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Simply Explained: Maker (MKR)

January 19, 2023
January 19, 2023

Maker is one of the best-known projects in the decentralised finance world. Maker DAO was one of the earliest projects on the DeFi scene. It launched in December 2017 with the primary focus of bringing the DAI stablecoin into existence.

Maker’s proposition allows holders to participate in the governance of the Maker DAO ecosystem, which includes the stablecoin, DAI. Every holder of Maker tokens has the right to vote on governance proposals. The holder’s voting power depends on the amount of MKR staked. 

Let’s dive in a little further to find out how voting works and why it matters.


What is Maker (MKR)?

MKR is an ERC-20 token native to the Maker Protocol. MKR is a governance token used for determining Maker’s on-chain governance and DAO processes, and forming consensus on Maker’s community goals. By owning MKR tokens, holders can participate in Maker’s decision-making process. 


What is DAI stablecoin?

DAI is a decentralised stablecoin pegged to the dollar, governed by MakerDAO. It is backed by a treasury of Bitcoin, Ethereum and other assets deposited into smart-contract vaults every time new DAI are minted. MakerDAO manages the issuance and development of DAI.


How is MKR used to govern?

Holders can submit and vote on proposals presented by others, including things such as: adding new collateral types, changing saving rates for DAI, upgrading the platform, and determining which oracles (sources) will be used to bring data on-chain.


MKR, a utility token

As a utility token, MKR is required to pay the fees accrued on collateral that have been used to generate DAI. Only MKR can pay these fees; when paid, the MKR is burned and removed from the supply.


MKR, a recapitalisation resource

Maker’s design will always remain over-collateralised. However, as a backup plan in unforeseen circumstances, parts of the collateral can become under-collateralised. When this happens, automatic recapitalisation is triggered. New MKR tokens are minted and sold in the market, raising money to recapitalise the shortfall of value in the system and bring it back from insolvency. 


Thanks for reading.


Disclaimer: Not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.


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