Key Concepts

Learn more about the fundamental key concepts to use Maker Protocol

Here you can find a quick description of every term in You can also do a deep dive by checking each key concept article.

These are the terms you might encounter while using your Vault or in the Main Page. You can also follow the links to each key concept to have a deep understanding of how they work and how they might affect you.

Available to withdraw: the amount of collateral that can be withdrawn from your Vault at any given time.

Available to generate: the amount of Dai available to generate based on your current collateralization ratio.

Collateralization ratio: Current snapshot of your position's health calculated by the ratio of your locked collateral value versus outstanding Dai debt.

Dai Available: it represents how much Dai is left before reaching the debt ceiling for that collateral type.If there is no more Dai available it means the Debt ceiling has been reached.

Debt Ceiling: The debt ceiling is the maximum amount of Dai that can be borrowed globally against each collateral type. it's a parameter set and updated by the Maker protocol on a regular basis. If the Debt ceiling is reached no more Dai can be borrowed against that collateral type until the debt ceiling is lifted.

Deposit: the action of depositing collateral, which will in turn reduce your risk and increase the amount of Dai available for you to generate.

Dust limit: The minimum Vault Debt, also called Dust, is the minimum amount of Dai you must generate to open a new Vault, and maintain. This minimum Vault Debt value is set and can be adjusted at any time by Maker Governance. If the minimum is increased to a value above your current Debt, then you will experience reduced functionality of your Vault until you increase it to above the minimum again.

Generate Dai: the action of generating Dai from your Vault to your wallet, which in turn will increase your debt.

Liquidation penalty: the percentage of your debt that will be charged by the Maker Protocol as a penalty in case of liquidation. This amount will be added to your debt and it will be paid from your deposited collateral in the case of liquidation. In the liquidation process, your Position collateral can be sold through an auction in order to cover the outstanding debt.

Liquidation price: the Liquidation Price is the price that your Vault will be at risk of liquidation based on the ‘Current Price’ from the Oracle Security Module of the Maker Procol. It is a helpful indicator to allow you to know when you could get liquidated. Please note however that if your Vault has a positive Stability Fee (i.e. >0) then your liquidation price will continually increase as more debt is added to your Vault.

Liquidation ratio: The Liquidation Ratio is the Minimum Collateralization Ratio which you must keep your Vault at to not put it at risk of being liquidated. If your Vault goes below this Minimum Collateralization Ratio, your Vault could be liquidated and your collateral sold off to cover your debt.

LP Tokens: Tokens that represent your share of a liquidity pool.

Min. Collateralization ratio/ Min Coll. Ratio: the minimum required ratio of collateral to debt needed to generate Dai for a Vault type. This minimum must be kept at all times to avoid liquidations.

Multiple: an expression of the amount of exposure of your collateral in relation to not having an open position. A multiple of 2x means having 2x more exposure to increases and decreases of the price of the underlying asset.

Next Price: Within the Maker Protocol, there are always two prices for the collateral, the current price and the next price. To protect the system and users from ‘bad actors’ and flash crashes, the Maker Protocol uses an ‘Oracle Security Module’. This means that all prices that go into the system are delayed by one hour, and only updated once per hour - roughly on the hour. The next price is the price that will come into the system as the ‘Current Price’. It is the Current Price that your Vault is always measured against, so you can only be liquidated once the ‘Current Price’ goes below your ‘Liquidation Price’. This also means you have up to one hour to react if there is a big price drop and the next price is below your Liquidation Price.

Payback Dai: the action of using Dai in your wallet to reduce outstanding Dai debt and in turn reduce your debt.

Stability Fee: The Stability Fee is the variable annual rate (shown as a percentage) added to your debt that you will need to pay back. This can be seen as the cost to generate Dai, which is paid directly to the Maker Protocol.

Vault Dai debt: the current amount of outstanding Dai debt that is to be paid back, including accrued stability fees.

Vault type: the type of Vault that is in your control defined by the collateral asset and the risk parameters.

Withdraw: the action of withdrawing collateral from your Vault, which will in turn decrease your collateralization ratio.

Proxy Contract: A Proxy is a smart contract that allows you to easily interact with supported protocols, including the Maker Protocol, to manage your Vaults, generate Dai and so on. You will only need to do this once per wallet and all your Vaults will be managed through this single Proxy. Please never send any funds to this Proxy address.

Allowance: Token allowances let you control how much the proxy contract can do with the token balance in your wallet. To allow the Proxy contract to pay back Dai, or interact with the collaterals in your wallet, you will need to authorize it by setting an allowance with each token that you want to use with You can set the allowance to the amount you want to use each time or you can set a higher allowance for future interactions with This will all be presented to you within the flows inside, and you won’t have to do anything extra if you don’t see any prompts.

Oracle Security Module: The Oracle Security Module, referred to as the OSM, is in charge of updating collateral prices periodically that the Maker Protocol then uses. It provides a safety net for the prices that come into the Maker System to protect Vault users in case of flash crashes and short lasting market volatility, as well as compromised price feeds.

-A/-B/-C collateral Vaults: There are multiple Vault types for some collaterals. Each type indicated by a letter has its own Collateralization Ratio, and Stability Fee. You can pick whatever type of Vault you want according to your needs and risk profile.

Dai available: The Maker protocol sets an upper limit for for borrowing against each Vault type: the Debt Ceiling. Dai available represents the maximum amount of Dai all Vault owners can generate against that Vault type until the Debt Ceiling is reached. This Debt Ceiling should not be confused with the Dai available to generate seen in your Vault page. That amount represents the maximum amount of Dai you can borrow based on your current Vault state. In case the Debt Ceiling is reached no more Dai can be generated unless the debt ceiling is lifted or someone payback their debt. The Maker protocol updates the debt ceiling regularly but if you can’t generate more Dai because the Debt Ceiling has been reached please check back in a few hours.

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