The Maker Protocol is one of the largest decentralized apps on the Ethereum blockchain. It is the first decentralized finance application that works by using smart contracts to supply and borrow cryptocurrencies without a centralized loan provider. The Maker Protocol is managed by users who hold the MAKER (MKR), the governance token of the protocol. The Maker Protocol also generates and manages the stablecoin DAI.
MAKER (MKR) Token
The MAKER (MKR) token is an ERC-20 token that is used to govern the Maker Protocol ecosystem. It aims to stabilize the value of DAI through collaterized debt positions (CDP).
How does MKR stabilize the DAI?
Users of the Maker Protocol deposit assets to collaterized debt positions (CDP), which are smart contracts that are powered by the MKR. The CDP locks these assets and generates the equivalent amount in DAI. The DAI becomes a token that can be used to trade with other cryptocurrencies in the platform. The value of the MKR is directly tied to the DAI stable coin.
What are the uses of the MKR?
The MKR has three primary uses. It is used as a utility token, a governance token, and a resource for recapitalization. The MKR powers the CDP. It is also used to pay the CDP in the system. When a holder pays for their assets in the CDP, the MKR is burned by the system.
MKR holders can vote for the logistics and risk management. They could also create proposals and vote on these proposals. Proposals with the highest votes are then implemented in the Maker system. One MKR token is equivalent to one vote, so holders with more MKR tokens get more of a say on how the MKR system is run.
When a collateral portfolio does not meet collaterization due to the changes in the cryptocurrency market, the Maker system creates and sells more MKR tokens. This ensures that the system and the DAI remain stable.
Overall, the MAKER token is directly tied to the success and upkeep of the Maker Protocol, its products (especially the DAI stablecoin), and its other projects. Though it may not be as volatile as other cryptocurrencies, its value can still change depending on the market.
Credits: Images are sourced from: https://makerdao.com/en/