In Blockchain Capital’s 2019 State of Crypto report (for which there are no sources yet), Decentralized Finance (DeFi) is growing at an exponential rate and is a focal point for investment - according to Decrypt anyway, which has reportedly seen the report.
DeFi is a hot subcategory of the space. It’s basically a general term that is used to describe a bunch of decentralized services and products - lending platforms, decentralized exchanges (DEXs), derivatives, payment solutions and assets themselves.
It’s a big deal because people decentralize finance is essentially just financial services, but with all of the benefits of decentralization. These services underpin many businesses and form a critical part of the market.
Maybe you’ve not tried to use any of these DeFi services before. Maybe you’ve just invested in Bitcoin and Ethereum, but are interested in investing in more coins.
There’s no more interesting niche in the space than DeFi and for several reasons: first, passive income. Second, there are a range of exciting new solutions that seem to be rapidly becoming the norm. Lastly, there’s major potential for profit because of how revolutionary DeFi is.
The report highlights the sudden growth of DeFi investment. Investment grew to over $250 million from $63 million between 2018 and 2019. It is now at $661 million.
The biggest contributor to DeFi is Maker, taking almost half of the market, and this will be the token I am discussing here.
Right from the start I can tell you that if you’re really interested in crypto then you might want a piece of Maker but you should know a little more about it. I’ll tell you why Maker and its tokens MKR and DAI are so interesting.
What is Maker (MKR)?
Maker is the name for the platform associated with MakerDAO’s MKR and DAI tokens.
Maker is the smart contract platform itself, built on Ethereum (ETH), The MKR token is a governance token that affects how the network develops, while DAI is a stablecoin backed by crypto collateral. MakerDAO is a Decentralized Autonomous Organization (DAO) that encompasses all of the MKR and DAI functionality.
MKR is a governance token, the value of which fluctuates, that holders can use to vote on network proposals and the like. It is also responsible for the complex system that the team has made to stabilize the value of DAI at $1. To do this, it uses a bunch of smart contracts in which the DAI is backed by ETH (though now it also includes BAT).
The whole system comes together to offer something that is truly decentralized. Backed by crypto collateral and not fiat, the MakerDAO ecosystem is an extremely unique stablecoin project.
There are passive income benefits if you generate DAI by leveraging ERC-20 tokens. It is also a good way to generate stablecoins which could then be used for typical stablecoin purposes.
Lending is a key area of the platform. A user could lock enough ETH for a collateral in a Collateralized Debt Positions (CDPs) and instantly generate the corresponding DAI. This can then be paid back with interest.
The network has stability mechanisms and risk reduction methods to keep the price stable and fair play. The MKR token holders play a big role in this process.
The mechanism by which the price remains stuck to $1 is also interesting, as well as the exact mechanism by which the CDPs operate is also well worth understanding from a technical point of view. The whole MakerDAO system is very clever but I won’t go into the technical details here. But it’s really worth reading and gives you a better idea of how useful Maker is. You can read the whitepaper.
The potential for incredible growth in investments in Maker is incredible, or at the very least users are guaranteed a small sum that can compound. However, I think that it’s the platform’s decentralized nature that makes it so appealing to investors.
Maker has made a lot of contributions to DeFi, but how exactly?
How has MKR Contributed to the DeFi Space?
It would be hard to argue against the idea that Maker may be the most important application that has come out of Ethereum. Sure, there are other kinds of Eureka ideas being worked on, but they are still very early days (decentralized cloud computing is one of these areas).
But Maker is already a success and the numbers don’t lie. The Maker platform dominates nearly half of the DeFi market, at $316 million in investment. This has been growing exponentially since the start of 2018. Currently, 2.14% of all of Ethereum’s supply has been locked up in Maker. At its peak, there was over $500 million invested in Maker. All figures come from DefiPulse.
So why is Maker such a big deal?
From an end user perspective, there’s the Dai Savings Rate, which is where you can generate passive income by just holding DAI.
Then there’s the fact that it is entirely decentralized and a better alternative to centralized stablecoins, which are reliant on whether the tokens can be backed reserves held by a central entity.
Also, with the introduction of multi-collateral DAI, users can generate and gain all of the benefits of holding DAI with those other assets. Right now, it’s only Basic Attention Token (BAT), but there will soon be others. This can attract more users.
Many users have come to learn of the great earnings they can make by lending out their assets and earning interest. All with real ease.
As Maker becomes more popular with time (as the market grows into more acceptance, basically), then I can imagine an even greater number of users flocking to Maker just to reinvest their crypto assets.
DeFi to Grow Even More
Given the statistics surrounding the DeFi space, it’d be hard to imagine why Maker wouldn’t grow. MKR and DAI have been growing as well, and 2020 looks to be a year where crypto gains even more legitimacy.
The excellent sentiment and growth in DeFi should make you optimistic about 2020. Institutional investment and technical indicators point towards Bitcoin growing in 2020. Altcoins generally rise in value as Bitcoin does, and there’s no doubt that Maker could be one of those.
Maker’s importance in the DeFi sphere is significant. There are not many tokens that are in as good a place for growth right now as those of MakerDAO. I fully recommend reading up more on the DeFi space and what the implications are.
Maker’s History
Maker’s token have done really well since their launch, which wasn’t too long ago. The MKR token is currently priced at $463, with the all-time high being at over $1500 during late 2017/early 2018.
While it is significantly lower than its all-time high, that has happened to all altcoins, and MKR has actually been doing rather well, both in terms of token performance and development. The introduction of multi-collateral DAI was a huge win for the platform and it has gotten more people interested.
Generally speaking, MKR has done very well so there’s that to note. The DAI token is a stablecoin and is pegged to the US Dollar. This is good news for the investors who want to know if DAI has a track record of being a solid investment choice.
Maker’s Fortunes
I’ll say it straight: the future of Maker looks good. The team has delivered on its promise of forming a strong, decentralized stablecoin ecosystem, Furthermore, the fact that so much investment has poured in steadily, alongside the growth of other entities in DeFi, indicates that there is something genuine in what MakerDAO and its brethren are trying to do.
I think that there is a lot of room for growth here. As the market grows and people become more keen on making more investments in the space, they might turn to MKR and DAI. They could look at MakerDAO as their portal to investments in the crypto space.
Maker’s MKR and DAI are definitely good investments if you’d like to expand your portfolio and include some assets with good growth potential.
As always though, you must never invest more than you can afford to lose. If you’ve invested in Bitcoin and Ethereum, then you can start moving on to other tokens. Among the altcoins, you could certainly do worse than MKR and DAI, which I suspect most people would say is a worthy investment.
Conclusion
MakerDAO can be recommended without any hesitation. But of course, do due diligence and never invest more than you can afford to lose.
If you are a newbie investors, it’s recommended that you invest in Bitcoin and Ethereum first. Assuming you have some Ethereum, you could always invest some of that in DAI and then earn from that, which is great. It’s just easy money.
You’re going to want to look at passive income in the crypto space, which is a great way to make money. MakerDAO is great for that, besides being a good stablecoin ecosystem. Both the technical side and business approach of MakerDAO make it a very good project.
