🏦 MakerDAO Internals

How MakerDAO works in 90 seconds

MakerDAO is the original credit-issued stablecoin system. Users open a vault on a specific collateral type — an ilk such as ETH-A, wstETH-B, wBTC-C, or one of the real-world-asset ilks — lock collateral, and mint DAI up to that ilk's debt ceiling. The borrower pays a per-ilk stability fee that accrues continuously into the Vat (the central accounting ledger), and the borrower can repay any portion of the debt at any time to release proportional collateral.

MakerDAO holds the DAI peg using two complementary tools. Stability fees and the DAI Savings Rate are policy levers: lifting the stability fee discourages new minting when DAI trades above $1, while raising the DSR pulls DAI off the secondary market when it trades below. Peg Stability Modules sit at the bottom layer and let users swap whitelisted stablecoins (USDC, USDP, GUSD) for DAI at a fixed 1:1 rate with a small fee, which short-circuits market-making whenever the PSM has reserves.

When a vault crosses its liquidation ratio, anyone may call bark on the Dog contract to seize the collateral and start a Liquidations 2.0 Clipper auction — a falling-price Dutch auction that opens above market and decays until a keeper buys the collateral with DAI. The proceeds repay the vault's debt plus a per-ilk liquidation penalty, with any surplus returning to the original owner. As of April 2026, governance has rebranded the system to Sky, introducing the SKY token (1 MKR = 24,000 SKY) and the USDS stablecoin upgrade alongside legacy MKR and DAI.

Key concepts

Ilk

An ilk is a per-collateral risk silo defined inside the Vat. Each ilk has its own liquidation ratio (e.g. 145% for ETH-A), debt ceiling, stability fee, dust limit, and Clipper auction parameters. Risk teams add or tighten ilks via executive votes, so listing wstETH or a new RWA partner does not change the parameters that govern existing collateral.

Stability fee

The annualized rate borrowers pay on minted DAI, applied per ilk and accrued continuously through the Jug contract into Vat balances. Stability fees are MakerDAO's primary revenue line — they fund the DSR, the Surplus Buffer, and ultimately MKR burns when the buffer overflows. ETH-A typically sits in the 5–9% range; volatile-collateral ilks pay higher.

DAI Savings Rate (DSR)

A non-custodial yield product implemented in the Pot contract. Holders deposit DAI in exchange for an internal balance scaled by the chi accumulator, which grows at the dsr per-second rate set by governance. Yield arrives as a rising chi rather than a token rebase, so depositors see their DAI balance compound automatically when they withdraw via exit.

Peg Stability Module

Maker maintains PSMs for USDC, USDP, and GUSD that let anyone swap those stablecoins for DAI at exactly 1:1 with a low in/out fee. The whitelisted stablecoin sits in a Maker-controlled adapter as collateral; the swap mints fresh DAI on demand. PSMs are why DAI's peg has held within tight bands since 2020 even during stablecoin volatility.

Liquidations 2.0 (Clipper)

The auction system introduced after Black Thursday. Once Dog.bark seizes an underwater vault, a Clipper auction starts above the oracle price and decreases over time according to a stair-step or exponential function. Keepers buy collateral when the price crosses their threshold, the bid is settled in DAI, and the protocol records a liquidation penalty (typically 13%) on top of the debt.

Real-world assets and Spark

Maker has rotated billions into RWA vaults — short-dated US Treasury portfolios run by partners like Monetalis and BlockTower — that now contribute most of the stability-fee revenue funding the DSR. Spark Protocol is Maker's house-built lending app: a fork of Aave V3 that pulls DAI directly from a Maker D3M facility, distributing yield without bypassing Maker's risk parameters.

Why MakerDAO matters

MakerDAO is the longest-running stablecoin in DeFi and the closest thing crypto has to a sovereign credit system. As of April 2026, DAI plus USDS together circulate around $7B, the DSR pays roughly 8% on idle DAI, and Maker's RWA collateral generates the lion's share of the Surplus Buffer that funds those payouts. The protocol is therefore one of the very few places in crypto where on-chain savers earn a yield directly tied to off-chain interest rates without taking custodial counterparty risk.

Maker's deeper importance is structural. Vaults, the Vat, the Pot, the PSMs, the Clipper auctions, and Spark form a complete monetary stack — issuance, liquidation, savings, market making, and money-market distribution — that operates entirely under one DAO's risk parameters. Every later overcollateralized stablecoin (LUSD, GHO, crvUSD) borrows pieces of this design, and Maker's Endgame restructure into Sky shows how a DAO can evolve a tokenomics framework live without forcing users off the legacy DAI ledger.

Frequently asked questions

What exactly is a MakerDAO vault?

A vault — historically called a CDP — is a contract that locks one collateral type and lets the owner mint DAI against it up to that ilk's debt ceiling. Each ilk has its own liquidation ratio, stability fee, and dust limit. Closing the vault requires repaying the outstanding DAI plus accrued stability fee, after which the collateral is released back to the owner.

How does the DAI Savings Rate work mechanically?

The DSR is the chi accumulator inside the Pot contract. When a holder calls join, their DAI is exchanged for an internal balance scaled by chi, which grows continuously at the dsr rate per second set by Maker governance. exit redeems the scaled balance back into DAI, so simply holding sDAI/DSR-deposited DAI compounds at the governance-set rate without per-block claims.

What is the difference between the stability fee and the DSR?

The stability fee is the interest borrowers pay on minted DAI, charged per ilk. The DSR is the rate paid out to DAI savers from the Surplus Buffer. The spread between them is Maker's net interest margin, and the protocol is solvent so long as stability-fee revenue from collateralized borrowing exceeds DSR payments plus operating expenses.

How do MakerDAO liquidations actually clear?

Maker uses Liquidations 2.0 — falling-price Dutch auctions. When a vault's collateralization drops below its ilk's liquidation ratio, anyone may call bark on the Dog contract to seize the collateral. Clipper auctions then start above market and decay over time until a keeper buys the collateral with DAI, repaying the bad debt plus a liquidation penalty (usually 13%).

What does the Peg Stability Module do?

PSMs let users swap whitelisted stablecoins like USDC and USDP for DAI at a fixed 1:1 rate, paid to the protocol as a small in/out fee. PSMs short-circuit market-making and pin DAI's price to its peg whenever there is enough USDC reserve to absorb redemptions, which is how DAI maintains tight peg discipline in the post-Black-Thursday era.

Why do RWAs and Spark feed back into the Maker stack?

Real-world-asset vaults — short-dated US Treasuries managed by Monetalis, BlockTower, and similar partners — produce most of Maker's stability-fee revenue today, which funds the DSR. Spark Protocol redeposits Maker liquidity into a fork of Aave V3 to expose the same DAI on a money market without bypassing Maker's risk parameters.

What changed when MakerDAO rebranded to Sky?

The Endgame rollout in 2024 launched the parallel SKY governance token (1 MKR = 24,000 SKY) and the USDS stablecoin upgrade, both convertible 1:1 with the legacy MKR and DAI. Vaults, the DSR, and the Spark/RWA architecture continued operating unchanged. Users can keep using DAI; USDS adds opt-in features such as program-specific reward streams.

Related reading

• CDPs and vault mechanics — open a vault, lock collateral, and watch how the stability fee accrues into your debt position.
• Liquidations 2.0 — see how Dog.bark, the Clipper price decay, and keeper bots clear an underwater vault.
• DAI Savings Rate — walk through the chi accumulator that turns deposited DAI into compounding yield without claims.
• Peg mechanisms — compare Maker's overcollateralized PSM-backed peg to fiat-backed and algorithmic designs.
• Depeg dynamics — review what historically broke pegs and how Maker's surplus buffer plus PSM ladder absorbs short-term shocks.