Stablecoins

Question 1

Dai

Answer 1

a decentralized stablecoin running on Ethereum (ETH) that attempts to maintain a value of $1.00 USD. Unlike centralized stablecoins, Dai isn’t backed by US dollars in a bank account. Instead, it’s backed by collateral on the Maker platform. 3) its value is kept stable through a framework of aligned financial incentives.

Question 2

MakerDAO launched with how many tokens at its inception?

Answer 2

1,000,000 MKR tokens at its inception

Question 3

MKR

Answer 3

the governance token and recapitalization source of the Maker Protocol.

Question 4

MKR as a governance token allows holders to vote on what technical aspects?

Answer 4

used to execute changes to parameters inside of the Maker Protocol like Stability Fees, the DSR, Debt Ceilings, and many others

Question 5

MKR as a governance token allows holders to vote on what nontechncial aspects?

Answer 5

also used to make decisions on the non-technical aspects of the protocol like asset priority lists, governance processes, role mandates, and even electing individuals to fill specific roles.

Question 6

how does MKR function as a recapitulation source?

Answer 6

[don’t understand yet]The token also acts as a source of recapitalization when the Maker Protocol runs at a deficit. The possibility of MKR token supply Dilution gives holders a strong incentive to govern the system well. Inversely, the destruction of MKR through the auctioning of Dai from the system’s excess surplus further incentivizes holders to govern the system well.

MakerDAO launched with 1,000,000 MKR tokens at its inception. The tokens are created and destroyed under different circumstances. MKR is destroyed when the Maker Protocol’s system surplus exceeds a minimum threshold, resulting in excess Dai being auctioned for MKR that is then destroyed. Inversely, when the Maker Protocol is running a deficit and the system debt exceeds a maximum threshold, MKR is created and auctioned for Dai in order to recapitalize the system.

Question 7

If Dai demand consistently exceeds Dai supply, or vice-versa,

Answer 7

it creates a signal that MKR holders need to adjust the Dai Savings Rate, which is the primary tool for influencing Dai demand and steering the monetary policy of Dai. Raising the Dai Savings Rate increases the demand for holding Dai; lowering the rate decreases the demand for holding Dai. This ultimately translates to a stable Dai peg.

Question 8

A Medianizer

Answer 8

is a type of smart-contract in the Maker Protocol’s Oracle system that collects price-data from Feeds and calculates a reference price by calculating a median. The Medianizer maintains a white-list of Feeds that can be controlled by MakerDAO governance. Every time a new set of price updates is received, the reference price is recalculated and queued into the Oracle Security Module which publishes the price after a delay period.

Question 9

MakerDAO oracles

Answer 9

makes both off-chain and on-chain data available for use in smart-contracts. In the Maker Protocol, Oracles enable the use of price data of various assets to determine a number of important things like when to Liquidate a Vault or how much Dai a given Vault can generate. MakerDAO Oracles receive data from a number of independent Feeds that consist of individuals and organizations. Each Oracle corresponds to a single asset and its reference price.

Question 10

What is a vault in Dai/MakerDao? [high level]

Answer 10

Users create Dai by generating it against their collateral and destroy Dai when repaying their generated Dai balance. Vaults are categorized by the type of collateral used to generated Dai.

Question 11

MCD system stands for

Answer 11

Multi Collateral Dai system, aka the Maker Protocol

Question 12

Maker Governance

Answer 12

The community organized and operated process of managing the various aspects of the Maker Protocol

Question 13

CDP stands for

Answer 13

Collateralized Debt Positions

Question 14

List the two scientific governance aspects of MKR

Answer 14

Executive Voting and Governance Polling

Question 15

Significance of stablecoins like Dai

Answer 15

while Bitcoin succeeds as a cryptocurrency on a number of levels, it is not ideal as a medium of exchange because its fixed supply and speculative nature results in volatility, which prevents it from proliferating as mainstream money.

The Dai stablecoin, on the other hand, succeeds where Bitcoin fails precisely because Dai is designed to minimize price volatility. A decentralized, unbiased, collateral-backed cryptocurrency that is soft-pegged to the US Dollar, Dai’s value is in its stability.

Question 16

What’s the downside of stablecoins promoted by say JPMorgan or Facebook?

Answer 16

such proposals forfeit the core value proposition of blockchain technology: global adoption of a common infrastructure without a central authority or administrator

Question 17

Difference between credit risk and counterparty (credit risk)

Answer 17

P much the same but counterparty risk is a subset of credit risk.

We might speak of credit risk when you enter a trade for which you are seeking compensation primarily for the risk that your counterparty might not pay you back

We might speak of counterparty risk when you enter a trade for which you are seeking compensation primarily for some risk other than credit (equity risk, rate risk, etc.) but for which you are nonetheless exposed to the credit quality of a counterparty

e.g buying an option from someone,( they might not actually have the collateral for handling assignment of the option)