If you’ve been keeping up with my posts, then you’ll know that I’m on a deep dive into the rabbit hole of MakerDAO.
They’ve been making headlines recently after a traumatic “Black Thursday” liquidation event. I still enjoy the project and have been using the MakerDAO CDP vaults to leverage up on some of my crypto.
I have found that it’s a great way to utilize my crypto that would otherwise just be sitting in a hardware wallet and collecting dust.
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In This Episode:
- Step by Step vault creation guide for a new user
- Breakdown of each important term in the MakerDAO system (Collateralization Ratio, Stability Fee, Liquidation Price, Liquidation Fee, etc.)
- Risks associated with MakerDAO and CDPs
- The future of MakerDAO and DeFi more broadly
CDP stands for collateralized debt position. Having a CDP vault allows you to put up ETH, BAT or USDC as collateral and take out an instant loan in the DAI stable coin cryptocurrency on the Ethereum blockchain.
The example I use in the video is creating a vault and then depositing 2 ETH and taking out a $100 loan in the DAI currency.
With that 100 DAI, I can go out and buy more ETH which would effectively allow me to hold a “margin” position on ETH (holding more ETH than I actually own) and I could have additional benefits on the upside, since my collateral is still mine to sell in the future.
As with anything in crypto, there are risks associated with this. If it were risk-free, then everyone would put all their crypto in here and then be off to the moon.
The main risks that I see with these vaults are:
- Getting liquidated due to a flash crash in the crypto price
- Getting liquidated/wiped out due to a bug in the code (or another “Black Thursday” event)
- Some other unpredictable failure in the MakerDAO ecosystem
More so than trying to make money with this, I’m utilizing some of my ETH/BAT in various MakerDAO vaults as a means to learning and evolving with the DeFi (decentralized finance) industry.
Decentralized loans are merely 1 use case of DeFi and I am extremely interested in the future of this space for myriad of reasons. Experimenting with projects like this with a small amount of my crypto is both fun and educating.
If you have any questions or have any experience with the MakerDAO ecosystem, drop a comment down below!
Links Mentioned:
- Official MakerDAO Website: https://makerdao.com/
- Oasis App: Decentralized Interface for MakerDAO and What I Use for Vault Creation/Management https://oasis.app/
- Exchange that has DAI trading enabled: https://bittrex.com/
- Ledger Hardware Wallet: https://www.ledger.com/
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