Maker

What is Maker (MKR)?

Maker is the governance token of MakerDAO and the Maker Protocol that support the DAI stablecoin’s ecosystem.

MakerDAO is a decentralized autonomous organization that controls the Maker Protocol, an open-source project that operates a credit system that allows users to take out crypto-collateralized loans.

These loans enable borrowers to deposit ETH and other crypto assets into the Maker Protocol, which is deployed on the Ethereum blockchain. These assets count as the user’s collateral, and based on the amount of collateral deposited, loans are granted to the user in the Dai stablecoin.

Dai is soft-pegged to the U.S. dollar and collateralized by cryptocurrencies using smart contract technology. Dai, the top crypto-collateralized stablecoin on the market, is also over-collateralized, meaning that users lock in more crypto than they are able to loan out.

This provides a measure of defense of the Dai stablecoin’s peg to the dollar since smart contracts trigger automatic liquidation of collateral if its value reduces and threatens the reserve.

UST (TerraUSD) 'flipped' Dai for a short while as the top decentralized stablecoin by circulating supply, but the UST’s subsequent collapse in the first half of 2022 saw Dai return to the top spot.

When Was Maker Launched?

Maker was launched in December 2017, following more than two years of initial development, and MakerDAO itself was created in 2015.

The Maker Foundation, which eventually gave up control of the Maker Protocol to MakerDAO, was established in 2014.

MKR is an ERC-20 standard token on the Ethereum blockchain.

Who are the Founders of Maker?

The Maker Foundation that started everything off was founded by Danish entrepreneur Rune Christensen. The Foundation got things off the ground, and when the Maker Protocol went live, control of it was handed over to MakerDAO.

Christensen, a graduate of Copenhagen University with a biochemistry degree, co-founded and managed the Try China international recruiting company before founding MakerDAO.

How Does Maker Work?

The MKR tokens give holders the right to vote on various proposals regarding the development and direction of the MakerDAO, the Maker Protocol, and the DAI stablecoin.

Votes are weighted by how many MKR tokens you hold. A holder of thousands of MKR would have a significant say in matters, especially given MKR’s tendency toward a small token supply, compared to a holder of a fraction or just a few MKR.

What is Dai?

Dai is a stablecoin generated when users deposit crypto assets, including Ethereum, into the Maker Protocol. Once their crypto assets are locked, users can then borrow Dai, which is pegged to the U.S. dollar.

The amount of Dai that can be borrowed depends on the collateral ratio of the asset deposited. Dai is overcollateralized, meaning that the lowest possible collateral ratio is 101%. Essentially, users have to deposit more collateral than the value they want to loan out.

When users want to redeem their locked crypto assets, they return their Dai to the Maker Protocol and pay a fee. This returned Dai is burned, and the collateral is returned to the users.

All of the issuance and burning of Dai is managed by Ethereum-based smart contracts and is publicly visible and traceable on the blockchain.

What Makes Maker Unique?

The issuance and removal of MKR to and from the market are conducted by a system of mechanisms that supports the Dai stablecoin, ensuring that Dai remains fully collateralized and its peg is preserved.

Dai’s value is secured by the collateral locked into the Maker Protocol by users who store their crypto assets in Ethereum smart contracts called Vaults.

When cryptocurrency prices trend downwards, the value of crypto assets in the Vault can dip towards the collateralization ratio of the amount of Dai issues. Since Dai is overcollateralized, this can start to endanger its peg.

In response to this, the Maker Protocol automatically starts to liquidate the contents of the Vault, using the value redeemed to cover the Vault’s obligations. However, there is the possibility that not enough Dai is generated during this liquidation to cover the shortfall.

If this happens, the Maker Protocol mints new MKR tokens to sell and cover the remainder. However, it is often the case that the amount of Dai made from these events exceeds the necessary limit to ensure full collateralization.

This excess Dai is used by the Maker Protocol to buy back and burn MKR. Thanks to this issue and burn mechanism, the supply of MKR is dynamic.

How is the Maker Network Secured?

The Maker Protocol, MakerDAO, Maker Vaults, as well as the MKR and DAI tokens are all part of the Maker ecosystem that resides firmly atop the Ethereum blockchain.

Ethereum is one of the oldest blockchains in existence and is the pioneer of smart contract technology. The ability for developers to build applications on Ethereum and deploy complex protocols like Maker has made Ethereum one of the most widely used and valuable blockchains in the industry.

This, in part, also helps to secure Ethereum. Since ETH has significant value, it is profitable for thousands, if not tens or hundreds of thousands, of cryptocurrency miners across the world to dedicate machines toward mining Ethereum.

While many miners are simply looking for profit via the lucrative block rewards that mining brings, this same mining helps secure the network. All of the mining computers are adding to the network’s security, and with more and more nodes being controlled by people and entities around the world, Ethereum becomes more decentralized and resilient.

This massively decentralized, highly attack-resistant, and battle-tested blockchain is what gives the Maker Protocol its security.

Who Controls Maker?

During its development, Maker was controlled by the Maker Foundation, but the control of the token and, indeed, the entire protocol was handed over to MakerDAO at launch.

A DAO, or decentralized autonomous organization, is not controlled by a single person or entity. Rather, DAOs are managed democratically via some form of governance mechanism. In the case of MakerDAO, governance revolves around the MKR token.

Holders of MKR can vote on a variety of things, such as what new collateral assets may be introduced to the Protocol, changing risk parameters on existing collateral, choosing which Oracles (like Chainlink) can be trusted for off-chain data, and what upgrades to introduce to the platform.

In fact, MKR holders are also responsible for voting on changes to the DAI Savings Rate, the profitability of a smart contract akin to a savings account that Dai holders can use to earn interest.

What is the Use of MKR?

MKR tokens function like stock in a traditional corporation. More specifically, because of the transparency and immutability of blockchain, they function like Direct Registered Shares and are immune to corporate governance malpractice.

MKR holders vote on decisions regarding the development of MakerDAO itself, the Maker Protocol, and DAI. Each individual’s voting power corresponds to the amount of MKR they hold.

Being part of the Maker Protocol’s governance and benefiting from price appreciation via MKR burns are significant incentives for MKR holders.

This is especially true given Dai’s reputation as one of the best stablecoins on offer. Not only is Dai decentralized via public holding of the MKR token, and therefore not controlled by a single entity, but it also has a good track record when it comes to maintaining its peg.

The use of smart contracts to maintain overcollateralization remains a crucial part of its makeup as a strong lending platform, especially given how other stablecoin platforms and lending platforms have failed.

After all, a smart contract doesn’t care if you’re a hedge fund in the habit of not picking up the phone or absconding when margin calls!

How Much MKR Is In Circulation?

As described previously, the supply of MKR is dynamic thanks to minting during a shortfall of DAI and burning during an excess of DAI generated from liquidation auctions.

The supply of MKR at any given time is thus a good indicator of the health and popularity of the ecosystem around the Maker Protocol and the Dai stablecoin.

As of August 2022, the circulating supply of MKR was just over 977 million MKR.

How Do You Buy MKR?

MKR is available across a variety of platforms, both centralized and decentralized. It is extremely popular across many centralized exchange platforms (CEX), and you’ll find good liquidity on Binance, Coinbase, FTX, KuCoin, and many more.

However, MKR is an ERC-20 token, meaning that decentralized exchange (DEX) platforms are a great way to buy MKR, too. Decentralized exchanges like Uniswap tend to be good places to buy MKR, although network congestion and gas fees are things you’d best check on before buying.

Is It Possible to Buy MKR Instantly?

The speed with which you buy MKR on a DEX depends on blockchain congestion at the time. However, many DEXes now use Layer 2 technologies that can make transactions very quick and also reduce fees to next to nothing.

Buying MKR on a centralized exchange may seem faster, but CEXes are mostly custodial. This means that your MKR tokens are still with the exchange, and you’re not going to be able to use the governance rights that MKR token ownership should bestow.

How Do You Store MKR?

To actually take part in Maker Protocol governance and be part of the MakerDAO, you’ll need to take custody of your MKR tokens yourself. This means transferring your MKR off the exchange and into your own wallet. Alternatively, you can simply buy MKR on a DEX with your wallet as its destination when you make the swap.

Non-custodial or self-custody Ethereum-compatible wallets tend to come in two forms:

• Cold wallets. These keep the keys to your wallet offline and make them more resistant to attack. Ledger wallets are a commonly used type of cold hardware wallet.
• Hot wallets. These keep your keys online and often use desktop clients or browser extensions. Hot wallets can be quite convenient when it comes to connecting to DEXes or other dApps. Highly-rated examples of hot wallets include Metamask and the GameStop Wallet.

Maker Energy Consumption

Maker doesn’t have its own network and, as such, doesn’t really have any sort of notable energy consumption of its own. Some argue that since it is secured by Ethereum and uses Ethereum’s resources, it should be credited for some amount of Ethereum’s energy consumption.

As per the Digiconomist, Ethereum in its current proof-of-work form has an annual energy consumption of over 61 TWh. However, this is likely to reduce very dramatically following Ethereum’s shift to 2.0 and PoS.

Not only that but ETH 2.0 is also likely to dramatically reduce pressure on the global GPU market, both relaxing supply chains and reducing energy demand from the production and transportation of hardware.

Is MKR a Good Investment?

MKR is cut-and-dried as far as investments go because its value is tied purely to the Maker ecosystem and the success of the Dai stablecoin.

As the usage and the strength of DAI grows, so too does the value of MKR by virtue of more demand to be part of the protocol, but also tightening supply as MKR is bought up and burned.

On the other hand, MKR doesn’t have a fixed supply. As such, investors need to assure themselves that the minting and burning mechanisms of MKR will work in their favor, or else worries about the devaluation of the token may linger.

Ultimately, MKR, at least for the moment, hinges on the success of Dai. While other stablecoins continue to have questions asked about them, or just outright capitulate, and other lending platforms collapse, the Maker Protocol goes from strength to strength.