What Is Maker (MKR) ?

MakerDAO is an open-source decentralized autonomous organization (DAO) created on the Ethereum blockchain with the aim of providing stability to cryptocurrencies. The project issues a governance token called MKR, allowing individuals worldwide holding this token to participate in project governance. MakerDAO's primary functions include offering lending services and issuing the stablecoin DAI within the decentralized finance (DeFi) ecosystem.

DAI is a cryptocurrency pegged to the US dollar, and its value endorsement and price stability are achieved through collateral assets deposited into the Maker vault. MKR holders engage in decentralized governance processes, participating in crucial decisions such as adjusting collateral requirements and interest rates. Investors holding MKR tokens control various elements of the protocol, including the collateral amount supporting each Collateralized Debt Position (CDP), stability fees, annual loan fees, or collateral ratios. Additionally, MKR holders play a role in decisions like implementing a protocol-wide emergency shutdown mechanism in the event of a significant Ethereum price decline.

History of Maker (MKR)

Who Created Maker?

MakerDAO is a decentralized global reserve bank founded by Rune Christensen in 2014, operating on the Ethereum blockchain. It is not only an open-source project but also a decentralized autonomous organization (DAO). Team members consist of community members worldwide who are responsible for driving the project's development and governance, as well as formulating various proposals and decisions.

History

• In 2014, Rune Christensen, along with Nikolai Mushegian and Matt Richards, co-founded MakerDAO with the goal of creating the decentralized stablecoin DAI.
• In 2017, the DAI stablecoin was officially launched on the Ethereum network.
• In 2018, the Maker Foundation was established to drive ecosystem growth and decentralized development.
• In 2019, the Maker protocol introduced Multi-Collateral DAI, allowing support for DAI with collateral other than Ethereum (ETH).
• In 2023, the MakerDAO team launched the V2 version, introducing new features and improvements, including Dai Savings Rate (DSR) and the Peg Stabilization Module (PSM), enabling stablecoins to issue Dai at a 1:1 ratio without paying stability fees. In the same year, the founder of MakerDAO proposed the "Endgame Plan" to achieve full decentralization of MakerDAO, enhance Dai liquidity and stability, improve protocol sustainability, reduce system risks, and enhance decentralized governance and DAO operations.

How Does Maker (MKR) Work?

The Maker Protocol is a financial system utilizing Ethereum smart contracts, providing collateralization, lending, and governance functions. Its goal is to achieve efficient financial process automation.

The core functionality of the Maker Protocol involves collateralizing various cryptocurrencies to obtain a loan in the stablecoin DAI. In this process, the value of collateral must exceed the loan amount. This requirement for overcollateralization is in place to mitigate the risk of market collapses in Ethereum or underlying tokens supporting DAI, such as Wrapped Bitcoin (WBTC), and USD stablecoins like USDC and USDP.

The Maker Protocol

The Maker Protocol operates as a Multi-Collateral DAI (MCD) system, allowing users to obtain DAI by collateralizing approved assets through Maker governance. The governance process of the Maker Protocol is community-operated, overseeing various aspects of the protocol.

Maker Protocol creates new DAI through smart contracts called Maker Vaults. Users can access these smart contracts through various interfaces and applications, such as Oasis Borrow and Instadapp. To retrieve their collateralized cryptocurrency, users must repay the generated DAI along with a stability fee.

Maker Vaults

Maker Vaults are smart contracts within the Maker Protocol that allow users to generate DAI using accepted collateral assets. Users can access the Maker Protocol and establish Vaults through various user interfaces like Oasis Borrow, with additional interfaces provided by the community. Generating DAI incurs repayment obligations, along with paying a stability fee to unlock collateral in the Vault.

These Vaults are non-custodial, enabling users to interact directly with the Maker Protocol and Vaults. As long as the collateral value remains above the required minimum level, users have full control over the collateral deposited.

External Agents

The operation of the Maker Protocol relies on several external agents.

Keepers:Independent entities providing liquidity and incentivized through arbitrage opportunities.

Oracle Price Feeds:The protocol utilizes decentralized oracle infrastructure to obtain the latest market prices of collateral assets in Maker Vaults.

Emergency Oracles:Serving as a last line of defense against governance attacks or other oracles.

DAO Teams:Individuals and service providers responsible for ensuring the normal operation of governance-related tasks.

Governance

Maker Protocol uses MKR tokens for governance. Change proposals are adopted in the form of smart contracts, and any Ethereum address can submit a proposal. Subsequently, the MKR holder community votes on proposals, with the Ethereum address holding the most MKR approving the proposal, gaining the power to implement changes to the Maker Protocol.On the Maker platform, formal voting is equivalent to holding MKR tokens. The more MKR tokens an individual holds, the greater their influence on platform decisions. The Maker governance model also includes an emergency shutdown process, which can be activated by an individual holding at least 50,000 MKR tokens in case of suspected or potential takeover events. The threshold of 50,000 MKR tokens represents approximately 5% of the total token supply, allowing even smaller participants on the platform to trigger the shutdown. Maker employs a combination of on-chain and off-chain approaches in its governance mechanism.Off-chain GovernanceMaker's off-chain governance relies on its online resources, including the Maker DAO discussion forum and the Maker chat application. These channels allow anyone to propose and discuss ideas, especially the forum. Ideas that gain enough initial consensus through these channels can proceed to on-chain consideration.On-chain GovernanceMaker utilizes two main on-chain governance mechanisms: governance voting and executive voting. Governance voting occurs regularly to gauge MKR holders' attitudes on various topics, including those extensively discussed off-chain and under consideration for further decision-making. However, voting results do not affect the protocol's status.Executive voting, conducted by MKR holders, is a formal on-chain vote used to decide changes to the protocol. These can be proposed by any platform stakeholder at any time, but only MKR holders have voting rights during executive voting. While executive voting may be based on governance voting results, it is not necessarily so. Maker has established an informal culture of a structured flow from off-chain discussion to governance voting and then to executive voting.

Endgame

The Endgame Plan of MakerDAO aims to improve and refine its governance and token economic model. The plan consists of five stages:

1. Beta Release In this stage, the plan establishes a brand-new unified brand with its stablecoin and governance token. This brand, different from the existing DAI and MKR, addresses issues associated with dispersed branding. Individuals can choose to retain the original tokens or transition to the new stablecoin and governance tokens.

2. SubDAO Release Following the Beta release, the plan establishes six Maker SubDAOs, each with its own governance tokens. These SubDAOs can operate autonomously outside of Maker but remain connected to its mission and protocol. Some SubDAOs have already been launched in the SubDAO Genesis event in Seoul.

3. Governance AI Tools Release In the third stage, AI-driven tools for governance are created and launched, aiming to ensure active participation of holders of the new governance tokens in the governance process.

4. Governance Participation Incentives Release The fourth stage introduces the Sagittarius Lockstake Engine, representing the Endgame roadmap. The design of this engine aims to ensure active participation of holders of the new governance tokens in the governance process.

5. NewChain Release and Final Endgame State The final stage of the Endgame roadmap involves releasing a rebranded new chain. This new chain will establish a persistent balance of decentralization, sustainability, and decentralization in the fundamental operations of MakerDAO, serving as the central hub for all backend tools facilitating MakerDAO functions. This stage aims to ensure MakerDAO's promotion of widespread adoption of DAI over the next three years while maintaining a balanced governance structure.

Tokenomics

Token Utility

The MKR token in MakerDAO serves two main purposes: governance and stabilizing the system. As a governance token, MKR holders can participate in MakerDAO's governance decisions, such as voting to modify DAI savings rates, adjusting collateral requirements, and interest rates, among other decisions. Additionally, MKR has a unique function: when the price of DAI fluctuates, MKR token holders are required to stabilize the DAI price through the buyback and burning of MKR tokens. When the collateral in the system is insufficient to cover the value of DAI, MKR creates new DAI to compensate for the value.

Token Distribution

The total supply of MAKER is 1,005,577.

• Founders & Project: 69.50% of the total token supply
• Team: 15.00% of the total token supply
• Seed Round 1: 4.00% of the total token supply
• Seed Round 2: 6.00% of the total token supply
• Seed Round 3: 5.50% of the total token supply

The existing total supply of MKR can vary based on the operational status of the system. For instance, if the platform incurs losses, MKR may need to be diluted as a source of funds, potentially increasing the total supply of MKR. Conversely, if the platform operates well, the total amount of MKR will decrease because MKR will be burned in exchange for DAI.

Additionally, under MakerDAO's new Endgame plan, there will be changes to the tokenomic model of MKR. Maker Core will annually issue 60,000 MKR tokens, which will be used to support SubDAOs. The emission of MKR will serve two different purposes based on whether the SubDAOs tokens are undervalued or overvalued. If the SubDAOs tokens are undervalued, Maker Core will accumulate SubElixir (a new token composed of 50% SubDao tokens and 50% MKR). If the SubDAOs tokens are overvalued, Maker Core will accumulate Elixir to distribute to SubDAOs (a new token composed of 50% DAI and 50% MKR). In both cases, the newly issued MKR will enter the liquidity pool.

Why Is Maker (MKR) Valuable?

The value of MakerDAO lies in providing a decentralized lending and savings solution, along with issuing the stablecoin Dai (DAI) and the governance token Maker (MKR). MakerDAO creates the Dai stablecoin on the Ethereum blockchain, aiming to maintain a one-to-one value peg with the US dollar. Unlike other stablecoins, Dai's collateral is composed of approved crypto assets, such as Ethereum (ETH), by MKR token holders, rather than traditional fiat currencies from central banks. Users can generate Dai stablecoins by locking collateral assets in the smart contracts of the MakerDAO platform, achieving decentralized and collateralized stability.

Furthermore, MKR tokens support the stability of Dai and contribute to the governance of the system. MakerDAO and Dai have gained popularity in the decentralized finance (DeFi) ecosystem, being used for lending, trading, and serving as a stable value store in the volatile world of cryptocurrencies. MakerDAO maintains network decentralization through the governance of MKR holders, who vote on decisions like interest rates, loan issuance, etc., incentivizing user behavior for a healthier and more stable network. Thus, the value of MakerDAO lies in providing a stable lending and savings solution for cryptocurrency users while ensuring system transparency and stability through decentralized governance.