How does MakerDAO maintain its stability?

MakerDAO is a decentralized autonomous organization (DAO) that works to maintain the stability of its stablecoin, DAI.

The Maker platform is built on Ethereum and uses a combination of smart contracts, decentralized governance, and an innovative system of collateralized debt positions (CDPs) to ensure the stability of its currency. The Maker platform is designed to maintain the value of DAI at 1 USD by utilizing a system of incentives and penalties. This system is known as the Target Rate Feedback Mechanism (TRFM).

The TRFM works by incentivizing users to buy or sell DAI in order to keep its price close to 1 USD. If the price of DAI deviates too far from 1 USD, then Maker will automatically adjust the supply of DAI in order to bring it back into balance. In addition, Maker also utilizes a system of CDPs which allow users to borrow against their cryptocurrency holdings in order to generate more DAI.

This allows users to increase their supply of DAI without having to purchase it directly from an exchange. The CDPs are secured by collateral which must be held in escrow until the loan is repaid. This helps ensure that there is always enough collateral backing each loan and helps maintain the stability of DAI.

Finally, Maker also utilizes a decentralized governance system which allows token holders to vote on changes that affect the platform. This helps ensure that any changes made are done so with input from all stakeholders and helps keep the platform running smoothly and efficiently. Overall, MakerDAO utilizes a combination of smart contracts, decentralized governance, and CDPs in order to maintain its stability and ensure that its stablecoin remains pegged at 1 USD.