What is Maker and How does Maker work

Maker is a popular cryptocurrency/ digital token that is created on the Ethereum platform to minimize the price volatility of the stable coin Dai. For those of you who are interested in Maker but not sure where to start from, here is your guide to the trade.

What is Maker (MKR)?

Maker as an Ethereum token is native to the Maker Protocol, an open-source platform that enables anyone to generate the DAI stablecoin. This protocol was designed by a diversified group of developers.

These developers are governed by the Maker DAO (Decentralised autonomous organisation) that constitutes MKR holders from around the world who can stake their MKR tokens to vote on proposed changes to the Maker Protocol. 

To be precise, holding MKR is similar to owning stock in a company, and they have a say in determining how the Maker functions. Maker is regarded as a  testament to the effectiveness of decentralised governance as it was one of the first decentralized finance(DeFi) projects to become a huge success.

How is Maker connected to DA0? 

Maker was created to function as a utility token for a blockchain-based platform intended to serve for peer-to-peer transfers and international payments. Dai is a decentralised cryptocurrency and an algorithmic stable coin that is connected to Maker.

It is issued and regulated by Maker DAO (Decentralised Autonomous Organisation). Dai aims to keep its value as close to one United States dollar (USD) hence it is called a stable coin.

As complicated as it may sound, the price of Dai follows the value of a US dollar without the intervention of a central authority. 

Blockchain technology spiked considerable interest and excitement in the industry of finance, however, the reluctance towards cryptocurrency is due to its highly volatile nature.

Hence, Dai, a stable digital currency intended for us to understand the unrealized potential of the blockchain ecosystem.

DAI is known for its highly unbiased nature as it isn’t regulated by a private company or authority, unlike many other stable coins. It is collateralized because it is backed by smart contract technology for a new Dai to be minted.

Smart contract technology is a simple program stored on a blockchain, that runs an automated execution of a digital transaction when an appropriate amount of other cryptocurrencies are deposited by a Maker Protocol User to mint a new Dai. Maker Protocol users can also earn interest on their stable coins. 

Who are the founders of Maker (MKR)?

The Santa Cruz (California) headquartered company was founded by Rune Christensen in the year 2014. He is also the chief executive officer of the Maker. The official launch of Dai was in the year 2017 on the Ethereum network which was followed by the formation of the Maker Foundation in the next year.

How does Maker (MKR) work?

The smart contracts that are used by the Maker Protocol to generate new Dai are called Maker Vaults. The user has to pay back the Dai they generated with a stability fee included as and when they want to reclaim their collateralized crypto from the smart contract.

How are proposals approved inside the community?

The Maker Protocol can be governed by the Maker token. One of the many utilities of Maker tokens is to vote on the management protocol. Maker tokens can be committed by the users to vote for a proposal.

The proposals made by the MKR holders are converted into a smart contract that is deployed by an Ethereum address and the community of MKR holders can vote on proposals they would like to get passed subsequently. The Ethereum address that receives the most votes can be given access to make the proposed change to the Maker Protocol.

Uses of Maker (MKR) token

  • To vote on the management of the protocol. 
  • Maker tokens possess recapitalization resource value I.e., MKR supply increases with the increase in the system’s debt or when it exceeds the surplus.
  • A profitable investment option: a virtual currency with good returns.

Uses of DAI

Not every user of Maker generates stablecoin. Having Dai in their wallets, people can utilize it in various ways such as :

  • Purchase goods and services as more and more merchants are choosing to accept Dai as payment.
  • To engage with  DeFi apps of different types.
  • Dai also serves as a saving option through using Dai through DSR (Dai Savings Rate), which is the interest rate paid in a specific Dai savings contract towards the deposits of Maker’s Dai stablecoin.
  • Users can earn money when the DSR is above zero by placing it into the DSR contract. The Dai that is held in the contract can be unlocked as and when wanted by the user. 
  • Dai can be used to gain economic stability by the people in regions suffering hyperinflation as they can benefit from the value of a crypto dollar.

How to choose a Maker (MKR) Wallet

Two kinds of wallets are available based on the needs of the user.

  • Hardware wallets / cold wallets
  • Software wallets

Hardware Wallets

A hardware wallet is an expensive option best suited to experienced users with larger amounts. This is a secure option that provides offline storage and backup.

Software Wallets

A software wallet is an easy to use option for smaller amounts that are available to download on smartphones as well as desktops.

  1. Custodial Wallets: the private keys are managed by the service provider on the users’ behalf.
  1. Non-custodial Wallets: they use secure elements on the users’ devices to store the private keys.

What makes a Maker (MKR) unique?

The maker offers its community of MKR holders to directly take part in the governance of Dai which makes it the most unique. Type of proposals that can be made include making changes to the DSR, upgrading the system, altering the risk parameters etc.,

How many Maker (MKR) coins are in circulation?

There are currently 902,000 MKR (close to 1 million) in circulation with a market value of around $500 million.

Conclusion

With users all around the world backed by the strongest developer community within the space of cryptocurrency, MakerDAO took over a leading role in the decentralized finance (Defi) movement with promising economic empowerment.

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