What is cryptocurrency Maker (MKR) and how does it work?

What is Maker (MKR)?

One of the largest decentralised applications (dApps) on the Ethereum blockchain, the Maker Protocol was designed by a disparate group of developers and is governed by the MakerDAO.

The MakerDAO is a decentralized autonomous organization (DAO) made entirely of MKR holders from around the world. These MKR holders are able to stake their MKR tokens in order to vote on proposed changes to the Maker Protocol – as well as ensure the efficiency, transparency, and stability of Dai.

For all of its vast differences, holding MKR is somewhat similar to owning stock in a traditional company, in the sense that the shareholders have a say in determining how the company functions. The Maker ecosystem was one of the first DeFi projects to achieve significant success – a testament to the effectiveness of truly decentralized governance.

What is Dai?

Dai (or DAI) is a decentralized, unbiased, collateralized stablecoin soft-pegged to the US dollar. This may sound complicated, but in essence what it means is that it’s a cryptocurrency whose price roughly follows the value of the dollar – without the need of a central authority.

While blockchain technology presents exciting new opportunities for the finance industry, many are reluctant to use Bitcoin as a medium of exchange because of its incredibly volatile nature. This is why Dai was created – to meet the demand for a more stable digital currency that enables us to realise the full potential of blockchain technology.

Dai is unbiased because it isn’t managed by a private company, like other stablecoins such as USDT, and it’s collateralized because new Dai can only be minted by a Maker Protocol user who deposits an appropriate amount of other cryptocurrencies into a smart contract in order to back the new DAI being minted. Dai holders can also use the Maker Protocol to earn interest on their stablecoins, with the amount being determined by the Dai Savings Rate.

How Does Maker Work?

The Maker Protocol generates new Dai through smart contracts known as Maker Vaults. These contracts can be created through various web UIs and apps that essentially act as portals to access the network through (such as Oasis Borrow or Instadapp). When a user wants to retrieve their collateralized crypto from the smart contract, they must first pay back the Dai they generated along with a stability fee.

Maker MKR

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The MKR token can also be used to govern the Maker Protocol. Proposals to be voted on take the form of a smart contract and can be deployed by any Ethereum address. The MKR holders community can then vote on which proposal they would like to pass, and the Ethereum address which receives more approval votes in the form of MKR is granted administrative access to make the proposed change to the Maker Protocol.

What Are Smart Contracts?

First coined in the 1990s by computer scientist Nick Szabo, they are types of computer code which digitally facilitates a business deal or other agreement between two or more parties by automatically executing when the pre-agreed conditions are met.

As the code is stored on a blockchain, they are immutable and distributed, meaning that they can’t be tampered with and their output is validated by everyone on the network.

Who Are the Founders of Maker (History of Maker)?

The history of the Maker ecosystem went through various stages, the first of which was the MakerDAO. This was created in 2014 by Rune Christensen, a Danish entrepreneur and graduate of the University of Copenhagen. After studying international business and biochemistry, Christensen co-founded the recruitment company Try China before moving into blockchain.

Dai was officially launched on the Ethereum network in 2017, followed the next year by the formation of the Maker Foundation, an organization which aims to fuel growth of the ecosystem and is spearheading efforts to decentralise development. Christensen serves as CEO of the foundation, while others on the board include President and COO Steven Becker, who previously founded Cubit Capital, and economist Shefali Roy.

Initially, Ethereum was the only asset that could be collateralized through Maker Protocol, with the Dai generated being known as Single-Collateral Dai or Sai. In 2019, the MCD system was implemented, so today, any type of Ethereum-based asset that has been approved by the community of MKR holders can be deposited.

What Makes Maker Unique?

Maker offers its community of MKR holders the unique opportunity to directly participate in the governing of Dai – one of the most popular stablecoins on the market. They can use their MKR tokens to vote on the following types of proposals:

• Which new cryptocurrencies to add as collateralized assets to mint more Dai
• Altering the Risk Parameters of those cryptocurrencies
• Making changes to the Dai Savings Rate
• Choosing the oracles (these are tools which supply real-time data on market prices to the Maker ecosystem)
• Upgrading the system

The voting power of each user depends on the size of their MKR stake.

Risk Parameters

Once an Ethereum-based crypto token has been approved as collateral for the Maker Vaults, the community must decide on specific parameters for its risk. These are determined by the asset’s risk profile and incorporate the following:

• Debt Ceiling: the maximum amount of debt that can be created by particular types of cryptocurrency assets. Once this value is reached, no more Dai can be minted by that vault until some or all of the debt has been repaid.
• Stability Fee: a fee that must be paid (in Dai) in order to retrieve collateral from the smart contract. It is an annual percentage yield calculated on top of how much Dai has been generated.
• Liquidation Ratio: this value reflects how much market price volatility the MakerDAO expects of the cryptocurrency asset.
• Liquidation Penalty: a fee added to the value of a vault’s debt if liquidation occurs.

If a vault is deemed too risky based on these parameters, it is liquidated through automated auctions.

What Gives Maker Value?

Maker’s value is derived from its utility as a DeFi governance token – the power to vote on how Dai is managed drives demand for MKR, therefore influencing change in Maker price on the market.

Although MKR tokens don’t pay dividends, the value of MKR is expected to appreciate in correlation with the success of Dai.

How Many Maker (MKR) Coins Are in Circulation?

MakerDAO initially launched with a supply of 1 million MKR tokens. There is currently a circulating supply of around 902,000 MKR with a market cap of over 2.1 billion USD. However, the total supply of Maker tokens, and therefore their value, varies depending on market prices and conditions.

If cryptocurrencies stored in a Maker Vault smart contract suddenly drop in price, they may no longer have sufficient value to collateralise the generated stablecoin, leading to a liquidation.

In the case that the Dai raised in the auctions is not enough to cover the vault’s obligations, new MKR tokens will be minted. If, on the other hand, it is the case that more Dai than necessary is generated, it’s used to buy back Maker tokens and burn them. The total supply of MKR changes dynamically, thereby affecting its price – while Dai stays pegged at $1 USD.

How To Use Maker

The main utility of Maker tokens is for voting on the management of the protocol and Dai. Each MKR token equals one vote when locked in a voting contract. Users commit their Maker tokens to a proposal, with the outcome being decided by the number of MKR tokens it receives (not the number of MKR holders).

Maker tokens also have value as a recapitalisation resource because MKR supply can increase if system debt exceeds the surplus. This incentivises Maker token holders to avoid excessive risk-taking and govern the Maker ecosystem responsibly.

Maker price is fairly volatile, so MKR isn’t generally used as a means of exchange, but some people may choose it as a speculative investment.

How To Choose a Maker Wallet

The type of Maker (MKR) wallet you choose will likely depend on what you want to use it for and how much you need to store.

Hardware wallets or cold wallets provide the most secure option with offline storage and backup. Both Ledger and Trezor offer Maker (MKR) storage solutions. Hardware wallets can involve a bit more of a learning curve and are a more expensive option, however. As such, they may be better suited to storing larger amounts of MKR for more experienced users.

Software wallets provide another option and are free and easy to use. They are available to download as smartphone or desktop apps and can be custodial or non-custodial. With custodial wallets, the private keys are managed and backed up on your behalf by the service provider. Non-custodial wallets make use of secure elements on your device to store the private keys. While convenient, they are seen as less secure than hardware wallets and may be better suited to smaller amounts of MKR or more novice users.

Online wallets or web wallets are also free and easy to use, accessible from multiple devices using a web browser. They are considered hot wallets and can be less secure than hardware or software alternatives, however. As you are likely trusting the platform to manage your MKR, you should select a reputable service with a track record in security and custody. As such, they are most suited for holding smaller amounts or for more experienced frequent traders.

Kriptomat offers a secure storage solution, allowing you to both store and trade your MKR tokens without hassle. Storing your MKR with Kriptomat provides you with enterprise-grade security and user-friendly functionality.

Buying and selling MKR, or exchanging them for any other cryptocurrency, is done in mere moments when you choose our secure platform as your storage solution.

Maker Minting

Maker tokens cannot be mined, like many other cryptocurrencies. Instead, MKR is minted and burned.

The MakerDAO was launched with a supply of 1 million MKR, but the supply (and therefore Maker price and market cap) will change as MKR are minted or burned by the Maker ecosystem according to price fluctuations.

Choosing Maker

Maker was one of the first projects to achieve significant adoption in the DeFi industry and is run efficiently by a community of MKR holders. Maker offers users the chance to have a say in the management of one of the largest stablecoins by market cap and incentivises them to vote responsibly – the more well-governed the ecosystem is, the more of the MKR supply will be burned, thereby increasing Maker price.

Maker is aiming for increased adoption and further decentralization in the future. This means promoting the usage of its stablecoin, Dai, across multiple industries and business products beyond DeFi. Other sectors that could benefit include charities, gaming, the prediction market, and cross-border transactions for international business trade. Maker is a rare project delivering on both real-world utility and its promise of growth and innovation.

Maker FAQ

How To Buy Maker

Buying MKR is as easy as visiting Kriptomat’s how to buy Maker (MKR) page and choosing your preferred method of payment.

How To Sell Maker

If you already own Maker (MKR) and hold it on a Kriptomat exchange wallet, you can easily sell it by navigating the interface and choosing your desired payment option.

Maker Price

Maker price is influenced by a lot of the traditional factors such as project news and developments, market sentiment, the flow of cryptocurrency on exchanges and the economy in general. But unlike most cryptocurrencies, Maker price is also affected by market fluctuations which result in the minting and burning of MKR, thereby altering the total MKR supply and its value.

Stay up-to-date on the latest Maker price action and other important cryptocurrency stats by checking out the Maker price page on Kriptomat. You can also use the site to set up alerts so you never miss a change in the market.

The current Maker (MKR) price is EUR.

The 24-hour trading volume of MKR is EUR. MKR is currently ranked of all cryptocurrencies by total market capitalization, with a market cap of EUR. It has a circulating supply of MKR.

Register now to begin your journey into the world of Maker and cryptocurrencies with Kriptomat!

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