What is Maker (MKR)
Maker is a decentralized autonomous organization project based on Ethereum network to stabilize the Dai stable coin by reducing its price volatility.
Maker coin is pegged to one US dollar and the Dai team hopes to keep the Dai system solvent by making some adjustments on the platform.
When there’s no solvency in the Dai project, the organization prints out new MKR tokens and sells them to gain funds for funding the DAO project. Unlike DAI, Maker has price volatility with its price fluctuating with changes in the use of Dai.
Mining of MKR coins is not possible. Instead, investors can only purchase the coins on major exchanges such as Bibox exchange.
A brief history of Maker (MKR)
It is of importance to note that Maker was the first token on the Ethereum platform that could be tradable back in 2015. After that, Maker launched its platform in April 2016. Before the launch of Maker’s platform, issuance of funds was carried out through the exchange of Ethereum and Bitcoin for the MKR tokens.
It was in December 2017 that Maker made its breakthrough by creating the Dai token that could be linked to the US dollar at a stable 1:1 ratio.
How maker works
The Maker platform operates under the DAO principles which implies that the platform uses artificial intelligence to enable Maker to carries out self-regulation and stabilization of Dai. However, the Maker platform does not only rely on bots to run but also uses human intervention.
Human intelligence helps in formulating policies and implementations for the network.
For any investor to access the Maker system, a Collateralized Debt Position is first created, and clearing of the total debt is made before he/she can gain full access to Dai. The same procedure is followed when clients convert their Ethereum coins through the pooled Ether.
Below is a step-by-step guide of the entire process
- Creation of the CDP and deposit of collateral
Once a CDP user transacts on Maker, the system sends a transaction to gain funds equivalent to the amount and collateral type that’s required to generate a Dai. Upon reaching this point, the CDP is fully collateralized, and any information that’s related to that transaction gets stored on the blockchain.
2. Generating DAI
DAI is created from the collateralized CDP. After getting the collateralized CDP, the user then sends another transaction requesting for the retrieval of the Dai amount they wish for, and a similar simultaneous amount of debt accrues on the CDP. This measure helps to ensure that investors do not get the chance to withdraw their funds before they can pay back the debt.
3. Payment of the debt and stability fee
For an investor to withdraw his/her deposited collateral, they have to pay up the CDP debt and the stability fee that accrues on the debt with time. A user can only pay the stability fee using the Maker token. Upon payment of the debt and stability fee, the user’s collateral becomes accessible.
4. Withdrawal of the collateral and closure of the CDP
This is the last process in the use of the maker system. Once the debt reconciliation is complete, users can retrieve their collateral and store them on their Maker wallet. A user can decide to withdraw part or the whole collateral.
How Maker tokens can be of use
- It is a fact that stablecoins such as Dai are far superior compared to traditional cryptocurrencies when it comes to commercial usage. Dai is stable which makes it suitable for use in financial markets hence ie. through offering commercial loans to users of Maker.
- Dai can also be used in retail and commerce because it lacks price volatility like in traditional cryptocurrencies. Most cryptocurrency holders fail to use their coins in fear of missing potential growths in the market; this is not the case in Dai since the users have the assurance that the price of Dai will remain the same. As a result, many people prefer owning stablecoins.
- The Maker platform provides leverage and liquidity for OasisDEX, an ERC20 exchange platform that trades all Ethereum-based tokens.
Buying Marker tokens
If you are a first-time investor in the maker system, then you should keep the following tips in mind.
• Carefully select a popular and reputable exchange platform for purchasing your coins
• Always keep it in mind that cryptocurrency trade is a risky venture so be careful
• Put in place a 2-factor authentication for the exchange you choose, this will boost the security of your funds.
It is important to note that Maker never had an ICO; Instead, they placed their coin into the market with the support of private deals and Bitshares. At first, Maker was only made available to investors through a private exchange to attract well-intentioned investors, and for security reasons. Their privatized entrance into the cryptocurrency market gave them a major boost, MKR was able to attain a market cap of $600 million and trading volumes of up to $1 million daily on February 2018.
Investors can store MKR in either cold or hot wallets. Cold wallets are hardware wallets such as Ledger and Trezor. Cold wallets are physical wallets, with most of them resembling USB devices, that are stored offline and plugged into computers when one wishes to access their wallet. Generally, cold wallets provide more security than hot wallets.
On the other hand, hot wallets are connected to the internet. They can either be online web wallets, application or software or accounts hosted on exchanges. Hot wallets are lesser secure than cold wallets because they are easily susceptible to hacking; MetaMask is an excellent example of a cold wallet. However, an investor can also use a cold wallet as a hot wallet. You can easily find several guides that will help you learn how to turn your cold wallet into a hot wallet.