Investing In Maker (MKR) – Everything You Need to Know
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Maker (MKR) is the main utility and governance token for the decentralized lending platform, Maker. Maker is an Ethereum based decentralized autonomous organization (DAO) that allows anyone to lend and borrow cryptocurrency without credit checks. The network combines advanced smart contracts with a uniquely pegged stablecoin to accomplish this task.
What is Maker (MKR)?
MKR is a decentralized ERC-20 token that represents an investment into the Maker Project. The network has long been a pioneer in the market. For example, the platform was one of the first-ever tradeable tokens on the Ethereum network. Today, Maker is one of the most popular ETH-based platforms available. Notably, there is more than 2.1 million ETH locked in Maker CDP contracts.
Decentralized Autonomous Organization
Maker was also the first DAO ever. DAOs take the functionalities of corporations and convert all aspects into smart contracts. These systems allow a community to govern an organization in a transparent manner. They are common in the market today partly because of the success of Maker.
What Problems Does Maker (MKR) Solve?
Maker attempts to rectify multiple issues encountered in the traditional financial sector. The platform combines a unique selection of proprietary technologies to accomplish this task. Today, Maker functions as a critical part of the DeFi community. DeFi refers to the ever-growing sector of decentralized financial institutions. The goal of DeFi is to provide viable solutions to the current centralized financial services available to the public.
One of the main problems that Maker attempts to correct is transparency. The network utilizes smart contracts to eliminate the need to trust any party. Currently, major stable coins such as Tether USD require you to put faith in the network's reserves. In most cases, you are left to rely on third-party auditors to verify the company's holdings.
Maker eliminates this need to trust centralized organizations. You don’t need to wait on external audits or company statements. The entire network is trackable via the blockchain. Maker goes a step further. For example, the company's staff publishes recordings from every meeting on a company SoundCloud page for all users to review.
The core function of MKR is to ensure that DAI remains pegged to the dollar. This dual crypto strategy helps to prevent volatility and provides users with more security in terms of the project's resilience.
Benefits of Maker (MKR)
Maker continues to see growing popularity mainly because it brings a lot of benefits to the market. This unique token serves multiple purposes within the Maker ecosystem. These functionalities add to the overall usability of this token. Here are some of the main benefits you gain when you hold MKR.
MKR holders are able to participate in the governance of the ecosystem. Community governance provides users with more control over the future of the network. In the Maker ecosystem, the decentralized governance mechanism relies on Active Proposal smart contracts. These contracts are structured to provide users control over the system and to ensure a higher degree of transparency throughout the platform.
MKR employs a deflationary protocol to help maintain its value over time. As part of this system, a small interest fee in MKR is due whenever a CDP smart contract closes. A portion of this fee gets burned. In this way, the system can maintain a healthy balance between the supply and demand of this digital asset.
Deflationary protocols are becoming a standard feature in the DeFi sector and for good reason. Early DeFi platforms are susceptible to inflation due to their reward token issuance policies. Maker’s developers understood that you can’t continuously issue tokens without any degradation in value.
How Does Maker (MKR) Work?
MKR serves a lot of purposes in the Maker system. For example, you can use MKR to send value globally, like Bitcoin. You can also pay transaction fees on the Maker system using this token. Notably, MKR can be sent and received by any Ethereum account, or any smart contract that is set to use the MKR transfer function
Unlike most cryptocurrencies, MKR is only created or destroyed in response to DAI price fluctuations. The system employs external market mechanisms and economic incentives to help DAI's value remain closely pegged to $1. Interestingly, DAI is usually never exactly $1. In most instances, the token's value is between $0.98 and $1.02. Notably, when the execution of a lending smart contract completes, the MKR token is destroyed.
A New Strategy
Maker introduces two unique cryptocurrencies as part of its pioneering strategy, DAI, and MKR. The network also employs three primary mechanisms to stabilize DAI, even during harsh market downturns. The first protocol used to stabilize DAI is called the target price. This system calculates an ERC-20 token’s value compared to the US dollar.
Target Rate Feedback Mechanism (TRFM)
The second protocol, TRFM, breaks the USD peg to dampen DAI’s volatility during severe market conditions. Specifically, the protocol functions to alter the target price over time. There is also a sensitivity parameter system. This system tracks the rate of DAI’s price change in relation to the US dollar movement. It can also be used to disengage the TRFM in the event of a market collapse.
Collateralized Debt Position (CDP)
CDP contracts are what make Maker autonomous. These advanced smart contracts are unique to the Maker ecosystem. A CDP contract initiates whenever you send ERC20 tokens to the Maker platform in exchange for DAI tokens.
These tokens are locked into a collateral debt smart contract. Users are then issued DAI in correlation to their deposited amounts. The CDP smart contracts automatically release the collateralized assets when the loan is repaid. Notably, whenever a user ends a CDP, it destroys an amount of DAI equal to the sum generated using it.
MKR also functions as the main governance token for the network. Users gain a say in risk management actions. Votes can cover a wide spectrum of developments including the addition of new CDP types, modifications of the sensitivity, risk parameters, and whether or not to activate a global settlement.
DAI is the stablecoin that MKR is designed to support. The MakerDAO produces DAI coins using CDP smart contracts. Impressively, DAI was the first decentralized stable coin on the Ethereum blockchain. Notably, exchanges between MKR, DAI, and ETH occur using the Oasis Direct system. Oasis Direct is MakerDAO’s decentralized token exchange platform.
History of Maker (MKR)
Maker (MKR) was developed in 2015 to provide investors and borrowers a way to participate in the Maker ecosystem. The platform is headquartered in Denmark and the network was founded by a programmer named Rune Christensen. To this day, he still functions as the company's CEO.
Since its introduction, Maker has managed to secure partnerships with Digix, Request Network, CargoX, Swarm, and OmiseGO. The latter of these partnerships provided the OmiseGO DEX with a popular and reliable stablecoin option in the form of DAI. Since that time, more exchanges have added support for this unique project.
How to Buy Maker (MKR)
Maker (MKR) is available on the following exchanges:
Uphold – This is one of the top exchanges for United States & UK residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.
Binance – Best for Australia, Singapore, UK, & USA residents. Canadian residents are prohibited.
Discount Code: EE59L0QP for 10% cashback off all trading fees for non-USA residents. USA residents: Trade $100 & Earn $10 in 30 days after account registration.
Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users, and over $207 billion in quarterly trading volume.
They offer trading access to over 190 countries including Australia, Canada, Europe, and the USA. (Excluding New York & Washington state).
KuCoin – This exchange currently offers cryptocurrency trading of over 300 other popular tokens. It is often the first to offer buying opportunities for new tokens. This exchange currently accepts International & United States residents.
WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for residents of India.
Uphold Disclaimer: Assets available on Uphold are subject to region. All investments and trading are risky and may result in the loss of capital. Cryptoassets are largely unregulated and are therefore not subject to protection.
How to Store Maker (MKR)
If you seek to make a major investment in MRK or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Maker (MKR).
Maker (MKR) – A Complex DeFi Ecosystem that Continues to Reshape the Market
The more you study MKR, the more you understand the vital role this token has and continues to play in the market. As the first tradeable Ethereum token and DAO, Maker has proven to be ahead of the curve. Today, this network is more popular than ever. Consequently, the price of MKR has seen new all-time highs recently.
You can expect this growth to continue as the DeFi sector expands and more investors become aware of this token’s merits. As such, it’s easy to envision Maker (MKR) experiencing even more market penetration moving forward.
David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com
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