What is Maker (MKR) in simple words: history, course and how to buy
Maker (MKR) is a cryptocurrency platform built on top of Ethereum. The main goal pursued by the developers is to create a line of decentralized virtual assets, the value of which is directly tied to the price of the means of the material world, such as real currency, non-ferrous metals, etc
A project of this type is called "stablecoin" - a stablecoin. The Maker project itself is a decentralized platform, completely independent. The system has two currencies - Dai, which supports the ERC20 standard and, in fact, Maker or MKR, through which the project is financed.
In the future, on the basis of the Maker platform, the developers plan to launch an exchange for conducting margin trading of coins on the ERC20 protocol.
The company is backed by the Ethereum Foundation, and, according to the developers themselves, is closely intertwined with Ethereum itself.
The need to develop a stable virtual currency has often been expressed by a number of experts and developers. The fact that electronic coins are not backed by tangible assets in any way prevents them from entering the general financial system. In addition, a significant level of volatility does not make it possible to fully use virtual currency as a means of payment.
The goal of the Maker project is precisely to solve these problems. For this, developers create electronic analogs of real currencies. Similar projects have already been launched before. The creators of Maker themselves compare themselves with the following examples:
- Steem Dollar is one of the virtual currencies of the Steemit social network. It has a stable price, is very limited in terms of functionality, so this currency cannot be used everywhere.
- Tether is a project similar to Maker in its properties and focus. The disadvantage is that, according to a large number of experts and users, this site is engaged in emission fraud and is not truly decentralized.
- DigixDAO - this platform was created with the aim of linking cryptocurrency to the value of gold and, according to many experts, is essentially the first stablecoin. However, its release was delayed by a lengthy audit.
Comparison with the above platforms, according to the creators of Maker, confirms the need for work to create a fully sustainable virtual currency . The goal of the project is to develop a fully decentralized self-governing system on the basis of which several stable and secured electronic currencies will function.
The main advantage of the creation of Maker is the decentralization of the virtual currency, in other words, its users are completely financially autonomous and do not depend on the state or financial institutions. This virtual currency can be used in any country in the world without restrictions or control over financial transactions.
Makers own e-currency (MKR), as conceived by the developers, is an investment vehicle that allows users to take an active part in the development of the project. By purchasing these electronic coins, the user can participate in voting and making specific decisions regarding the directions of the project. Subsequently, investors receive income or incur losses along with the company.
The first stable virtual currency that launched in the Maker system was DAI electronic coins. The cryptocurrency was released at the end of 2017. The value of the coin is tied to the dollar exchange rate and is equal to one dollar per coin. However, the creators talk about permissible errors in one direction or another, which can be up to five percent. This margin of error is normal for real currency trading pairs.
DAI algorithms in the Maker system are quite complex. Its functioning is based on collateral positions - CDP. According to the creators themselves, it is often impossible to predict the behavior of market participants, which is irrational and not amenable to the laws of logic. This area will be monitored to analyze the effectiveness and usefulness of the project.
The value of the stable DAI cryptocurrency is tied to the value of the US dollar, so the main goal of this project is not to make money on speculation, but to create stable and reliable virtual means of payment. That is, mainly, the coin can be used to store your savings or make all kinds of payments.
When investing in electronic assets, as a rule, some of the capital is lost due to their significant volatility. Also, part of the funds is lost in the process of converting electronic coins into real money, given the considerable interest paid for the commission. Taking this into account, we can say that DAI is the optimal tool for fixing income. By means of this currency, funds are stored in tokens, the value of which does not change significantly.
The robustness of the DAI coin is not only related to its peg to the US dollar. This currency operates on the basis of smart contracts and CDP technology. DAI is issued at the expense of ETH coins and the formation of collateral positions. Once issued, it can be used just like any other virtual currency.
However, the main currency in the Maker system is not DAI, but MKR, the purpose of which is to attract financial investments. This coin also operates on the basis of the ERC20 protocol. Holders of this token are essentially shareholders of the company, which functions not as an ordinary JSC, but as a decentralized organization.
It is believed that owning shares in the Maker project is very profitable. In fact, the owners of tokens are real power in the Maker system and can make major decisions regarding the development and improvement of the system, its activities and the distribution of the acquired profit.
Token owners, like no one else, are interested in the stable development of the network, which guarantees them the preservation and growth of capital. In other words, for each step taken, shareholders are responsible and risk their own funds invested in cryptocurrency, which is the strongest and most effective incentive factor.
Maker coins are not mineable. They were created primarily to attract maximum attention to the project and its activities, as well as to invest in the project. Through coins, any user can buy a part of the site and directly participate in its activities and improvement. For this, user votes are held, through which token holders influence the development vectors of the network, with the aim of joint efforts to maximize its practicality, profitability and functionality.
It should be borne in mind that by participating in the vote, the user assumes responsibility for the future of the project. This means that the increase or decrease in the price of a cryptocurrency depends literally on each participant in the network. Every user who takes the wrong and irrational step runs the risk of losing their personal financial assets. On the contrary, if they act correctly, their capital only multiplies.
It is safe to say that so far, user actions are leading to positive results. In 2017 alone, the value of the Maker coin increased from twenty dollars to a thousand and a half.
The increase in value is associated with a large number of very different conditions. The emission limit of one million tokens has a significant impact on the price. In addition, it should be borne in mind that some of the coins can be converted into real shares of the project and the number of tokens will become even smaller, which will also have a positive effect on their value.
In general, MKR performs the following functions in the MakerDAO system:
- Payment of the cost of the commission for conducting operations and redemption of collateral.
- Maker coin holders are directly involved in the management of the project and the choice of directions for its development. At the same time, the importance of the opinion of the token holder is directly proportional to the number of coins in their account.
- Through Coin Maker and sophisticated mechanisms, the creators of the network have achieved that the error in the value of the DAI coin does not exceed five percent, which is considered normal even for real currency.
- Maker tokens are used as a vehicle for recapitalization. In other words, in case of system malfunction and transfer of excess funds from the account, the system will automatically compensate for the damage.
How Maker works
Cryptocurrency Maker (MKR) was developed primarily for the purpose of project management and another cryptocurrency - DAI. As already mentioned, the owners of Maker coins are not only investors, but also get the opportunity to directly control the platform. DAI coin is a stable virtual currency, the value of which is pegged to the US dollar rate. In other words, the value of one DAI token will always be one US dollar. At the same time, the developers say that coin owners have the opportunity to change the value in the future by voting. A stable currency is of interest to investors in a bear market, since its value does not change significantly. Therefore, if the price of virtual currency decreases, it can be converted into stablecoin, which allows not to convert it into real currency and thus save money. A natural question may arise, why it is impossible to simply exchange cryptocurrency for dollars and why their virtual analogue is needed. The reason is that not all cryptocurrency exchanges support real currency. In addition, the US dollar is highly dependent on the government system and financial institutions.
The Maker (MKR) essentially acts as the backbone and regulator of the system. The Maker token serves three key purposes:
- internal settlements;
- management implementation;
- project recapitalization fund.
As a control, the Maker Coin is required to vote. Each user with tokens has the opportunity to propose their own options for the further development of the project. Everyone can cast or withdraw their own vote at any time.
Internal settlement refers to the payment by Maker of the cost of transaction fees and other internal payments. Moreover, after using the coin, it disappears, therefore, their number is constantly decreasing.
As mentioned above, the fate of the project largely depends on the rationality and correctness of the decisions of the token holders who manage the system. However, in case of unforeseen circumstances and irregularities in the operation of the system, it provides for the possibility of recapitalization. Thus, the system automatically issues new coins and throws them into circulation in order to make up for financial losses. However, this will affect the value of tokens, so each coin owner is directly responsible for their decisions in managing the system.
Essentially, the mechanism of the project is similar to another platform - Tether, but it bypasses centralized control, since the system is directly supported by the market.
The DAI value is provided autonomously through the use of smart contracts that respond to any changes in the foreign exchange market, and thus always remains at the level of one US dollar. This provides protection and independence from critical changes in the market, which is essential for traders.
Each Dai is backed by a certain valuable asset that is stored on the Secure Maker smart contract platform. Users can freeze their Maker Coins as collateral. This enables DAI to take long-term positions and hold the value of funds that must be sustainable.
Maker advantages and disadvantages
The advantages and disadvantages of Maker should be considered in comparison to other cryptocurrency platforms that run stablecoins. The advantages of the stablecoins themselves are in many respects, obviously, and so. It lies in ease of use combined with a stable value in real currency terms. The main disadvantage is that it is still a cryptocurrency, and not real money, therefore additional risks are associated with it inherent in virtual means of payment.
So, the first advantage of Maker cryptocurrency on the Maker platform is its autonomy and complete transparency. It operates exclusively on the Ethereum blockchain, which ensures its complete transparency. At any time, each user can get acquainted with all the information he is interested in regarding the state of affairs in the Maker system. In other cryptocurrency systems with stablecoins, coins are backed by assets in bank accounts and are located outside the blockchain. Maker users can rest assured that Dais currency is backed by real assets and is fully convertible. All data on the operation of the system is publicly available.
Coin issuance and redemption processes are also fully automated. They are not available for external intervention within the parameters that are controlled by the system. To establish the parameters, a vote is taken by holders of MKR coins, which can also be purchased by anyone at any time.
Dai coins are issued and used by the network members themselves. To form a Dai, the participant needs to create a Collatterized Debt Position (CDP) by sending his ETH to a special smart contract address. The mechanism works as follows:
- The user has to create a CDP and send their ETH to a smart contract address that converts regular ETH into what is called Pooled ETH (PETH). The user then sends the received PETH to CDP, thus gaining the ability to create coins.
- After that, the user determines the number of coins to receive. At the same time, the proportional amount of the collateral for the price is frozen in the CDP and cannot be applied until Dai returns to the smart contract.
- In order to return the deposit, the user needs to return the Dai back, after which they burn out. The user gets his PETH back, which is then converted back to ETH. In addition, the user pays a fee called Stability Fee. It is equal (in the current settings) to half the percentage per annum. Please note that the stability fee is the only part of the Dai system that is paid in Maker DAO (MKR) coins.
Collateral positions have their own risk indicators. When they are reached, the position is closed automatically. This ensures the stability of the collateral through which the Dai is pegged to the dollar. The value of each indicator is determined by a vote of the Maker coin holders. Indicators represent the following values:
- Debt limit - the maximum amount of debt that can be created by one type of collateral position.
- Liquidation ratio - the limit value of the ratio of the value of the collateral to the actual debt in Dai, after reaching which this position will have an increased risk of liquidation. Currently, this figure is 150%.
- Stability Fee - The stability fee mentioned above is payable in Maker Coins. Currently, it is half a percent per annum.
- Liquidation penalty is an additional penalty that the creator of the collateral position pays if the liquidation ratio for his position has been exceeded.
The reason users create margin positions is that by doing so, they are essentially taking a margin position on ETH and if its value increases, they make a decent profit. However, they can use the received Dai for other purposes.
A completely decentralized system needs a mechanism to stabilize both the binding itself and the system in general in case of unforeseen situations. Market incentives serve as a natural system for stabilizing value.
If the price of Dai falls below one dollar, this creates a natural demand from the holders of collateral positions, who can thus redeem their collateral at a lower price. Thus, the price of Dai rises. If the price of Dai exceeds one dollar, this increases the demand for the formation of collateral positions (which are created on the condition of 1 Dai = 1 dollar) with further resale of Dai on the exchange with the acquisition of profit
The second level of network stability is a system called Target Price, Target Rate Feedback Mechanism (TRFM) and Sensitivity Parameter. It makes no sense to describe their functioning in detail, but it must be said that in combination, these mechanisms make it possible to reduce the demand and cost of creating Dai, if its price significantly exceeds the required one, thereby encouraging sales. In the opposite situation, the mechanism raises the cost of creating Dai and motivates users to keep them, increasing demand and increasing the price.
The third level concerns unforeseen situations, if the value of ETH (or other collateral asset) decreases too quickly and the system cannot perform Global Settlement (global settlement). In this case, the owners of the Maker management coins contribute. The system issues new coins and sells them on the open market, recapitalizing and reducing the value of coins for all holders. The right to manage the system thus imposes a huge responsibility for its normal operation.
Global Settlement is a mechanism by which a full refund of the value of the collateral is provided, and it also makes it possible to restart the system with new parameters, new features and improvements.
This mechanism can be activated automatically or through a vote by coin holders. Global settlement stops the system and prevents the creation of new collateral positions. Each Dai holder can receive his collateral asset at the price as at the time of the global settlement.
Considering all of the above, the platform really has a lot of advantages. Despite the fact that the mechanisms of functioning are very complex, they are extremely thought out and reliable. However, the platform also has its weaknesses.
First of all, the system is quite complicated for beginners. While it is very easy to use other, centralized stablecoin platforms due to their extremely simple structure, things are a little different with Dai.
Aside from the usual purchase of cryptocurrency on the exchange, then to work in the Maker system, create collateral positions, issue Dai coins and return them, the user must have at least a superficial knowledge of the Ethereum platform. In addition, you need to own some ETH and spend time mastering the system. Considering that not all users can easily master all of the above, this significantly reduces the number of possible network participants.
The second drawback is that the system runs entirely on the Ethereum blockchain. Thus, all problems and weaknesses of Ethereum automatically apply to Maker. In addition to systemic risks, there are those that relate directly to the source code of the Maker and Dai contracts. In particular, hacker attacks are dangerous. In addition, there are risks associated with the market, such as a sharp decline in the value of ETH, competition with other similar platforms, loss of user confidence in this complex, confusing system, and many others.
Of course, most of the risks are provided by developers and there are certain mechanisms and systems to protect against them. Nevertheless, many of them have not yet been applied in real conditions, and how they will behave in practice is unknown.
How do I buy or sell Maker?
As already mentioned, anyone can create Dai coins in the Maker system. The site provides access to the system to any user who can post a deposit in exchange for Dai. In this case, the coin holder gains the ability to dispose of funds after payment of a promissory note, which includes a proportional cost of the commission required to maintain the stability of Dai.
Maker coins can be bought on the Ethereum blockchain. To do this, you must first purchase bitcoins or ether, which can then be exchanged for Maker. You can store Maker coins in the MEW wallet, which is suitable for storing any tokens created on the Ethereum blockchain. Today Maker can be purchased on the Oasis decentralized exchange (OasisDex), which can be accessed using the Ethereum browser. It is impossible to mine cryptocurrency Maker. The total issue of Maker coins is one million, and there are approximately 618,000 in circulation. In other words, there are about 61% of the total number of coins in circulation, and the owners of the project are 15%.
It should be noted once again that when paying internal fees, coins are irretrievably lost. In other words, over time, their number decreases, which means that the cost should increase.
In addition to these options, coins can also be purchased on such lesser-known cryptocurrency exchanges as KyberNetwork, Ethfinex, as well as OKEx, HitBTC, Gate.io, KuCoin, etc.
At the time of this writing, the Maker exchange rate against the US dollar is $ 499.31 per Maker, against the euro - 442.75 euros, against the Russian ruble - 32 593.54 rubles. Maker has a market cap of $ 499 310 586.
What Maker provides
As mentioned above, the Maker stable token is backed by the US dollar. This process is called tokenization, that is, the emission of an electronic coin, which is the digital equivalent of a real asset.
The Maker platform provides the ability to tokenize real currencies such as dollars, euros or any other. Thus, the real currency provides the virtual one. Moreover, their course will be the same.
The very concept of securing a cryptocurrency is a topic causing controversy in the cryptocurrency community.
On the one hand, some users believe that this is common sense, since collateral makes it more likely to make predictions about profits or losses and more effectively manage their assets.
There is another opinion, according to which the security has no practical meaning. Since 1970, real currency has also not been backed by gold. Thus, the circulation of real money is supported only by the state apparatus. History knows examples of using a variety of assets as currency that were not backed by anything. By and large, even precious metals have such a high value only for the reason that most people agree with this state of affairs.
There is also a group of users who generally believe that the very idea of collateral and the concept of a cryptocurrency are incompatible, since it is assumed that the cryptocurrency has its own value.
Also in the cryptocurrency community, there are different opinions regarding the need to tokenize real currency.
According to some, stablecoins provide an excellent opportunity to preserve their assets, given the high volatility of the cryptocurrency.
Others believe that there is no practical need for tokenization. Moreover, there is an opinion that the creators of such platforms are the most common scammers.
Proponents of tokenization point out that this greatly simplifies the asset management process. For example, instead of physically moving material assets, there is the possibility of a simple transfer of tokens.
However, this argument is untenable in relation to real currency, since convenient tools, such as the banking system and EPS, have long been created to manage it.
The undeniable advantage of tokenization is the ability to make payments without the participation of various intermediaries. In addition, the decentralized system provides the following capabilities:
- Transfers of funds over the blockchain are significantly cheaper than bank transfers. They dont require as many commissions, taxes, fees, etc.
- Unlike the banking system, a blockchain account cannot be frozen, funds on it cannot be confiscated by a court decision, there is no risk of unexpected bankruptcy and the impossibility, in this regard, to receive their own savings.
- Tokenization makes it possible to carry out financial transactions completely confidentially.
The disadvantages of real currency tokenization are the following factors:
- The payment made cannot be canceled. If the user mistakenly sent funds to the wrong account, they are irretrievably lost.
- Practice shows that the theft of funds through hacker attacks is much more common from blockchain accounts, and not from banks. The most common reason is the carelessness of the users themselves. However, since the investor himself is responsible for the safety of his own funds, in the event of theft, there will be no one to make a claim.
In general, the concept of creating stable cryptocurrencies has good support among analysts, users and investors. The Maker system is working on solving one of the main problems that hinder the widespread use of virtual money as a full-fledged means of payment - its insecurity. We wrote about the future of cryptocurrencies in general here .
Nevertheless, a number of experts point to the fact that the Maker idea contradicts the nature of the cryptocurrency, which was approved at the time by Bitcoin. The development of cryptocurrency was considered the creation of digital gold, which has its own value and is ensured by the demand for blockchain technology in the modern world.
The creation of cryptocurrencies pegged to real assets based on the Maker platform is a process of decentralizing their use, but not at all issuance, inflation and other similar processes. In a sense, this is the next stage in the development of the financial system after the creation of electronic payment systems and plastic bank cards.
Based on the success of Dai, the creators of Maker plan to start issuing electronic coins that are analogous to other world currencies. According to many experts, the decentralization of the monetary system provides users with greater financial freedom, so it can be considered a positive factor.
Taking into account that the Maker system operates on the Ethereum blockchain, this project can use all its developments. Users of the system expect improved conditions for the confidentiality of transactions and the execution of smart contracts.
The main advantage that allows us to hope for an increase in the value of the cryptocurrency is the great demand for the technology of secured tokens in society. The fact that the creators of Ethereum themselves are also actively investing in the MakerDAO system speaks volumes.
There is also reason to believe that the value of the cryptocurrency will definitely rise after the Maker developers launch the announced exchange, and also release new tokens pegged to other world currencies besides the US dollar. Since many users are concerned about securing tokens, if the above coins are issued, they should be in high demand. This means that the number of transactions on the Maker platform should increase dramatically, which means that the volume of commission payments that are made in MKR tokens will increase.
There is, of course, some uncertainty as to when the creators of the Maker system will delight the community with all of the above innovations. Currently, the value of MKR is increasing mainly due to the great interest that DAI cryptocurrency is generating. However, sooner or later, the hype will subside and it is impossible to predict what will happen to the Maker course at that time.
In terms of investing in Maker, according to many experts, the platform has considerable potential. The cost tends to increase, although not always dramatically. The emission is limited to one million coins, some of which, moreover, the developers plan to convert into full-fledged shares.
Considering the development and expansion of the system, there are good prospects for investing in Maker with an eye to the long term.