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crypto-basics

What is Maker (MKR)?

Crystal Xue
Crystal Xue

Maker (MKR) is a cryptocurrency token that’s native to MakerDAO and Maker Protocol.¹ The former is an Ethereum-based decentralized credit platform, and the latter is a permissionless autonomous system of smart contracts.² MKR works alongside MakerDAO’s other stablecoin, Dai, whose value is soft-pegged to the US dollar.³

What are the key functions of MKR?

1. Governance

MKR is primarily used as a governance token, meaning its holders can directly participate in the governance of the ecosystem and vote on proposals that affect the use of Dai. Proposals take the form of a smart contract and each MKR token represents one vote when locked in a voting contract. Users can commit their MKR tokens to cast votes, and the top proposal is determined by the number of MKR tokens it receives.³

2. Utility

MKR enables the payment of fees and interest on the Maker platform, including stability fees and liquidation penalties.³ Fees that accrue from collateralized debt positions (CDP) – which allow for the generation of Dai – must be paid for with MKR.

As more DAI is generated, MKR supply will steadily decrease. In theory, when the demand for DAI increases, so too does the demand for MKR.⁴  

3. Recapitalization Resource

Should part of Maker’s collateral portfolio become under-collateralized, Maker will automatically create more MKR tokens to raise capital. This effectively brings more capital into the system and restores solvency.⁴

As of March 2022, the market cap value of MKR stands at USD 1.69 billion.⁵

Sources

  1. MKR Token. Maker DAO.
  2. Foundation. Maker DAO.
  3. What is cryptocurrency Maker and how does it work? Kriptomat.
  4. What is Maker (MKR) and DAI. Unblock.
  5. Maker. CoinMarketCap.

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crypto-basics

Crystal Xue

Crystal Xue is a Content Marketing Manager at Alpaca. She's passionate about financial literacy and creating content that helps investors navigate financial concepts and products.