MakerDAO Formalizes Governance with New “Constitution” for Dai Stablecoin

MakerDAO, the decentralized autonomous organization (DAO) that governs the Dai stablecoin, has passed a new proposed “constitution” to formalize governance processes and prevent hostile actors from taking over the protocol.

According to the official forum page for the proposal, this constitution is needed because the Maker Protocol “relies on governance decisions by humans and institutions holding MKR tokens,” which can result in the failure of the Maker Protocol or the loss of user funds.

The Maker Constitution is designed to engage in “alignment engineering” to “lock in the core commitments” of the community, the document said. The governing document creates several categories of participants with different powers and responsibilities. For example, constitutional conservers (CCs) have the job of “facilitating and protecting the Maker Governance process” by ensuring that the constitution is followed by other participants.

CCs can become constitutional voter committee members (CVCMs) or constitutional delegates (CDs). CVCMs craft position documents for voters to consider, and CDs operate smart contracts that allow MKR holders to delegate their MKR without losing custody of their tokens. This approach is intended to prevent one or a few large holders from dominating the voting process and, as a result, making decisions that may not be in the best interest of the entire Maker community.

The Maker Protocol is a decentralized finance (DeFi) platform that allows users to generate Dai, a stablecoin pegged to the U.S. dollar. Dai is backed by collateral that is held in smart contracts on the Ethereum blockchain. The value of Dai is kept stable by a system of incentives and penalties that encourage users to maintain the value of the collateral they have deposited.

The Maker Protocol has experienced some challenges in the past, including a “Black Thursday” event in March 2020 when the price of Ethereum dropped sharply, leading to a significant loss of collateral and a decrease in the value of Dai. The Maker community has been working to address these challenges and strengthen the governance processes of the protocol.

The passing of the Maker Constitution is a significant step towards achieving these goals. By formalizing the governance processes and preventing hostile actors from taking over the protocol, MakerDAO is working to create a more stable and secure DeFi platform. It remains to be seen how effective this new governance structure will be, but it represents a positive development for the Maker community and the wider DeFi ecosystem.

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