MakerDAO: How DAI Borrowing Works in 2026

MakerDAO is the name many people still use for the Ethereum-based system that creates DAI against crypto collateral. The project rebranded as Sky, but its core idea remains: you place approved assets in a smart-contract Vault, then generate DAI against them. DAI is designed to track the US dollar, but its price can move away from $1 and it is not a bank deposit or a guaranteed dollar redemption.

The system is not simply a company lending out a pot of dollars. Vault borrowers create DAI through the protocol and owe that amount, plus a stability fee. Governance sets important parameters, including which collateral types are accepted and the borrowing terms. Smart contracts enforce the rules, while price feeds help determine whether a Vault is safe.

In 2026, it helps to think of MakerDAO as the project’s former name and Sky as its newer brand. DAI remains in use; Sky also offers USDS, which can be converted from DAI through supported routes. Check that you are using the intended token and network before taking action.

A Vault is a collateralized position managed by a smart contract. You deposit an accepted asset, such as a supported crypto token, and generate DAI up to the limit set for that collateral type. The generated DAI is yours to use, but the Vault records a debt that you must repay before withdrawing all of your collateral.

The basic process is:

1. Connect a self-custody wallet to the intended Maker/Sky interface.
2. Select the network and collateral type, then check the Vault’s current terms.
3. Deposit collateral and choose how much DAI to generate.
4. Review the collateral ratio, stability fee, liquidation threshold and transaction costs before signing.
5. To close or reduce the position, repay the required DAI and fees, then withdraw collateral as the contract allows.

Generating more DAI increases your debt and usually leaves less room for a price drop. The interface may show a maximum borrowing amount, but that is not a prudent target: a Vault close to its limit can become unsafe after a relatively small market move. Keep enough DAI available to repay and account for wallet and network fees.

Your borrowing cost is not necessarily a fixed annual percentage. Maker/Sky governance sets stability fees for collateral types, and those terms can change. The fee accrues against the Vault’s debt, so check the rate and how it is calculated in the interface before opening a position. The protocol may also charge a liquidation penalty if your Vault is liquidated.

You will also pay Ethereum transaction costs for actions such as depositing collateral, generating DAI, repaying debt and withdrawing assets. These costs vary with network conditions. If you use a third-party service to manage a Vault, it may add its own charges or require extra transactions; review the service terms separately.

Before borrowing, write down the costs that apply to your position:

• Stability fee: the protocol’s charge for the outstanding debt.
• Network fees: the cost of each transaction you send.
• Potential liquidation penalty: an additional cost if the Vault becomes unsafe.
• Conversion or service costs: any charge from swapping tokens or using an intermediary.

Do not rely on a remembered rate or an old tutorial. Confirm the live fee, collateral rules and repayment requirements immediately before signing.

Each collateral type has a minimum collateral requirement and a liquidation threshold. If the value of your collateral falls far enough relative to your debt, the Vault can become unsafe. The protocol can then sell collateral to cover the debt and applicable penalty. The precise process depends on the collateral and current system rules; liquidation is not something you can reliably stop once it has begun.

Prices are supplied to the protocol through oracles. A fast market drop, thin trading or a delay in reacting can leave you with less time to add collateral or repay. If the value rebounds later, that does not necessarily restore assets already sold during liquidation.

To manage this risk, avoid borrowing the maximum amount shown. Leave a substantial buffer, monitor the collateral ratio, and decide in advance how you would add collateral or repay debt. Do not assume you can always borrow against the same collateral again, sell it instantly at the displayed price, or complete a transaction cheaply during market stress. A notification or price alert can help you notice movement, but it cannot guarantee that a transaction will confirm before liquidation.

The token names reflect the project’s move from MakerDAO to Sky, but they have different roles. DAI is the established stablecoin generated through Vaults and used across crypto applications. USDS is Sky’s newer dollar-pegged token, and supported conversion routes allow DAI and USDS to be exchanged at a 1:1 rate. That target does not remove the possibility of market-price movements, contract risk or limits on a particular route.

MKR was the governance token associated with MakerDAO. Sky introduced SKY as its governance token, with an upgrade path from MKR at a stated rate of 1 MKR to 24,000 SKY. Governance tokens are not the same thing as stablecoins: their holders may take part in protocol decisions, but their market values can fluctuate substantially.

Before exchanging or migrating tokens, check the exact token contract, network, conversion route and current instructions in an official Sky interface. Fake migration pages and misleading token contracts are a common danger during rebrands. Never approve a transaction just because a message, advertisement or unfamiliar site says your tokens must be moved urgently.

Sky’s governance process lets token holders participate in decisions about protocol parameters and upgrades. Depending on the proposal and the current governance setup, participation may involve voting directly or delegating voting power. A governance token does not mean every holder has equal influence, and a vote does not remove the risks of a decision being wrong or of a technical change failing.

If you want to participate, first confirm whether the specific vote uses MKR, SKY or another defined mechanism. The transition from MakerDAO to Sky means older guides may describe a process or token that has since changed. Read the proposal itself, understand what action it would authorize, and check any implementation details before voting or delegating.

For ordinary users, governance matters even if you never vote: decisions can change collateral eligibility, fees, risk limits or system features. If you are borrowing, check the terms that apply to your Vault rather than assuming they will stay unchanged. The MakerDAO portal is associated with governance participation, but verify the current voting token and official interface before connecting a wallet or signing.

A Vault is non-custodial in the sense that its rules are enforced by smart contracts, but that does not make it risk-free. A contract bug or exploit could put deposited collateral at risk. The protocol also depends on price feeds and governance decisions. DAI’s dollar target can weaken under market stress, and the value or liquidity of collateral may change quickly. Some collateral types can add risks beyond ordinary crypto-price volatility.

Use this checklist before you open a Vault:

• Confirm the official interface, contract and network; ignore unsolicited links and messages.
• Check that your collateral is supported and read its current borrowing and liquidation terms.
• Calculate the debt, stability fee and likely transaction costs; leave a buffer below the maximum borrowing limit.
• Decide how you would repay or add collateral if prices move against you.
• Keep wallet recovery information private, and review every approval before signing.

These steps can lower avoidable mistakes, but they cannot prevent a market crash, contract failure or protocol change. Only put at risk collateral you can afford to lose, and do not treat DAI as cash held in a protected bank account.

The most expensive errors often come from treating a Vault like a fixed-rate loan or assuming collateral will always be liquid. Check the live terms for your specific asset, not a fee quoted in an old guide. A stability fee can change, the collateral price can fall, and a transaction may cost more or take longer than expected during busy or volatile conditions.

Avoid these mistakes:

• Borrowing to the displayed maximum. The maximum is a protocol limit, not a safety recommendation.
• Ignoring accrued fees. Your repayment must cover the debt and applicable charges, not just the DAI you first generated.
• Leaving risk management until a crash. You may have little time to add collateral or repay when markets move sharply.
• Confusing DAI with USDS or MKR with SKY. Verify token contracts and the exact conversion route before moving assets.
• Trusting a third-party manager without checking it. Automation can submit transactions, but it cannot remove smart-contract, market or liquidation risk.

If you are comparing options, look at the collateral rules, rates, liquidation mechanics and withdrawal conditions side by side. A simpler borrowing method may suit you better if you cannot actively monitor the position.