As the cryptocurrency ecosystem evolved towards Decentralized Finance (DeFi), one project has grown to be a large part of DeFi on the Ethereum blockchain. Maker (MKR) is a Decentralized Autonomous Organization (DAO) built on the Ethereum blockchain and works to minimize the volatility of its stable token, DAI.
Being the Maker
Maker launched back in August of 2015 and was the first tradable token on Ethereum. The Maker platform then launched in April of 2016 and has been going strong since.
A quick rundown on MKR:
- Total supply: 1,000,000 MKR
- Is an ERC-20 token on Ethereum
- No mining
- Minted/Burned (Created/Destroyed) in response to DAI price fluctuations to keep stable around $1 USD.
- Used to pay fees on the Maker network and collateralize the system.
- Voting and Staking
Eventually, Maker created one of the most popular stable tokens, DAI, that is linked to the U.S. dollar with a stable exchange rate of 1:1. DAI comes from the Chinese character 貸, which means to lend or provide capital for a loan.
MKR is a utility and governance token that is used for the platform to pay fees on the Collateralized Debt Positions (CDPs) used for creating DAI. MKR is "burned" once the fees are paid. MKR holders are able to participate in voting on risk management and business logic for the Maker network.
MakerDAO is an open-source project on the Ethereum blockchain and a Decentralized Autonomous Organization created in 2014. The project is managed by people around the world who hold its governance token, MKR. Through a system of scientific governance involving Executive Voting and Governance Polling, MKR holders manage the Maker Protocol and the financial risks of DAI to ensure its stability, transparency, and efficiency. MKR voting weight is proportional to the amount of MKR a voter stakes in the voting contract, DSChief. In other words, the more MKR tokens locked in the contract, the greater the voter’s decision-making power.
In order to use the Maker system, a CDP is created to hold onto collateral assets that a user will deposit to generate DAI. The collateral assets are locked in the CDP until the user pays back the same amount in DAI. Once the debt is paid, the user can withdraw the collateral.
DAI looks to help stabilize the volatility in the cryptocurrency market as volatility always has been an issue for investors and so far, it seems it has helped contribute to the lower volatility on the Ethereum blockchain but there are many other factors that contribute to that as well.
According to Bitmex 's Ether Volatility Index, we have seen a gradual decrease in volatility over the past couple of years.
Read the Whitepaper for full details of the Maker system.
The MKR token has seen an all-time high price of nearly $1,800 per token during the 2017-2018 bull rally and despite the bear market shortly after, MKR has managed to be around $328 at the time of this writing. It is currently worth more for MKR than it is for ETH, the native token on the blockchain it was created on.
Up until November 2019, DAI was a Single-Collateral system that used CDPs and only offered collateral types in ETH. With their recent upgrade, Maker was able to launch the new Mult-Collateral Dai (MCD) system that can support almost any token asset through MKR voter approval. This turned Single-Collateral Dai (SCD) into Sai, replaced CDPs with "Vaults", and rebranded the logo to what we currently know it to be today.
The Maker Vault in MCD is where a user deposits collateral and generates Dai. Importantly, each collateral asset deposited will have its own Vault. To help you gain a solid understanding, consider how the word is used in two scenarios:
Scenario one: Bob wishes to generate Dai using ETH as collateral in the Maker Protocol. To do so, Bob deposits ETH into a Vault. Each collateral type will have its own Vault, so Bob will likely have an ETH Vault, a BAT Vault, and a Vault for each additional collateral type he uses to generate Dai. He might also have Vaults with different levels of collateralization.
Scenario two: Alice wishes to withdraw all the BAT collateral in her Vault. To do so, she must pay back the amount of Dai she generated earlier, as well as the accrued Stability Fee. Once Alice receives her collateral, the system does not “close" her Vault. Instead, the Vault remains on the blockchain empty until she chooses to make another deposit.
MCD vs. SCD
SCD has been in operation for almost two years now and has gained significant traction in the DeFi ecosystem. There are many benefits to the SCD protocol, such as battle-tested code and relative simplicity. However, we believe that that SCD users will eventually choose to migrate over to MCD for a variety of reasons:
- Dai holders can take advantage of the Dai Savings Rate (DSR)
- The DSR is a new governance tool for ensuring Dai stability
- New security features such as the Governance Security Module, Oracle Security Module, and Emergency Shutdown Module
- The introduction of additional supported collateral types
- An improved liquidation process through the new MCD auction mechanism
These features should result in lower stability fees, improved liquidity, and future growth of the Maker Protocol.
The latest WBTC support in quite interesting as it brings Bitcoin to the Ethereum blockchain and allows Bitcoin holders to turn their BTC to Wrapped Bitcoin (WBTC), and then use it to generate DAI.
At the time of this writing:
Total Dai: 123,767,944.13
Dai from ETH: 104,330,400.28 (84.3%)
Dai from BAT: 582,352.22 (0.47%)
Dai from USDC: 9,026,186.74 (7.29%)
Dai from WBTC: 9,499,424.08 (7.68%)
ETH Stability Fee: 0%
BAT Stability Fee: 0%
USDC Stability Fee: 0%
WBTC Stability Fee: 1.00%
Dai Savings Rate: 0%
Dai in DSR: 15,021,346.53 (12.14%)
Vaults Opened: 9413
View the full list of stats here: https://daistats.com/
Since the DeFi movement, the number of platforms has grown with support for DAI.
DAI has also been a part of this very platform you are reading this content on. Publish0x has been paying out in multiple tokens with DAI being one of them.
Maker has made quite a contribution to the Ethereum blockchain and the crypto space. Helping to minimize volatility across markets and grow the DeFi movement with their Oasis platform where users can trade, borrow, and save, all while maintaining custody of their private keys. Maker is no exception when it comes to the impact of the Coronavirus on its project and with many people across the globe dealing with financial struggles, It's great to see we have this option available to us to help get us through these tough times. As the MCD system continues to add support for more collateral types, more growth looks to be in the future of Maker's ecosystem.
As always, this is not trading advice. Do your own research.