You’ve Learned How to Open a Maker Vault––Now What?

18 June 2020

The Maker Foundation’s latest video, How to Open a Maker Vault, demonstrates how easy it is to generate the Dai stablecoin. Anyone can open a Vault to generate Dai by locking accepted collateral (currently ETH, BAT, wBTC, USDC-A, USDC-B, or TUSD) into it, and making sure that the ratio of collateral value to the total Dai generated is the required minimum. If that ratio is breached at any time, the Vault will be automatically liquidated. To reclaim the collateral before a liquidation occurs, a user simply pays the full amount of generated Dai back, along with the Stability Fee owed.

With Dai in their wallets, Vault owners can use it in a number of ways, including the following: 1) to buy ETH to deposit back to a Vault, thereby leveraging the initial stake, and 2) to spend it on the products and services available from the many projects within the Maker ecosystem that integrate Dai. 

Using Maker Vaults to Create Collateral Leverage

One of the key ways a Vault owner can use the Dai she generates is to purchase more collateral—typically ETH. If the price of ETH increases, the Vault owner stands to profit. She can also borrow from the Vault as a form of decentralized leverage. Because Maker Vaults require a minimum of 150% collateralization, the maximum leverage available is 3x, not taking into account transaction fees or slippage. 

Consider the following:

Assume one ETH is $100. Alice deposits 15 ETH, worth $1,500, to her Vault. She generates 1,000 Dai against it (the maximum possible given the 150% collateralization requirement), and then uses the Dai generated to purchase 10 ETH, which she deposits back into her Vault.

Alice can now generate a further 667 Dai against the extra $1,000 in ETH collateral. Purchasing $667 of ETH allows her to generate a further 444 Dai. Repeating this process provides a further 296 Dai, then 198 Dai, 131 Dai, 88 Dai, and 59 Dai. Ultimately a total of 1,500 Dai can be generated against the original 15 ETH, enabling Alice to leverage her initial stake by 200%.

The risks of falling ETH prices are also amplified; if Alice does not keep her Vault adequately collateralized, it will be liquidated and its contents auctioned

After opening a Maker Vault, always be mindful of liquidation price.
Always be aware of your liquidation price to avoid automatic liquidation of your Maker Vault.

Spending Your Dai 

In addition to recapitalizing a Maker Vault with generated Dai, the token can be used to make purchases. One option is to use Dai to purchase other cryptocurrencies, including those available from decentralized exchanges, such as Oasis Trade or Uniswap. 

Because the Maker ecosystem is large and diverse, there are many other ways to spend Dai. For options, look under the ‘Use Dai’ tab on the Maker ecosystem page. Here are some possibilities:

Visit Awesome MakerDAO for a comprehensive list of services that allow you to hold/earn, spend, donate, lend, and trade Dai.

Once you know how to open a Maker Vault,  you can use your generated Dai in the Maker Ecosystem.
Community-made, Dai-integrated dapps in the Maker ecosystem.

Support the Dai Economy

As the most-used cryptocurrency in the DeFi space, Dai is a gateway to a wide range of initiatives, from financial services to charities. Engaging with the many different products and services that have integrated Dai offers opportunities to help you manage and trade your crypto assets, as well as develop and expand the Maker ecosystem and the crypto sector as a whole. Simply by spending Dai you are adding liquidity to the token, growing the global Dai economy, and raising the profile of Dai and its many advantages over conventional alternatives:

Open a Maker Vault to generate Dai now, and put your Dai to use.

18 June 2020