What Is Maker (MKR)?

MKR, the governance token fueling the network, comes from the same platform that created DAI, the algorithmic stablecoin soft-pegged to the US dollar. MKR serves both the decentralised autonomous organisation, MakerDAO, and the software platform, Maker Protocol, both built on the Ethereum blockchain. These two platforms generate DAI and allow users to issue and manage the DAI stablecoin. 

What is Maker (MKR)?

Developed in 2015 and officially launched in December 2017, Maker is a revolutionary project that was built to host and generate DAI, a community-managed cryptocurrency that has its value soft pegged to the US dollar. The MakerDAO forms part of the larger Maker Protocol which allows DAI to maintain its value and operate without the need for a third party. The Maker Protocol requires both tokens to operate: DAI and MKR. 

To understand MKR, one must first be familiar with the DAI stablecoin. DAI serves as a loan option for borrowers, with the platform allowing users to take out a loan in DAI tokens by locking another cryptocurrency, such as ETH. When the borrower pays back the DAI that was borrowed, they are able to reclaim the collateral used for their loan. However, if its value drops below a predefined level it could automatically be sold off.

The Maker ecosystem is one of the first DeFi projects to enter the market, years before the movement took off. The DeFi sector revolves around providing decentralised financial products powered by smart contracts to the masses. 

Though the DAI stablecoin is best known as a service offered by the Maker Protocol, the MKR token is actually the crypto asset that secures changes to maintain its functioning. The governance token MKR gives holders voting rights over the Maker Protocol's development, such as what cryptocurrencies can be accepted as collateral and the price at which these assets will be sold if liquidation is to occur. The MKR price appreciates in value based on the success of DAI. 

The Maker protocol accepts a range of cryptocurrencies, including ETH, MANA, and BAT, as collateral.

Who created the Maker platform?

Established in 2015, the Maker Protocol was developed by a team of tech-savvy developers spearheaded by Rune Christensen. As time progressed, this collective eventually organised and formed into an official entity known as the Maker Foundation, a corporation located in the Cayman Islands.

In 2017, the Maker team raised a remarkable $12 million in funding by selling MKR tokens to some of the most influential venture capital firms at the time including Andreessen Horowitz, Polychain Capital, and 1Confirmation. A year later, another $15 million worth of MKR tokens were bought by Andreessen Horowitz, who expressed the intention to help govern the DAI system by participating in the MakerDAO. 

In 2019, the project raised another $27.5 million from venture firms Paradigm and Dragonfly Capital Partners for expansion to Asia. 

How does the Maker Protocol work?

When the Maker Protocol launched, 1 million MKR tokens were created. These tokens gave holders voting rights on key decisions through a process called Executive Voting.

First, the sentiment of MKR holders is measured on a new proposal through Proposal Polling before committing any changes to the software. The Executive Vote then takes place, and once the highest amount of MKR token holders commits to a proposal and the vote is passed, the winning proposal is implemented into the Maker Protocol. The number of tokens holds more president than the number of token holders, i.e. 10 holders with 1,000 tokens each will outvote 100 token holders with 50 tokens each. 

Non-MKR holders also have the opportunity to participate in the vote via threads in the MakerDAO forum however the MKR holders have the final say.

DAI Savings Rate

MKR holders also have a say in how much DAI holders can earn if they save DAI tokens on the platform, known as the DAI Savings Rate. In previous years this amount has varied between 0% and 8.75%. Following a recent market crash, MKR holders voted to make the DAI Savings Rate zero to encourage holders to sell their DAI and bring the price back into equilibrium.

When the DAI price drops below $1, MKR holders can vote to raise the DAI Savings Rate to encourage more users to hold DAI which increases the price.

What is MKR?

MKR is an ERC-20 token and acts as a governance and utility token to the Maker Protocol with no fixed supply. The token gains value as the use of the Maker Protocol increases as the supply is reduced when the Protocol is working effectively and increased when governed poorly. MKR tokens are created or destroyed through surplus auctions and debt auctions.

Surplus Auctions

The Maker system holds a Surplus Auction when the fees collected exceed an amount decided by MKR holders. DAI that surpasses this threshold must be purchased with MKR in order to settle the auction. This MKR is then destroyed reducing the total supply and thus increasing the token price.

Debt Auctions

Conversely, if the Maker system is underperforming its locked coins are sold for a lower value than before, causing it to raise capital via a Debt Auction. Through this process, new MKR tokens are created and auctioned for DAI. This in turn increases the MKR tokens and reduces the price. 

In this light, MKR holders are incentivised to keep the platform performing optimally in order for it to generate more fees and thereby reduce the MKR supply.

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