Maker was the first project based on the Ethereum platform that allowed crypto users to mint the first stable coin (DAI), a token that replicates the price of the US dollar without having the same as collateral such as USDT.

In practice, users lock their Ether (or other supported assets: BAT, USDC, WBTC ...) in a so-called collateralized debt position (CDP) with a percentage value of the collateral that depends on the cryptography used as collateral, for L 'eth ranges from 130% to 175% of the value of the DAI you are borrowing. In other words, if you wanted to coin 1000 DAI you would have to provide $ 1300 to $ 1750 worth of ETH as collateral.

If the value of the cryptocurrency given as collateral falls below the minimum value (see figure below) and the user does not add further cryptocurrencies as collateral will incur a heavy penalty (Stability Fee) and the liquidation of the CDP.

At any time it is possible to close the CDP by returning the DAI borrowed. Attention, these operations are not convenient for small amounts due to the high costs (gas fees) to be paid to interact with the smart contracts of the Ethereum platform.

What is Maker - MKR?

In addition to the DAI token, the MKR utility token is also part of the MakerDAO ecosystem and it is necessary both to pay the commissions accrued on the CDPs and as a governance token, MKR in fact is used by the holders to vote on the risk management and the logic of business of the MakerDAO system.
interesting is the feature that once the MKR tokens have been used to pay the commissions on the smart contract, the quantity of MKR used is burned, removing it from the supply. This means that if the adoption and demand for Dai and CDP increases, there will be additional demand for MKR so that users can pay the fees but it will also mean that the token supply will decrease as MKR is burned.

Disclaimer: This article reflects its author’s opinion only and is not financial advice!