30 August 2020

The launch of Ethereum was a watershed moment in the historical timeline of cryptocurrencies. Before its development, there was an assumption that the blockchain and cryptocurrencies had only a narrow range of use cases. Developers could utilize the smart contract functionality to create other apps or entirely new cryptocurrencies.  Maker is one such product of this innovation.

What is Maker?

With smart contract possibilities, Maker developers set on creating a unique platform. Maker is a smart contract governance platform that backs and stabilizes the value of stablecoin DAI. Stablecoins are the special cryptocurrencies backed using reserve assets to maintain a relatively stable value. 

Given its unique stabilization function, MKR tokens are destroyed or increased to track the price fluctuations of DAI and ensure that it remains as close to $1 as possible. The tokens provide liquidity for the Maker system and grant holders voting rights. These voting rights are regularly exercised within Maker’s continuous approval voting system.

Maker runs on the protocol of Maker Decentralized Autonomous Organization (Maker DAO). The exciting project utilizes a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and appropriately incentivized external actors to achieve this purpose.

The DAI Stablecoin and MKR Governance Token

Maker DAO used a unique system to create new DAI. Users had to deposit coins such as ETH into a Collateralized Debt Position (CDP) in exchange for DAI. To open up a CDP position, the system charges a “Stability Fee.” This fee essentially becomes an interest rate that controls DAI supply to ensure it is close to the $1 mark.

MKR tokens provide useful governance for the Dai network. Users feel like they have a stake in the stability of Dai and its expansion. It is not simply a speculative coin but instead serves an intricate function in the cryptosphere. Ensuring that the MKR supply is always flexible is vital in guaranteeing the stability of Dai.

Previously, Maker DAO preferred cryptocurrency-denominated collateral to take out loans in the form of DAI. Recently, MKR holders agreed to diversify collateral options to include real-world assets. Such diversification of loan securities will hopefully increase the range of Dai users. One of the big objectives of decentralized finance is improving financial inclusivity. The loans are convenient in Dai because users can exchange them for USD, losing little to no value in the process.

Stability of DAI for Blockchain Adoption

The idea of stablecoins is appealing for investors who are keen on stability. The cryptocurrency industry is rife with volatility which makes every day in the trading markets a rollercoaster. 

DAI offers the possibility of investing in a stable currency while still realizing the advantages of digital money. The stability has already attracted over 400 dApps and services, which have integrated Dai in their payment systems.

Maker token holders govern the smart contracts that power DAI. This function ensures that the DAI stablecoin has decentralized governance. Investors can also purchase DAI and lock it with the 217.61M Dai by the collective community. They can then earn Dai on a Savings Rate set by the Maker community.

Maker has one of the more efficient tokenomics you’ll see around. The circulating supply of 1,005,577 MKR on a market capitalization of about $633 million brings the price to a neat $630.22 at the time of writing.  Trading this token makes sense because the margins are better than most cryptocurrencies with a value of below $1 owing to a large number of tokens in circulation. 

The Maker Foundation continues to set up the Maker community to govern the Maker Protocol in a completely decentralized fashion. This transition will see the dissolution of the Maker Foundation. 

Removing any centralized point of failure from the project will mean that the platform is even more secure. Having a self-sustaining decentralized stablecoin will be a massive win for the entire industry.

Final Thoughts

Maker has been a master class from an organizational standpoint so far. This project delivers on both planning and living up to decentralization ideals. 

Maker was supposed to benefit Ethereum, but so far, the benefit is more to the latter system. As it rolls on, it will be interesting to see the heights this project can scale to.

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Edmund McCormack
Tech industry veteran and blockchain technology investor. Simplifying cryptocurrency for almost a decade.

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