What is Maker coin?
Maker (MKR) is a smart contract platform built on the Ethereum blockchain that aims to solve volatility issues for the crypto market. It is the basis for a new-generation blockchain-based banking system that allows for faster and simpler international payments and peer-to-peer transactions. The goal of this project is to back and stabilize a collateral-backed cryptocurrency known as DAI Stablecoin. DAI is essentially digital currency that maintains its purchasing power because its value is stabilized against the US dollar. Maker is able to achieve this with the help of its unique smart contracts known as Collateralized Debt Positions.
The platform enables anyone to leverage their Ethereum assets to generate DAI. Once they have this collateral-backed cryptocurrency, users can freely send it to others, use DAI to pay for goods and services or hold it as a long-term investment.
Understanding Maker’s unique dual system
First of all, let’s add a bit more context to why Maker Dai coin is gaining traction.
It’s no secret that the crypto market is incredibly volatile, which is the main reason that currently prevents cryptocurrencies from becoming a mainstream payment method. Who’d want to spend 5,000 crypto tokens on a pizza only to find out two weeks later they’re worth a fortune? Having a stabilized cryptocurrency on the market that’s not affected by any market conditions or influenced by profit-seeking people could increase the rate of trading substantially and help cryptos finally break into the mainstream. Enter the Maker Dai Stablecoin.
To get a full picture of how the platform works, we first need to look into its dual coin system. The Maker platform has two different official coins – the Makercoin (MKR) and the Dai Stablecoin (DAI). The Makercoin is used to govern the platform as a whole, while DAI is designed for payments, savings and collaterals and maintains a very stable price.
The DAI was created to ensure MKR is protected from immense market volatility and huge price fluctuations. Its value is pegged to the US dollar, meaning 1 DAI = 1 USD. As a decentralized stablecoin, DAI lends itself particularly well to four key markets: the financial market, gambling market, transparent accounting systems and international trade.
What’s the use of the Makercoin (MKR)?
Unlike DAI, MKR is not a stablecoin and therefore has a volatile price. The coin plays a crucial role in the platform’s ecosystem and supply mechanics. It has three main roles on the platform: it acts as a utility token, governance token and a recapitalization resource. MKR is used to pay various fees associated with generating DAI. Each time fees are paid, MKR is burnt, removing it from the chain. The supply of MKR is correlated with the demand for DAI.
Holders of MKR also get the right to vote on risk management and business logic of the Maker system.
How does the platform work?
The Maker platform makes use of its unique smart contract system called Collateralized Debt Positions (CDP). To generate DAI, users must deposit collateral assets, which are then held by CDPs. During the DAI generation process, a user also accrues debt. This debt is what effectively locks user’s deposited collateral assets inside the CDP until the point when user is able to repay the debt and withdraw its collateral. It’s worth noting that the value of collateral assets is always higher than the value of DAI generated (and the value of debt accrued).
Maker summary and future projections
Maker’s most impressive product so far is the DAI stablecoin. Unlike bitcoin or ether, DAI has no volatility as it’s soft-pegged to the US dollar. “Soft-pegged” means that DAI can be moved to any other fiat currency should the US economy nosedive. In short, one DAI equals one US dollar. Maker’s DAI is also unlike other stablecoins on the market , such as Tether, for instance, because it lives completely on the blockchain.
Maker addresses one of the biggest issues in the cryptocurrency market – its volatility. By stabilizing DAI’s value against the US dollar, it enables crypto users to trade or hold assets without worrying about market volatility or that their assets will lose value overnight. The Maker’s whitepaper highlight how well-thought-out security measures are functioning on the platform in an effort to mitigate volatility risks.
As existing stablecoins are being rejected by the blockchain community for their lack of transparency and suspected centralization, DAI stands a real chance to seize the stage and become the go-to stablecoin that will bring about a new interesting wave of evolution to the cryptocurrency economy.