Before DeFi was even a thing, Maker was already popular. With the rise of decentralized finance applications (DeFi), the cryptocurrency space has seen a drastic growth in a short span of time and Maker is the primary pioneer of DeFi applications. Meanwhile, the world of cryptocurrency is dynamic, and every moment sees new use cases emerging for different purposes. The high volatility of cryptocurrency has also posed different challenges for users and crypto investors, leading to the creation of stablecoins which can hopefully ‘stabilize’ the volatility.
What is Maker?
MakerDAO is a Decentralized Autonomous Organization (DAO) founded by Rune Christensen in 2014. Maker ($MKR) serves as its governance token and is powered by the Ethereum blockchain.
The Maker ecosystem utilizes smart contracts to execute transactions in the protocol. Additionally, it uses the fractional reserve banking approach to ensure that its stablecoin ($DAI) remains stable.
As an ERC-20 token, MRK is not mined. Its holders are given voting rights to the collateralization on the platform. As governments who have a stake in the protocol, they are incentivized to vote on changes that could benefit the Maker ecosystem. After all, poor governance would lead to the devaluation of MKR.
The Collateralized Debt Position (CDP) makes the provision for liquidity possible when dealing with crypto assets. The idea is to provide crypto investors and traders with a decentralized platform that is suitable for margin trading. Some unique things about the Maker platform include lower prices compared to other margin trading platforms, flexibility, and improved security.
What is the difference between $MKR and $DAI?
Maker ($MKR) was created to function as a utility token for a blockchain-based platform for P2P transfers and international payments. To avoid the volatility of the crypto market, a stablecoin called “DAI” was created and connected to Maker.
Collateralized Debt Position (CDP) and its uses
The value is based on the ability of the investor or trader to get liquidity without giving out their ETH tokens. It is important to protect the DAI from loss of value by depositing more than 140% of the DAI coins.
MKR tokens are needed to perform the transactions with the aid of smart contracts. When the CPD gets closed, or if there is a repayment of the DAI, the stability fee gets paid as MKR.
Furthermore, after each transaction MKR gets burned. Which invariably means that the circulating supply of MKR tokens will reduce over time. An increase in MKR’s popularity will increase the demand and number of burned MKR tokens, and result in a price increase.
Uses of MKR
The MKR network has four major use cases, including usages by the participants within the network. It is important to note that MKR and DAI are the two tokens used within the Maker ecosystem. Here are the four major uses:
Traders can utilize MKR as leverage for the ETH they own
Crypto investors and traders can use MKR if they think that the price of ETH at that moment is undervalued. While anticipating the coin’s rise, they make some ETH deposits with MKR, have a CDP, and get DAI in return.
They can make other ETH trades with DAI. When the ETH they own is leveraged, it is kept locked-up to get more ETH and make profits from the increase in price.
A liquidity creation tool that helps avoid capital gains tax
Some crypto users may be subject to capital gains tax on their earnings from cryptocurrency trades and investments. Crypto traders that have made a fortune need to secure their profits from the high volatility of digital currencies like ETH.
MKR provides an effective solution through ETH deposited for DAI which is pegged with the exchange rate of the US dollar. The benefit is that you avoid paying tax because your money is available in a profitable and stable cryptocurrency.
A cheap way to facilitate the repayment of costly fiat loans, with crypto loans
A crypto trader or investor can deposit their ETH in order to get loans at favorable rates. This helps them boycott the expensive loan fees and interest rates of traditional banks.
For crypto investors without CDP
Another use case of the MKR token is by crypto investors who are interested in the token. However, their interest in the token does not involve creating a CDP; rather they own the tokens to sell later.
MKR tokens are created to promote financial freedom while eliminating volatility.
Markets that can benefit from MKR
MKR comes with some flexibility that makes it perfect for some markets, and these markets include:
The introduction of smart contracts to facilitate the operations of derivatives and options helps collateralized stable prices. Decentralized trading tools are provided at zero interest rates, and are facilitated by the implementation of CDPs by MKR.
Transparent Auditing Frameworks
By default, the underlying blockchain technology promotes transparency. However, MKR’s platform takes transparency further with verifiable transactions. Organizations are provided with a framework that helps improve efficiency in their auditing and accounting operations. The transparency in the system mitigates corruption.
One irregularity with performing international transactions is the high cost, which can be attributed to the presence of intermediaries. With MKR and DAI, intermediaries are taken off the equation in exchange for seamless person to person international transactions at reduced costs.
The volatility of the crypto market does not make long-term betting with crypto an advisable venture to try. The underlying risks involved include a drop in the rate and price of crypto assets.
Where to buy MKR
As opposed to some years ago when MKR was not available on popular exchanges, it is pretty much available almost everywhere. You can buy from Changelly, ShapeShift, OKEx, Nova Exchange, HitBTC, Binance, CoinBase Pro, BiBox, MXC, etc.
Getting signed up to start trading is easy and straightforward too.
Cryptocurrency is on the path to mass adoption, and unique blockchain-based platforms like Maker are strategically positioned for it. With more use cases of cryptocurrency and blockchain technology emerging, owners of the MKR token are likely to enjoy more profitability.
Maker MKR has the right framework and underlying technology to tackle the issue of high volatility within the crypto market. In comparison to regular cryptocurrency, MKR poses fewer risks because of its stability mechanism.
Decentralised Finance (DeFi) series: tutorials, guides and more
With content for both beginners and more advanced users, check out our YouTube DeFi series containing tutorials on the ESSENTIAL TOOLS you need for trading in the DeFi space e.g. MetaMask and Uniswap. We also take a deep dive into popular DeFi topics such as Yearn.finance ($YFI), Balancer ($BAL) and ($COMP).
The DeFi series on this website also covers topics not explored in YouTube. For an introduction on what is DeFi, check out Decentralized Finance (DeFi) Overview: A guide to the HOTTEST trend in cryptocurrency
Learn about Yearn.finance ($YFI) and all its various hard forks and iterations:
- Yearn.finance ($YFI) farming with yEarn Pool
- YFII Yield Farming- the controversial $YFI Fork
- YFFI Yield Farming – Another fork of the popular yield farming Dapp
- Andre Cronje, Founder of yEarn.Finance ($YFI) talks DeFi with FTX
For in-depth information other specific DeFi projects, check out our DeFi token guides:
- 0x ($ZRX) guide: The future of cryptocurrency exchanges?
- AAVE ($LEND)
- Ampleforth ($AMPL) review: The essential guide to this DeFi protocol
- Bella Protocol ($BEL): One-click crypto banking
- Balancer Finance Guide and Review ($BAL)
- ChainLink ($LINK) guide: A key link in the DeFi space
- Compound Finance ($COMP)? A guide to hacks and tips on the latest DeFi platform
- Cream Finance ($CREAM): What is it?
- Curve Finance ($CRV) guide
- DeFi Money Market and DMM Governance ($DMG) guide
- FalconSwap ($FSW) Guide
- Fuse Network ($FUSE): What is it?
- Hedget ($HGET): Does it live up to the hype?
- Kusama ($KSM): How is it Polkadot’s wild cousin?
- Linear Finance ($LINA): The future of synthetic exchange platforms?
- Mantra DAO ($OM): The DeFi project that’s all about community
- OIN Finance ($OIN): DeFi’s first foray into Ontology
- Orion Protocol ($ORN) explained
- Polkadot ($DOT): Everything you need to know about the DeFi darling of China
- RAMP DeFi: How does it unlock the value of staked assets?
- Rio DeFi ($RFUEL): The next frontier of finance?
- Serum ($SRM): First look at FTX’s new DEX for the DeFi wave
- Solana ($SOL) explained
- SushiSwap ($SUSHI) explained
- Synthetix ($SNX): Everything you need to know about this top DeFi project
- THORChain ($RUNE) information and guide
- Trustswap ($SWAP) explained- Next generation of DeFi transactions
- YF Link ($YFL): Combining the best of ChainLink ($LINK) and Yearn Finance ($YFI)?
- YFV Finance Yield Farming
Tutorials and guides for the ESSENTIAL DEFI TOOLS:
- MetaMask Guide: How to set up an account? PLUS tips and hacks for advanced users
- Uniswap review and tutorial: Beginners guide and advanced tips and tricks
More videos and articles are coming soon as part of our DeFi series, so be sure to SUBSCRIBE to our Youtube channel and (for now) FREE weekly newsletter so you can be notified as soon as they come out!
The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.