What Is Maker (MKR)?

September 14, 2024
7 min read

Imagine a world where financial stability is controlled by its users, not governments or central banks. In this ever-evolving landscape of decentralized finance (DeFi), MakerDAO emerged as a pioneer, revolutionizing the way we think about currency, borrowing, and stability. Maker (MKR), the governance token of the Maker ecosystem, plays an important role in keeping the stability of the decentralized stablecoin DAI.

MakerDAO, built on the Ethereum blockchain, was designed to eliminate the volatility of cryptocurrencies like Bitcoin and Ethereum. Its goal is to create a stable digital currency by giving users the power to maintain and manage it through a decentralized system. With MKR, holders can vote on critical governance decisions that influence the Maker ecosystem’s stability and future direction, showcasing a unique model of decentralized governance. But what exactly is MKR, and how does it fit into the broader DeFi landscape?

In this article, we’ll dive into the core of Maker (MKR), exploring its purpose, functionality, and role in shaping the tomorrow of decentralized finance. As a key player in crypto, MKR’s contribution to financial markets highlights its innovative potential. We will take a closer look at its unique features, uses, and how it is secured while exploring the platform’s ecosystem, including its native stablecoin, DAI.

What is The Definition of Maker (MKR)?

Maker (MKR) is known as the governance token of the MakerDAO protocol, a decentralized autonomous organization on the Ethereum blockchain. MakerDAO is most well-known for its creation of DAI, a decentralized stablecoin whose value is pegged to the U.S. dollar. MKR tokens are used by holders to participate in the governance of the Maker protocol, including decision-making processes such as adjusting the stability fees, selecting which assets can be collateralized, and maintaining the overall health of the system.

Unlike typical cryptocurrencies, MKR is more than just a medium of exchange or store of value; it is a governance tool. MKR token holders can vote on key issues that keep the DAI stablecoin system functioning properly, including decisions related to the protocol’s risk parameters, upgrades, and overall management.

Is MKR a Stable Coin?

No, MKR is not a stablecoin. While it is closely tied to the DAI stablecoin, its value fluctuates based on market conditions and governance decisions within the MakerDAO ecosystem. DAI, on the other hand, is a stablecoin designed to always be worth $1, and MKR helps manage and maintain the stability of DAI through governance. As a governance token, MKR’s price is influenced by need and supply dynamics in the market, and its value can rise or fall significantly based on the health of the Maker protocol and broader DeFi trends.

Who Are the Founders of Maker?

The MakerDAO project was created by Danish entrepreneur Rune Christensen in 2015. Christensen’s vision for MakerDAO was to build a decentralized system where users could create a stable digital currency independent of traditional financial institutions. The Maker protocol was developed on the Ethereum blockchain, and its first version, known as “Single-Collateral DAI,” was launched in 2017.

Rune Christensen remains a prominent figure in the Maker community and DeFi space, but the governance of the protocol is decentralized, with MKR holders around the world participating in decision-making through voting.

Read More: What is Maker Trading Bot?

What Is MKR Used For?

MKR serves multiple purposes within the MakerDAO ecosystem, with its primary role being governance. MKR holders have voting rights, enabling them to participate in decisions that affect the protocol’s stability and future direction. The most significant votes revolve around decisions such as which collateral assets to accept, the setting of risk parameters, and changes to the system’s interest rates (known as the “stability fee”).

In addition to governance, MKR is also used to recapitalize the system if the collateral backing DAI becomes insufficient. If the value of the collateral drops too low, new MKR tokens are minted and sold to cover the shortfall, ensuring the DAI system remains solvent.

How Does MKR Work?

MKR operates within the Maker protocol as both a utility and governance token. The Maker protocol lets users lock up crypto assets as collateral and generate DAI against that collateral. If the value of the collateral falls down a certain threshold, the system automatically liquidates the collateral to maintain the stability of DAI.

MKR holders are responsible for ensuring the system remains secure and efficient through governance. They vote on changes to risk parameters, collateral types, and other key aspects of the protocol. MKR is also burned (removed from circulation) when stability fees are paid, creating a deflationary pressure that can increase the value of MKR over time, provided the system functions effectively and DAI remains stable.

What Makes Maker Unique?

MakerDAO stands out in the DeFi space for several reasons:

Decentralized Governance: Unlike many other crypto projects, MakerDAO is fully governed by MKR holders. This decentralized decision-making model ensures that no single entity controls the protocol.
Stability Mechanism: Maker’s two-token system—DAI and MKR—works together to maintain stability. DAI is pegged to the dollar, while MKR acts as a governance and recapitalization tool.
Wide Range of Collateral: Maker allows users to deposit different crypto assets as collateral to generate DAI, offering flexibility and increasing the protocol’s appeal to a wide range of DeFi participants.

What Chain Is MKR On?

MKR operates on the Ethereum blockchain, which allows it to interact with the broad Ethereum-based DeFi ecosystem. Since MakerDAO is a smart contract platform built on Ethereum, MKR tokens are ERC-20 tokens, meaning they can be stored in wallets that support ERC-20 assets. The Ethereum network’s high liquidity and security have made it an ideal home for MakerDAO, although the high gas fees associated with Ethereum transactions have sometimes led to criticism.

How Many Maker (MKR) Coins Are There in Circulation?

As of now, there are around 977,631 MKR tokens in circulation. However, a maximum supply is 1,005,577 MKR. The supply of MKR is dynamic; it can increase if new tokens are minted to cover deficits in the system or decrease when MKR is burned as part of the stability fee payment process. The burning mechanism is designed and developed to reduce the circulating supply of MKR over time, potentially increasing its value as demand rises.

How Is the Maker Network Secured?

The Maker network is secured through the robust consensus mechanism of the Ethereum blockchain, which employs proof-of-stake (PoS) for security. Smart contracts are utilized to govern the creation and management of DAI, ensuring that collateral is always sufficient to back the stablecoin. In case of a shortfall in the system, new MKR tokens are minted and sold to cover the debt, ensuring the stability of the ecosystem. Additionally, Maker’s decentralized governance model ensures that critical decisions regarding protocol upgrades, risk management, and security improvements are voted on by MKR holders.

Where Can You Buy Maker (MKR)?

Users can buy MKR on various cryptocurrency exchanges. Major platforms such as Binance, Coinbase, Kraken, and Uniswap offer trading pairs for MKR. You can also acquire MKR on decentralized exchanges (DEXs) like Uniswap, which allows for trustless trading directly from your crypto wallet. When buying MKR, it’s essential to store it in a wallet with the capability of supporting ERC-20 tokens, such as MetaMask, or hardware wallets like Ledger for maximum security.

Conclusion

Maker (MKR) plays a critical role in the DeFi ecosystem by facilitating decentralized governance and maintaining the stability of the DAI stablecoin. Its unique model of decentralized governance through MKR holders sets it apart from other cryptocurrencies, and its role in maintaining financial stability in the crypto world cannot be understated. As more people look for alternatives to traditional financial systems, Maker’s model of decentralized governance and stability through collateralized assets makes it a powerful tool for the future of finance.

To get involved with MKR and experience the benefits of decentralized finance, consider visiting Argoox, where AI-powered trading bots and advanced tools help traders leverage the power of financial markets, including cryptocurrencies like MKR. Argoox is a global platform offering innovative trading solutions, empowering users to make smarter, data-driven decisions in the fast-paced world of crypto.