Interview with Niklas Kunkel at MakerDAO

Dai is a decentralized stablecoin.

Felix FENG

Niklas is a developer at Maker which is creating a decentralized stablecoin called the Dai. Previously he worked at IBM with the Innovation Lab, where he built the first dapps on the Hyperledger Fabric blockchain.

1. What’s your story? Tell me about the first time you learned about blockchain.

The first time I heard about blockchain was through my introduction to Bitcoin in 2012. I was intrigued by the idea of a currency that had a restricted supply that couldn’t be issued out of thin air on a whim by a central bank. I was a student at the time with not a lot of money, but I bought a few Bitcoins as an afterthought. I then completely forgot about it until three years later when I started seeing Bitcoin mentioned on Hacker News and Reddit.

2. What is something you believe to be true that most people disagree with you on?

The trend of openness and sharing that has dominated the past decade will reverse with a renewed interest in privacy.

3. What does your project do? What problem does it solve?

Maker is creating a decentralized stablecoin called the Dai. A stablecoin is a token which aims to have a stable value. Businesses and individuals require a stable medium of exchange to transact in. Existing cryptocurrencies like Bitcoin and Ethereum are too volatile to fill this void. A stablecoin is a critical piece of infrastructure necessary for the Ethereum ecosystem to innovate and grow.

Dai’s utility extends to almost any dapp dealing with monetary value. For instance, predictions markets need a stable unit of account to denominate bets in. Let’s say you made a bet with 1 ETH, and you end up winning your bet. However, if the value of ETH dropped during that time you may still have ended up losing money. A business running on Aragon needs to have its funding in a stablecoin in order to budget expenses for the upcoming year. Imagine hiring 5 new employees on the assumption that ETH will stay at its current price, then having a sharp crash requiring you to lay off those same employees. Businesses require predictability and stability. Hedging their funding with Dai is a no-brainer.

4. Who’s on your team?

Maker consists of a large network of digital workers from all around the world bringing together expertise in software development, economics, business development, and marketing. We are expanding aggressively and looking to open several offices soon.

5. How do the token network effects work?

The MKR token (separate from the stablecoin Dai) is a utility token that serves several different functions in the Dai Stability System.

MKR tokens are used for governance and entitle the owner to vote on which assets can be used as collateral to back the stablecoin Dai. They also determine the risk parameters for these assets such as the stability fee, liquidation ratio, liquidation penalty, and debt ceiling. It is important to note that these are very important decisions which are crucial to determining the success of the system.

MKR token holders act as a lender of last resort. In the event of a flash crash of a collateral asset, the collateral is seized and auctioned off until the debt associated with outstanding stablecoin loans backed by that collateral are paid off. Thinking of this as a margin call may make it easier to understand. In the event that the collateral auctions are not able to recover the full value of the debt, new MKR tokens are minted and auctioned off to make up for the shortfall.

MKR is also a membership token in that it is required to be able to use the system.

Minting of Dai is done through loans which accumulate stability fees over time. These stability fees are paid by the user in MKR and then burned. This creates a deflationary force on the MKR token supply and results in increased demand.

This means that MKR token holders are directly responsible for the decisions they make through governance. If they are good at assessing risk, the MKR token supply will deflate. If they are bad at assessing risk, the MKR token supply will inflate. The important thing to note here is that the MKR token holders absorb all of the risk/reward of the system and by design do not affect the stability of the Dai.

6. What’s your vision for the future of the project/company?

The possibilities here are very exciting as DAI could become foundational crypto infrastructure for asset exchanges, remittances, and the denomination of  forward-looking contracts used in insurance and prediction markets. I see Dai becoming the de-facto holding currency of any dapp, business, or individual trying to hedge exposure to crypto volatility. Many ICOs currently keep their funding in ETH. I would argue this is irresponsible as they’re using their investor’s funds to speculate. The risks of this aren’t as apparent in a bull market, but a bear market will cause many to reconsider Dai as a potential solution. I also see Dai being a catalyst for decentralized exchange volume by enabling both short and long decentralized margin trading.

7. How can people get involved in building out the project and network?

Educate yourself about Maker, spread the word, and integrate our prototype stablecoin Sai (Simple Dai) into your dapps. The more mindshare and synergy Sai has across the ecosystem, the more useful it becomes.

8. What article or book have you shared the most recently?

Most recently I read James Scott’s Seeing Like A State: How Certain Schemes to Improve the Human Condition Have Failed. It provides a glimpse of the motivations behind social structures contrived by the state.

9. What other projects are you excited about in the space?

Ethereum is a very powerful platform with lots of potential, but scaling capacity is vital to ensure its success. To that end, I’m most interested in the progress Joseph Poon is making with Plasma as well as base layer Ethereum sharding efforts by Vitalik Buterin.

10.  How do people find you?

Learn more about Maker and Dai at

You can become a part of our community and connect with us by joining our Rocket Chat at

You can also stay updated on our progress by joining our weekly public meetings every Sunday at 16:00 UTC via TeamSpeak at