Unpredictability and wild volatility swings have always been the bane of cryptocurrency’s existence. As a solution, crypto experts invented the idea of stablecoins – which is a cryptocurrency pegged against “real-world” money to tame the fluctuations of crypto. But stable coins also turn out to have their own share of problems.
Maker is a token and a platform that seeks to improve the stablecoin model while mitigating the volatility risk inherent with cryptocurrency.
In this guide, we’ll discover the Maker system, how it works, the place of Maker in the entire crypto ecosystem, and how you purchase the Maker token.
What is Maker?
To begin to understand Maker, we need to get a good understanding of what is a stablecoin. Stablecoins are a new class of cryptocurrencies that attempt to mitigate the risk of normal cryptocurrencies. Cryptocurrency prices are prone to volatile fluctuations, which ultimately makes them unsuitable for day to day use or as collateral. For instance, who’d want to spend 100 crypto coins on a pair of jeans only to find out the next month they’re worth a fortune?
This is where stablecoins step in: to offer the best of cryptocurrencies – the privacy of money and instant processing, as well as the stability and predictability of fiat currencies.
The Maker System
The first thing to understand is that the Maker platform has a dual coin system: Makercoin (MKR) and Dai (DAI). Makercoin is a volatile token that governs the Maker platform. Dai is a stable coin designed for daily use, savings, and collaterals.
Dai is denominated in US dollars in a 1 DAI = 1 USD formula. Unlike the other stablecoins out there, DAI is not pegged to any fiat currency. Stablecoins that are pegged to fiat currency do not live up to the cryptocurrency vision of decentralization and censorship-resistance. By using external market economics, Makercoin is the volatile crypto coin that allows Dai to be a stablecoin.
As a decentralized stablecoin, Dai offers itself to four markets that could benefit from its use:
Gambling Markets – it doesn’t make sense to gamble with the wildly unpredictable cryptocurrencies. This would only expose the gambler to two risks: the risk that comes with the bet itself and the risk of the asset price. Using a stable cryptocurrency like Dai allows you to limit your risk solely to the usual probability of loss.
Financial Markets – Such financial markets like derivative smart contracts and options need collaterals of stable price values. The collateralized debt positions offered by the Maker platform also offers a permissionless, interest-free decentralized trading leverage, and decentralized tools.
International Trade – International transactions usually rack up high costs. Dai mitigates foreign exchange volatility while also removing the need for intermediaries in the transaction process.
Transparent accounting systems – Dai provides a completely transparent platform where all transactions can be verified – allowing organizations to improve efficiency and reduce the probability of fraud.
What Is the Use of the Maker Coin?
On the Maker system, the Maker token plays these roles:
Utility token. MKR is used to pay for the collateralized debt positions that generate Dai on the Maker ecosystem.
Governance token. Coin holders use the token to vote for operational changes in the Maker protocol through a continuous approval voting process. This means that the proposal that has the most votes from coin holders becomes the “top proposal” that can be activated to improve the protocol.
Recapitalization Resource. The Maker system automatically creates new MKR tokens in case of a shortfall on the collateralization system.
How Does The Maker Platform Work?
The Maker platform has a unique smart contract system called Collateralized Debt Position (CDPs). To generate Dai tokens, users must deposit collateral assets, which are then held by CDPs. Generating Dai also incurs the user some debt. The debt is what locks a user’s deposited collateral assets within the GDP until they can repay the debt in the same quantity of Dai, and withdraw its collateral.
Currently, “pooled ether” (PETH) is the only collateral accepted by the Maker system. To generate DAI, you must first convert Ether into the pooled ether.
A user’s interaction with CDP has the following stages:
Making the CDP. A user sends a transaction to Maker to initiate a CDP. They then send their PETH to collateralize the CDP.
Generating Dai. The user sends a transaction stating the amount of Dai they want from CDP. After generating Dai through this process, an equivalent amount of PETH is locked away in a CDP smart contract. They can only access this PETH when the Dai debt is paid off.
Debt Reconciliation. To get back their collateral, a user must pay off their outstanding debt in the CDP together with a “stability fee” that is essentially interest on the outstanding debt.
Withdrawing collateral. After the user’s debt and stability fee are paid off, the user can retrieve their collateral by sending a transaction to the platform
Makercoin impressively ranks at number 22 in terms of market capitalization. As of December 19, 2019, the crypto has a market cap of $476, 146, 583, a 24-hour trading volume of $4, 797, 594, and a circulating supply of 1 billion. Its all-time high was $1,773.92 on Jan 18, 2018, with its all-time low being $21.06 on Jan 30, 2017. Its current going price is $476.15.
How to Buy and Store MKR
Buying Maker comes with a two-step process. First of all, you need to buy some BTC or Ether from an exchange that accepts debit card deposits or bank wire. You then need to transfer the crypto to an exchange that will accept the BTC or Ether in exchange for MKR.
For example, you can buy BTC or Ether at Coinbase and exchange it for MKR in CoinbasePro, Gate.io, HitBTC, OKex, Kucoin.
Both coins of the Maker system are Ethereum tokens based on the ERC-20 protocol. As such, any ERC-20 compliant wallet is suitable for storing MKR. Hardware wallets such as the Ledger wallets, Trezor, Keep Key, Cool Wallet S, etc. are also recommended.
Maker addresses one of the biggest issues with cryptocurrency – its volatility. By stabilizing Dai’s value through external market systems, users get the best of crypto and fiat currency – privacy, instant payments, and the stability of value. Thus, you can invest in the crypto without worrying that its value will plummet overnight.
MakerDai also solves the issue of questionable centralization status and lack of transparency associated with other stable coins. As it is now, Maker has the opportunity to seize the stage and become the ideal stablecoin. It has the recognition, a working model, and an irresistible proposition for the cryptocurrency economy.