What is MakerDAO (MKR)?
MakerDAO is a fully decentralised, open-source protocol aiming to become the currency of the people. Offering a transparent, unbiased and permissionless system of transaction, using their token ($MKR) as governance power, it is aiming to offer a better financial structure than the one we are currently using.
MakerDAO is well known for its $DAI token, which is a soft-pegged digital currency backed by cryptocurrencies recognised by the DAO, such as ETH, wBTC, BAT and others. This system allows for a minimisation of price volatility, which makes the currency more tradeable than many other cryptocurrencies.
The backing assets are subject to very strict terms. This is to protect the value of their stablecoin. On top of paying a stability fee, the borrowers (or minters) must be aware that their position, if not sufficiently over-collateralised, might be liquidated in strong markets. With the help of Risk Parameters, the protocol may determine if a position is in a “safe zone” or not and act accordingly.
Maker's Money Market. The success of DAI, Maker's stablecoin, is dependent on its widespread acceptance throughout the DeFi ecosystem, but Maker retains little control over how its ultimately used and incentivised. However, Maker is about to change the game with the pending launch of a new lending platform , Spark protocol. By releasing its own lending protocol, Maker can offer new products, extend its influence, and ultimately take control of DAI's success.
The MKR Token
As mentioned above, the $MKR token is the governance token of the MakerDAO. This token provides great power in the ecosystem, most notably the ability to cast a vote regarding decisive actions internal to the protocol, such as:
- Add a new collateral asset type with a unique set of Risk Parameters.
- Change the Risk Parameters of one or more existing collateral asset types.
- Modify the Dai Savings Rate.
- Trigger Emergency Shutdown.
- Upgrade the system.
As well as many other technical and financial features. The $MKR token is also used to pay the stability fee, a mandatory process of utilising the platform to generate $DAI. Being one of the founding protocols of DeFi since 2014, $MKR has stood the test of time in the market, claiming a market capitalisation of over 1 billion dollars at the time of writing.
Dai is, therefore, the stablecoin linked to the MakerDAO ecosystem. One of the main uses for DAI is as a stable hedge or counterbalance against the volatility of more popular cryptos such as Bitcoin and Ethereum. The stable value of DAI means it is good for investors or traders who are anticipating market volatility. Since DAI is stable, it’s also one of the most ideal cryptos to conduct lengthy transactions as the value of the asset is more predictable.
Partners and ambitions
MakerDAO is hoping to become the main cryptocurrency used for transactions. Being backed by Vitalik Buterin was already a great start, but MakerDAO has since then built a number of valuable partnerships along the way, such as Axie Infinity, the World Bank, Wyre, as well as many others.
All in all
If you believe that the current financial system is flawed, and blockchain technology's transparency and decentralised facilities are key to solving it, owning a stake in $MKR can be very interesting. Enabling voting power on one of the strongest DAOs to have ever been built, $MKR is seen by many as a great asset to own to make a difference or attempt to hedge the potential downfall of the traditional system.