Question 1

What is the difference between a MakerDAO Vault and a traditional bank loan?

Accepted Answer

A Maker Vault is a permissionless, collateralized debt position with no counterparty risk - there's no bank, no credit check, and no maturity date. You lock collateral, mint DAI against it, and repay DAI + stability fee to retrieve your collateral. Interest accrues per second and there is no way to foreclose on the user - the worst case is liquidation if collateralization drops too low. A bank loan involves paperwork, credit checks, a fixed repayment schedule, and counterparty risk.

Question 2

How does the liquidation ratio protect the protocol?

Accepted Answer

The liquidation ratio (e.g., 150% for ETH) means you must have $150 of collateral for every $100 of DAI minted. If ETH drops 33%, your vault hits exactly 150% collateralization - liquidation triggers. This buffer ensures that even in a sharp price drop, the protocol can sell collateral for enough DAI to cover the debt. The ratio is set by MakerDAO governance; riskier assets require higher ratios.

Question 3

What is the stability fee and how is it calculated?

Accepted Answer

The stability fee is MakerDAO's interest rate on DAI minted from a Vault - essentially the 'rent' you pay for creating DAI. It accrues per second using a chi (?) accumulator. If you open a vault with 10,000 DAI debt at 5% APY, after one year you owe 10,500 DAI (the original + 500 in fees). The fee rate is set by MKR governance as a monetary policy lever. During periods of DAI below peg, fees are typically lowered to encourage borrowing and reduce supply pressure.

Question 4

What happens if my vault is liquidated?

Accepted Answer

Your collateral is sold in a DAI auction (English auction, 50% above the feed price) to raise enough DAI to cover your debt + penalty. The penalty goes to the protocol's surplus buffer. Any collateral remaining after covering the debt is returned to you. For example, if your 10 ETH vault ($30K collateral) is liquidated at a 13% penalty when DAI/USD = $1, you'd lose roughly $3,900 of collateral. This is why maintaining a 200%+ collateralization ratio is considered prudent.

Question 5

What is the Peg Stability Module (PSM) and how does it differ from Vaults?

Accepted Answer

The PSM allows direct 1:1 swaps between DAI and USDC (up to a cap) at exactly $1. Unlike Vaults, there's no liquidation risk, no collateral ratio, and no interest - you simply deposit USDC and receive DAI (or vice versa) at a 1:1 rate minus a small fee. The PSM is used to defend DAI's peg from below by removing excess DAI supply. It replaced the need for Vaults for simple peg maintenance.

Question 6

How does DAI maintain its $1 peg through the PSM?

Accepted Answer

When DAI > $1.00: arbitrageurs use the PSM to swap USDC -> DAI at $1, immediately sell DAI above $1 for profit, increasing DAI supply and pushing the price back down. When DAI < $1.00: arbitrageurs buy cheap DAI on the open market and use the PSM to swap DAI -> USDC at $1, removing DAI from circulation and pushing the price back up. The PSM is effectively a mechanical peg defense that requires no governance intervention.

Question 7

Can I have multiple Maker Vaults with different assets?

Accepted Answer

Yes. MakerDAO supports Vaults with many collateral types: ETH, WBTC, stETH, renBTC, and various ERC-20 tokens. Each asset has its own risk parameters: liquidation ratio, stability fee, debt ceiling, and oracle price feed. You can diversify across multiple Vaults to manage risk. You can also close Vaults individually by repaying DAI debt and retrieving collateral.

Question 8

What is DAI's 'surplus buffer' and why does it matter?

Accepted Answer

The surplus buffer accumulates DAI from Vault liquidation penalties and stability fees. It acts as a first-loss reserve - before MKR can be minted to cover bad debt, the surplus buffer is used. Currently set at 50M DAI. If the buffer is insufficient during a large market downturn, MKR is minted and auctioned to raise DAI to cover the shortfall. This 'MKR flash mint' mechanism is a backstop that has never had to be triggered in practice.

CDPs & DAI Minting

Vault Simulator

How DAI Stays at $1

DAI Savings Rate (DSR)