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Maker (MKR) Market Cap Spikes Alongside Interest in DeFi Protocols





Up 22% in the past week, Maker (MKR) is leading the green this week. The 55th largest cryptocurrency with a market cap of $804 million has been trading at $893.50 while managing a 24-hour volume of $115 million at the time of writing.

The token is up over 40% in the past month and 76% YTD, according to CoinGecko. However, the MKR price was still down nearly 86% from its all-time high (ATH) of almost $6,300, hit about two years ago in May 2021.

MKR is the utility token of the Maker protocol, which also acts as a governance token as well as the recapitalization resource of the system.

As a governance token, those who hold MKR tokens govern the project through MakerDAO, an open-source community project on the Ethereum blockchain and a decentralized autonomous organization. MKR tokens are non-minable and are generated based on the demand and market supply of the stablecoin DAI.

Click here to learn all about investing in Maker.

Understanding Maker (MKR)

Maker is a decentralized lending platform that uses a dual-token system, stablecoin DAI, and governance token MKR. The protocol allows for over-collateralized loans by locking ETH into smart contracts and minting US-based stablecoin DAI.

Borrowers are required to keep a specified collateral level in order to avoid being unloaded. To combat fluctuating cryptocurrency prices, Maker requires loans to have an excess amount of collateral, meaning borrowers need to secure assets worth more than the loan amount.

Meanwhile, the system achieves DAI's stability through a dynamic mechanism of collateralized debt positions (CDP), self-feedback mechanisms, and incentives to outside actors. Once generated, DAIs can be used as payments for goods and services, sent freely to others, or simply held for longer-term savings.

Messari - Maker Tweet

In 2014, the open-source Maker protocol was first created by a developer group headed by Rune Christensen. The group was later formalized into the Maker Foundation, a company located in the Cayman Islands. Meanwhile, the first whitepaper of MakerDAO was published in December 2017, which regulates the protocol by deciding on critical parameters using MKR holders' voting power.

Together, these organizations and the Denmark-based autonomous organization DAI Foundation, which is not affiliated with the Maker Foundation, support the Maker protocol. The purpose of the DAI Foundation is to protect Maker Protocol's intangible assets, like trademarks and copyrights on the code.

All in all, Maker (MKR) is one of the largest decentralized applications (dApps) on the Ethereum blockchain. It was also the first one to achieve broad adoption as a decentralized financial (DeFi) app. The platform aims to unlock the potential of DeFi by creating an inclusive platform of economic empowerment, that is, giving everyone equal access to the global financial market.

DeFi Gaining Traction

Maker (MKR) certainly has high potential. The current jump in MKR prices can be attributed to the growing interest in DeFi due to the rising regulations and the collapse of centralized platforms like Celsius Network and BlockFi.

The implosion of these platforms last year has investors and users increasingly wary of the risks posed by centralized platforms, which are vulnerable to hacks, fraud, and other forms of manipulation.

This has not only eroded confidence in centralized platforms but also led to a push for increased regulation and oversight, which has, in turn, led many crypto enthusiasts and users to look for alternative, decentralized options.

Additionally, major bank institutions have also set their eyes on DeFi platforms, evident by Nomura's investment in Infinity. Despite heightened mistrust in the broader cryptocurrency ecosystem, the trustless technology demonstrated by the DeFi platforms stands out as a critical bridge for the future of finance, and banks are jumping on board.

Recent law enforcement actions against centralized crypto companies like Kraken have further increased the appeal of DeFi. With its core decentralized liquid-staking model and overall product offerings significantly different from centralized platforms, these DeFi protocols can offer a safer bet for conventional finance giants.

Generating Millions in Fees

On Wednesday, the DeFi protocol also announced that it has significantly reduced fees on its RocketPool ETH (RETH)-based staked products as Ethereum nears activation of its Shanghai upgrade, allowing those who have staked their ETH to now withdraw them more than over two years.

The new yearly fee is set to 0.5%, the lowest rate among MakerDAO's competitors. Additionally, more lenient debt ceiling levels are introduced, with the rate increasing from 5M DAI to 10M DAI. This has allowed the platform to offer a more compelling liquidation ratio for one of the most popular “liquid” versions of Ether (ETH) — Rocket Pool ETH (RETH) based RETH-A vault.

MakerDAO Tweet

Another prominent reason that could have caused the MKR price to soar in the ongoing bear market besides the broad crypto market experiencing a relief rally is that Maker is generating millions in fees from its real-world asset deployments. For example, in October 2022, the protocol voted to allocate $500M in US Treasury bonds and Corporate bonds.

Under the proposal, $160 million was allocated to the US Treasury IShares ETFs for the 0-1y term, and $240 million was allocated to BlackRock's 1-3 year US Treasury iShares exchange-traded fund with the remaining $100 million going to corporate investments-grade bonds provided by Baillie Gifford.

The Maker DAO believes this allocation would be an excellent way to allocate the unused funds and give enough return to the protocol without putting DAI's peg to the dollar at risk. This way, even though the market is down, investors still stand to gain.

MakerDAO Tweet 2

Gaining Victory in “Black Thursday” Lawsuit

Last week, a federal judge dismissed a class-action suit against Maker that alleged that investors in protocol suffered about $8 million in losses because the platform distorted risks.

Filed in April 2020, the “Black Thursday” suit claimed entities affiliated with Maker, including the Maker Ecosystem Growth Foundation, had misrepresented the platform's secured debt positions as safer investments since they required excessive collateralization.

The Maker Ecosystem Growth Foundation was disbanded in accordance with the strategy spearheaded by founder Rune Christensen to decentralize the protocol.

The complaint was dismissed by Judge Maxine M. Chesney of the United States District Court for the Northern District of California, who said that “Maker Growth [Foundation] is not a proper defendant because it has been dissolved, and therefore lacks the capacity to be sued,” and that the “plaintiff has failed to allege facts sufficient to support each of his claims for relief.”

However, the lead plaintiff, Peter Johnson, alleged that Maker advertised the over-collateralization policy as a protection that limits losses to 13% and ensures the return of the collateral to users. He then went on to claim that when ETH price plunged dramatically in March 2020 during a market-wide crash, his and several others' positions in the platform were liquidated.

The lawsuit claimed investors suffered losses of $8.3 million and sought $20 million in compensatory and punitive damages. The judge said that the plaintiffs might modify their complaint and file a third version by March 17 because the deficiencies noted in the current version are unprovable.

The Endgame

Besides all this, the protocol continues to work on strengthening its protocol. For starters, MakerDAO's revenue sources suggest the DAO will look much different than crypto-loan protocols from years past, according to Messari's research, which noted that their plans to diversify the revenue streams have been very successful thus far, and plans are underway to continue expanding.

Tweet on MakerDAO

Moreover, there has been progressing on the Endgame Plan, which Christensen introduced in Sept., in which he outlined just how the protocol could position itself to weather future crypto regulation.

In his proposal, Christensen suggested lending out DAI in exchange for real-world assets and using the interest earned to purchase ETH in an open market.

According to Christensen, MakerDAO will likely attract attention from US regulators as it issues a dollar-pegged stablecoin. When this happens, the protocol won't be able to meet the same type of anti-money laundering (AML) sanctions as the ones issued to Tornado Cash.

While accumulating ETH over the next three years might mean letting DAI drift from its dollar peg to become a free-floating asset, it would be the best option for the long-term, relieving the regulatory burden placed on the protocol, he said at the time.

For now, it seems highly unlikely MakerDAO would have any need to execute such a plan. But work has already started on this, and Q4 saw the first official Endgame Governance Vote, where several preliminary proposals were approved, and multiple teams announced the establishment of Clusters and drafts of an Endgame Constitution and Framework.

Overall, things are looking good for Maker (MKR), but the price of the digital asset may not see more momentum given that we are still in a bear market, but the continued development can help MKR prices in the future.

Gaurav started trading cryptocurrencies in 2017 and has fallen in love with the crypto space ever since. His interest in everything crypto turned him into a writer specializing in cryptocurrencies and blockchain. Soon he found himself working with crypto companies and media outlets. He is also a big-time Batman fan.