MKR crypto: Tokens underpinning MakerDAO

ProductJan 03, 2023
MKR crypto: Tokens underpinning MakerDAO

MKR, Maker's governance token, is a cryptocurrency like no other. Working in tandem with the protocol's stablecoin, it underlies its management and production. Furthermore, the value of MKR is closely tied to the demand for Dai and decentralized finance (DeFi) in general. Learn more about the use cases for MKR crypto in our guide.

What is Maker crypto?

The Maker community views this protocol as equally exciting and impactful in the broader context of DeFi. Its success is intertwined with that of Dai (DAI) — the fourth stablecoin by market cap at press time. Both DAI and MKR are ERC-20 tokens crucial for Maker's functioning.

The father of the Maker crypto is Rune Christensen, a Danish entrepreneur who co-founded a recruitment firm, Try China, before getting into the blockchain business. Here are the key milestones in Maker's history:

  • Christensen unveiled his initial vision for DAI in a 2015 Reddit post, describing it as "eDollar, the ultimate stablecoin built on Ethereum."
  • MKR was launched in August 2015, laying the foundation for protocol governance.
  • Maker DAO (decentralized autonomous organization, or MakerDAO) was officially launched in late 2017, with DAI entering circulation in December.
  • In 2018, MakerDAO established the Maker Foundation to help manage and formalize the structure of the Dai credit system. Christensen still serves as the Maker Foundation CEO.

As of December 28, 2022, the latest MKR crypto news concerns MakerDAO's strategic alliance with GnosisDAO. This DAO-to-DAO partnership uses a dedicated vault that mints Dai to support the development of the Gnosis Chain.

What is Maker?

Maker's mission is ambitious — democratizing lending and making loans accessible to anyone. Along with DAI, the MakerDAO token drives DeFi forward.

This protocol issues collateralized loans secured via smart contracts — self-executing agreements based on code. In the Maker ecosystem, these are called Maker Vaults, while the loans are referred to as CDPs (collateralized debt positions).

Applicants only need to pledge their crypto to become eligible, in stark contrast to TradFi banking. Unlike conventional lenders, Maker does not consider any proof of income or even credit ratings (for example, US banks require a certain FICO score).

What is unique about MakerDAO loans?

The only loan currency is DAI, while the collateral options vary. Until 2019, loans could only be collateralized with Ether, and Dai was referred to as Single-collateral Dai or Sai. Today, borrowers can pledge any Ethereum-based asset provided the MKR holder community approves it. This system is called MCD (Multi-collateral DAI).

The DAO locks the collateral for each loan until the latter is repaid. Then, the protocol mints the USD-pegged Maker crypto (DAI) for the borrower.

Currently priced at $0.999428, Dai relies on the value of the US dollar and is thereby shielded from dramatic volatility. Like any stablecoin, it must stay true to its peg. Most of the time, the value of DAI fluctuates between $0.98 and $1.02.

The MakerDAO price mechanism gives users peace of mind — market fluctuations do not inflate their debt. Whatever happens, they only have to pay the amount borrowed plus interest. For example, if one borrows 1,000 DAI collateralized by 1 ETH, they will owe 1,000 DAI plus a fee to retrieve that Ether coin (stability fee).

  • The stability fee is a continuously accruing interest — an annual percentage yield based on how much DAI was generated.
  • Other risk parameters for a loan include the debt ceiling (the maximum amount of debt allowed for the collateral asset), the debt-to-collateral ratio (also called liquidation ratio), and the liquidation penalty.
  • Automatic liquidation occurs when the USD value of the collateral plunges below the debt-to-collateral threshold. In this case, a penalty fee is charged on top of the interest owed.
  • If the USD value of the collateral rises, the borrower may request more DAI.

The Maker system encourages over-collateralization — providing collateral in excess of the loan amount value (initially, by at least 50%). Once the DAI principal is returned, Maker burns it, contracting the overall supply. The same happens with interest (stability fee) paid in MKR.

Over-collateralization. Source: OKX Learn
Over-collateralization. Source: OKX Learn

Thus, MakerDAO protects borrowers from unpleasant surprises. But what if their collateral depreciates so badly that liquidation does not provide enough Dai? This is where the Maker token comes in.

What is Maker coin used for?

MKR is a governance token with additional utilities inside the Maker environment. Aside from giving holders a say in DAO management, it works as the sole cryptocurrency for CDR fees and interest. Furthermore, MKR helps Maker remain solvent if a market downturn occurs.

#1 MKR as governance token

MKR holders can participate in continuous approval voting — casting or withdrawing votes for proposals. They can also submit their own proposals concerning the platform's logistics and risk management.

MKR lets you partake in managing one of the most innovative stablecoins on the market. By design, it is in the holders' best interest to make reasonable decisions — the MKR price changes in keeping with Maker's overall health.

MKR Governance Dashboard. Source: vote.makerdao.com
MKR Governance Dashboard. Source: vote.makerdao.com

Each MKR token gives one vote. Thus, the more MKR one holds, the stronger their voting power. It concerns such decisions as:

  • Implementing system upgrades
  • Adding or removing currencies accepted as collateral for newly minted DAI
  • Modifying the risk parameters of collateral cryptos (debt ceiling, stability fee, liquidation ratio, and liquidation penalty)
  • Altering the Dai Savings Rate — interest rate applied to DAI deposits
  • Selecting oracles — the sources of real-time market price data for the ecosystem

To support a specific proposal, voters commit their tokens to a voting contract. The outcome depends on the number of tokens received, regardless of the number of holders.

#2 MKR as utility token

As we have mentioned, any fees on the platform must be paid in MKR. Subsequently, the tokens are destroyed, so their supply rises and falls along with the demand for the DAI loans.

#3 MKR as a means of recapitalization

In times of market turmoil, if Maker's collateral portfolio (collateral stored in Vaults) depreciates rapidly, the system can mint MKR tokens and sell them to raise capital. This way, it may cover the shortfall of value and stay afloat.

This recapitalization method is used when standard liquidations do not produce enough DAI. Minting affects the Maker crypto price as it boosts the supply.

MKR price and supply

Maker initially released 1 million MKR coins during the launch of DAI. According to CoinGecko, the total available supply as of December 29, 2022, is 901,310.947. MKR is in the 70th position by market cap (just under $470 million).

During the 2021 bull run, the MKR price increased nearly fourfold, reaching $6,292.31 on May 4. At press time, one token is worth $520.50, with a 7-day change of -5.5% and a 30-day change of -19.3%.

MKR crypto: Tokens underpinning MakerDAO

MKR crypto price chart. Source: CoinGecko

The Maker coin price is constantly changing as it is ruled by complex systems ensuring adequate collateral for Dai. The second primary driver is the market sentiment toward Maker — typically, it appreciates when Dai goes up.

How to buy Maker coin

As MKR is available on popular crypto exchanges, the tokens are easy to obtain. Thanks to flexible payment systems, one may buy MKR using a credit or debit card, via a SWIFT transfer, P2P lending, or channels like ApplePay. In addition, some platforms allow users to stake Maker tokens and earn a yield.

MKR on CoinLoan

Maker tokens work with multiple CoinLoan products — Wallet, Loans, Interest Account, and Exchange. You can transfer MKR from your Maker wallet or trade other assets for it. MKR may be paired with other cryptos, stablecoins, or fiat, and swaps are as easy as 1-2-3.

CoinLoan is a licensed financial institution with transparent practices and ironclad security. We offer an intuitive interface, a zero-incident track record, and around-the-clock support. Manage MKR on the go through our app, or browse our hassle-free web platform! Here are three MKR utilities on CoinLoan:

MKR-backed loans

Users can turn MKR tokens into collateral for instant crypto loans. The available loan currencies include BTC and WBTC, stablecoins like USDT and DAI, and fiat — EUR and GBP. We also offer a flexible LTV rate between 20% and 35% and customizable terms between one month and three years.

MKR deposits

Those who keep MKR on CoinLoan can earn an annual yield with daily accruals and monthly payouts. Our Flexible Account allows withdrawal at any time. There are no hidden fees or commissions for deposits, withdrawals, or holding. At press time, the current rates are as follows:

  • 1% annually on MKR in Flexible account
  • 2% annually on MKR in Flexible account with CLT Staking

MKR exchange

CoinLoaners can swap Maker tokens for BTC, WBTC, stablecoins (MKR/USDT, MKR/TUSD, MKR/PAX, and other pairs), or fiat currencies (EUR or GBP). You can also purchase MKR for BTC, BCH, ETH, LTC, XRP, and other supported assets, including fiat and stablecoins.

Exchange is straightforward. Convert your assets in a couple of clicks — choose the ticker symbols for the pair, enter an amount, and launch the exchange. The amount received will immediately land in your Wallet.

Final word

MKR is a non-conventional cryptocurrency with multiple uses within Maker's two-token environment. Inherently connected to DAI, one of the largest stablecoins, it lets holders define the protocol's future and safeguard its solvency when the crypto market goes south. Buy, borrow, exchange, or collateralize the Maker tokens on CoinLoan to leverage the strengths of MakerDAO!

Disclaimer:

The information provided by CoinLoan (“we,” “us,” or “our”) in this text is for general informational purposes only. All investment and financial opinions expressed by CoinLoan in this text are from the personal research and open information sources and are intended as educational material. All outlined information is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in this text.

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