What is Coin Maker (MKR)? Learn More About MakerDAO & DAI

If you’re wondering whether it’s possible to borrow or lend Cryptocurrency through a blockchain application, the answer is absolutely yes with MakerDAO. But how did they manage to provide a lending and borrowing platform that adapts to the high volatility of crypto assets? Let’s join Finance Solutes to explore the Maker (MKR) coin project by MakerDAO and uncover the unique operating mechanism behind this project!

1. OVERVIEW OF MAKERDAO & DAI

MakerDAO is a peer-to-peer organization on the Ethereum network that provides users with cryptocurrency lending and borrowing services through smart contracts. This P2P organization is also known as a Decentralized Autonomous Organization (DAO).

Because cryptocurrencies are highly volatile, the amount a borrower must repay can differ significantly from the amount originally borrowed. MakerDAO addresses this issue by using a stablecoin called DAI to determine lending interest rates and repayment amounts.

Simply put, MakerDAO acts as a crypto lending credit facility with a predetermined interest rate. If a MakerDAO user wants to borrow, they must first deposit Ethereum into a Maker smart contract, which then creates a Collateralized Debt Position (CDP).

Suppose asset A is trading at $100. A user deposits asset A at a collateralization ratio of 150% and receives 40 DAI tokens. However, if the price of asset A drops below $100, the borrower’s position will be automatically liquidated. To reclaim their initial deposit from the MakerDAO ecosystem, they must repay the amount they received, plus a fee.

On the other hand, if the value of asset A increases, the user can withdraw more DAI tokens from their CDP, use the newly generated DAI to purchase more of token A, and add more assets to their CDP to protect against future price drops.

2. APPLICATIONS OF MAKERDAO

The Maker Protocol – also known as the Multi-Collateral DAI system, or MCD – was created to unlock the potential of DeFi and provide users and developers with innovative financial tools. As such, the Maker Protocol, along with its DAI stablecoin, forms a vital layer of infrastructure for many other protocols in the decentralized finance space.

For instance, DAI is used and accepted by many community-developed applications within the DeFi ecosystem. UNICEF also uses the DAI stablecoin to allow donors to fund open-source blockchain exploration projects for social good. Any DAI donations to UNICEF are allocated to research grants and bounties for various tech projects aimed at helping people in need.

Other DeFi applications operating within the Maker ecosystem and using DAI include Outlet and Uniswap. Outlet serves as a high-yield alternative to traditional savings accounts, while Uniswap is a protocol designed to enable fast and efficient trading of Ethereum-based cryptocurrencies.

Beyond commercial finance, MakerDAO aims to make an impact in regions suffering from hyperinflation by offering a stable alternative to highly volatile fiat currencies.

In the gaming industry, DAI is used in games like Battle Racers, Axie Infinity, and SkyWeaver to allow users to create tokenized in-game assets and earn token rewards on the blockchain. MakerDAO even launched the DAI Gaming Initiative to encourage the development of game applications that integrate DAI rewards.

MakerDAO is also looking to integrate DAI into the art world, aiming to empower artists to monetize their artwork, digitize their creations as unique non-fungible tokens (NFTs), and prove ownership.

3. WHAT IS THE MAKER COIN?

In addition to DAI, MakerDAO has another token known as the Maker coin (MKR). The Maker coin is responsible for governing the MakerDAO ecosystem. MKR holders can control various aspects of the Maker Protocol, including the amount of collateral required for CDPs, the annual loan rates, and the process of liquidating positions in case Ethereum crashes.

MKR holders play a crucial role in managing the Maker ecosystem. They are responsible for adjusting the platform by controlling the addition of new collateral types and setting their associated risk parameters.

Maker coin holders also serve as the ultimate backstop for DAI loans. This means that if the ETH collateral held in Maker Vaults is insufficient to cover the amount of DAI in circulation, MKR tokens are minted and sold in a debt auction to raise the necessary collateral.

The function of the Maker coin is designed to incentivize accountability among MKR holders. It is also responsible for building MakerDAO into a truly decentralized system.

Whenever fees are paid within the MakerDAO system, the dollar value of MKR is bought from the market to pay the stability fees.

According to Coin Market Cap, the price of the Maker coin as of April 25, 2022, is $1,713.33, with a 24-hour trading volume of $59,643,815.

4. SHOULD YOU INVEST IN THE MAKER COIN PROJECT?

MakerDAO is a good investment because it is a decentralized protocol. Anyone who holds Maker coins automatically becomes part of the community and gains governance rights to influence the future of MakerDAO.

The Maker coin is destroyed whenever a loan is repaid, which increases its scarcity and helps keep the price of the Maker coin high.

Thus, Maker coin is also more profitable for borrowers. As a user, you can borrow by locking your ETH as collateral and creating a CDP (Collateralized Debt Position).

5. SUMMARY

From this article, you probably have your answer about what the Maker coin project is and whether it’s worth investing in. It can be said that MakerDAO has become a pioneer in the decentralized finance movement. If the protocol continues on its current path and ETH remains a valuable cryptocurrency, then MakerDAO certainly has a bright future ahead.