A lot of Ethereum DeFi (and cryptocurrency in general) has been pretty frustrating to watch, because it's a lot of people with big ideas and little understanding of how to build stable financial systems.
In the case of Maker, what's interesting is that a stablecoin is actually possible. Maker has a really good core idea, several great elements to it:
1. The stablecoin is backed by collateral, typically a significant amount more collateral than the amount of stablecoin that has been issued.
2. People locking up collateral get greater exposure to Eth's volatility. So there's genuinely a reason to lock up collateral to issue stablecoins if you are bullish on Eth.
But, this breaks down a bit. There's no way to instantly convert the stablecoin back into the collateral asset, you have to find someone with a CDP who is willing to buy the stablecoin from you.
Similarly, there's no way to unlock your collateralized asset, you have to find someone who is willing to sell you the stablecoin in order to open up your vault and get your eth out.
So on both sides of the equation, you have this liquidity risk that doesn't really need to exist.
I could go on for a bit more, there are a bunch of other design decisions that are backwards and don't work well. But the fundamental ideas are actually pretty okay, and if you took a more traditional finance person and had them work through all the tiny details, I think you'd end up with something pretty powerful.
In that sense, it's almost like encryption. The tiniest detail being incorrect can make the whole construction useless, even if as a whole the fundamentals are pretty solid.
In the case of Maker, what's interesting is that a stablecoin is actually possible. Maker has a really good core idea, several great elements to it:
1. The stablecoin is backed by collateral, typically a significant amount more collateral than the amount of stablecoin that has been issued.
2. People locking up collateral get greater exposure to Eth's volatility. So there's genuinely a reason to lock up collateral to issue stablecoins if you are bullish on Eth.
But, this breaks down a bit. There's no way to instantly convert the stablecoin back into the collateral asset, you have to find someone with a CDP who is willing to buy the stablecoin from you.
Similarly, there's no way to unlock your collateralized asset, you have to find someone who is willing to sell you the stablecoin in order to open up your vault and get your eth out.
So on both sides of the equation, you have this liquidity risk that doesn't really need to exist.
I could go on for a bit more, there are a bunch of other design decisions that are backwards and don't work well. But the fundamental ideas are actually pretty okay, and if you took a more traditional finance person and had them work through all the tiny details, I think you'd end up with something pretty powerful.
In that sense, it's almost like encryption. The tiniest detail being incorrect can make the whole construction useless, even if as a whole the fundamentals are pretty solid.