Maker DAO is an Ethereum-based decentralized protocol enabling collateral-backed loans without intermediaries. It uses two tokens, DAI (a stablecoin) and MKR (a governance token), and operates through a system of collateralized debt positions (CDPs) where users lock in Ether to generate DAI stablecoins. MKR token holders have governance rights over the MakerDAO protocol, while DAI offers a stable alternative to volatile cryptocurrencies, created through over-collateralized loans.