Key Takeaways:
- Established in 2014, MakerDAO introduced a paradigm shift in finance with a decentralised autonomous organisation (DAO).
- MKR is the governance and utility token in the MakerDAO ecosystem, where MKR holders actively participate in governing one of the world’s first decentralised stablecoins, DAI, alongside other tokens.
- Holders influence MakerDAO by voting on parameters like stability fees, ensuring DAI’s value hovers around US$1 through supply adjustments based on market conditions.
- In emergencies, the platform can trigger a shutdown, settling DAI debts and liquidating collateral to safeguard the MakerDAO ecosystem.
- MKR’s circulating supply is 977,631 (as of November 2023) out of a maximum of 1.01 million tokens.
Introduction to MakerDAO
In the dynamic landscape of decentralised finance (DeFi), where innovative solutions constantly emerge, MakerDAO (MKR) stands as a cornerstone, underpinning one of the most popular decentralised lending platforms in the cryptocurrency realm.
Established in 2014, MakerDAO represents a paradigm shift in the traditional financial system. It was one of the pioneering DAOs on the Ethereum blockchain, providing a unique DeFi service: issuing and governing the DAI stablecoin. In this article, we delve into the intricacies of the MKR token, unravelling what it represents and exploring how it functions to reshape the future of financial transactions.
A Brief History of Maker, MakerDAO, and DAI
The Maker Protocol (also known as the Multi-Collateral DAI System) began in 2015 to develop a permissionless credit system, aiming to enable users the opportunity to borrow money using cryptocurrency as collateral. Smart contracts generate these loans by minting DAI, a stablecoin soft-pegged to the US dollar.
The Maker Foundation developed the protocol in collaboration with various third parties, attempting to lessen its degree of control over time, and eventually handed over power to MakerDAO to oversee the protocol.
Maker (MKR) is a decentralised ERC-20 token used for governance and utility within the MakerDAO ecosystem, where worldwide MKR token holders vote on major changes. It is a mechanism for investors and borrowers to engage in the Maker ecosystem. DAI is created when a user locks another cryptocurrency to take out a loan from the Maker Protocol. Together, MKR and DAI create a unique economic dynamic within the MakerDAO platform. However, compared to DAI, MKR’s value is more volatile.
How Does Maker (MKR) Work?
Stability Through Collateralisation and Recapitalisation
MakerDAO’s stability is maintained through smart contracts called collateralised debt positions (CDPs). Users can lock up Ethereum-based collateral assets (ERC-20 tokens) to generate DAI. MKR is designed to support DAI and comes into play when the system needs to stabilise DAI’s value.
Decentralised Governance
MKR holders have the power to influence MakerDAO’s decision-making processes. They participate in voting on proposals that affect the platform, such as changes in stability fees, collateral types, and other critical parameters. This democratic governance model ensures that the MakerDAO community collectively determines the platform’s direction. Learn more about the risk parameters that MKR holders can vote on.
Emergency Shutdown and Liquidation
In extreme scenarios, like severe market volatility or a significant system breach, MKR holders can trigger an emergency shutdown. During this process, all outstanding DAI debts are settled, and the system’s collateral is auctioned off to cover DAI issuance, protecting the stability of the MakerDAO ecosystem.
Payment Utility Token
MKR serves as a utility token, as well, used to pay for fees accrued on CDPs.
MKR Tokenomics
Below is a summary of MKR’s most important facts and figures:
- Token Name: Maker (MKR)
- Utility: MKR serves as the governance and utility token within the MakerDAO ecosystem.
- Governance: MKR holders have voting power to influence MakerDAO’s decisions, including changes in stability fees and collateral types.
- Circulating Supply: 977,631 as of November 2023
- Maximum Supply: 1.01 million
Key Benefits of the Maker (MKR) Token
- Decentralised Governance: MKR holders have a say in the platform’s decisions, fostering community-driven development and adaptability.
- Stability Mechanism: MKR plays a pivotal role in maintaining the stability of DAI, ensuring it remains as close to its US$1 peg as possible.
- Collateralisation: MKR collateralises the entire MakerDAO system, providing security and stability for users interacting with DAI.
- Emergency Shutdown: MKR holders can trigger an emergency shutdown, settling outstanding DAI debts and liquidating collateral in extreme scenarios, ensuring system stability.
Risks and Challenges
- Volatility: MKR’s value can be volatile compared to the DAI stablecoin, presenting risks for traders. Fluctuations can impact the stability of the MakerDAO system.
- Smart Contract Vulnerabilities: As with any DeFi platform, smart contracts are susceptible to bugs and vulnerabilities, potentially risking user funds and system stability.
- Market Dynamics: Economic factors and market behaviours can influence the demand and supply of DAI, affecting MKR’s role in the stability mechanism.
How to Trade the MKR Token
Maker (MKR) is listed in the Crypto.com App, joining the growing list of 250-plus supported cryptocurrencies and stablecoins, including Bitcoin (BTC), Ethereum (ETH), Polkadot (DOT), USD Coin (USDC), and Cronos (CRO).
Crypto.com App users can now purchase MKR at true cost with USD, EUR, GBP, and 20-plus other fiat currencies and spend it at over 80 million merchants globally using the Crypto.com Visa Card. Alternatively, users can also trade Maker on the Crypto.com Exchange.
Conclusion
In the vibrant realm of decentralised finance, the Maker (MKR) token stands as a testament to the potential of DeFi. As the DeFi space continues to evolve, the MakerDAO ecosystem, driven by the MKR token, remains at the forefront, illustrating the transformative power of blockchain technology in reshaping global finance.
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