The CoinDesk 50: MakerDAO Is the Godzilla of DeFi

MakerDAO is the Godzilla of DeFi, a decentralized beast born of Vitalik's nuclear bomb: Ethereum.

At $350+ million in crypto locked into MakerDAO's smart contracts, it dominates the chief use case of the second-biggest blockchain. Like the celluloid firebreather before it, other similar beasts followed. The most well known are companies like Compound, Synthetix and dy/dx, making them equivalent to moviedom's Mothras, Rodans and Gameras. Gojira and his ilk are known as kaiju, and DeFi is crypto's equivalent.

In both the films and on the blockchains, regular denizens cannot look away, as each illustrates a grand potential but leaving the occasional inadvertent destruction in their wake. Both kinds of kaiju are weird, big and disruptive, and each can have only one King of Monsters.

This post is part of the CoinDesk 50, an annual selection of the most innovative and consequential projects in the blockchain industry. See the full list here.

On Ethereum, it all started with MakerDAO, a protocol that turns anyone's ether ETH$3,042.53, USDC or BAT holdings into loans of a dollar-pegged stablecoin minted for this purpose: dai. This is Maker's magical idea. The money lent did not exist before the loan was made. It manifests the credit theory of money explicitly. And people actually use it.

Maker was founded in 2015 by Rune Christensen of Denmark, where the MakerDAO Foundation is largely (but not entirely) based. Christensen was motivated to make a cryptocurrency without price volatility. He and his cohorts came up with dai, and unlike most stablecoins, which are backed by fiat deposited in a bank, dai is backed by trustlessly staked cryptocurrency. Each dai token is worth $1 because that's the value the smart contracts enforce, primarily by collateralization rules.

Not satisfied with letting adoption of dai play out as it will, however, the team has invested in building up networks in specific parts of the world. That's what convinced a Canadian startup to begin lending dai to its Latin American users, collateralized by bitcoin.

Mauricio Di Bartolomeo is a Ledn co-founder and a native of Venezuela. He always wanted his company to serve Latin America, and he first encountered MakerDAO on a trip through the region to spread the word about Ledn's bitcoin-collateralized lending project. He was surprised to find the Maker Foundation already there educating would-be crypto users about MakerDAO and dai.

"What really came to light in that experience was how hard they were working in the region," he said. "With the community came the liquidity around dai."

Ledn started surveying potential users to see what sort of asset they would like to borrow against bitcoin. They got a very strong response for dai as an option, Di Bartolomeo said. Some users wanted to participate in DeFi. Some just didn't have bank accounts. In either case, dai was the cryptocurrency they knew, so that's what they wanted. Di Bartolomeo credited old fashioned community building to the local adoption.

Still another Latin American entrepreneur we spoke to had a compelling vision for making his product essentially free to crypto users with dai, but it didn't fly.

Matias Nisenson of Argentinian game company Elemental wanted to let users stake dai to play rather than pay. Elemental created the game CryptoWars that used to be a gigantic, multiplayer resource management game (it's pivoting now). The idea was going to be that players could put up some dai, Elemental would deposit it on Compound and keep the interest in exchange for letting its owners play, but players could still get their dai back any time.

The game had managed to mainly cultivate a user base out of ETH holders, people who could take advantage of the tournament prizes they offered each weekend. Still, Nisenson said, it was "too much of an investment for a user to just play a game. Too heavy." Even if it meant they got to play the game essentially for free.

It was a good deal, but players didn't think giving up ETH's upside was worth it.

Like Godzilla himself, who came to function as humanity's protector, strange giants always unsettle mere mortals. After all, both tend to crush some underfoot on occasion, despite good intentions. People on the internet are still getting accustomed to DeFi's weird and surprising titan, no matter what its potential might be.