance centralization concerns have damaged trust and brand equity built over seven years. Whether Sky can justify this disruption by achieving mainstream adoption remains uncertain. The protocol's increasing reliance on real-world assets also shifts its risk profile toward traditional finance counterparty risks.
MakerDAO/Sky remains a DeFi cornerstone, but its trajectory depends on whether the Endgame vision can be executed without further alienating its community or introducing systemic risks through architectural complexity.