The volatility of money—especially within the cryptocurrency ecosystem—has become increasingly pronounced. Cryptocurrencies were designed to revolutionize finance, but their speculative nature and fixed supply often lead to drastic price swings. Maker (MKR) aims to address this instability through a unique dual-token system. Below, we explore the intricacies of Maker, its tokens (MKR and DAI), and their roles in decentralized finance (DeFi).
Maker’s Dual-Token System
Maker operates on two primary tokens, each serving distinct functions:
- Makercoin (MKR): A volatile governance token used to manage the Maker platform.
- Dai (DAI): A stablecoin pegged to the US dollar, ideal for payments, savings, or collateral.
What Is Maker (MKR)?
Maker is a smart contract platform built on Ethereum that introduces stability to the blockchain space. Unlike traditional cryptocurrencies, Maker’s tokens are designed to mitigate volatility through economic incentives and decentralized governance.
Key Features of MKR
- Governance: MKR holders vote on platform upgrades and policies.
- Utility: MKR is used to pay transaction fees for Collateralized Debt Positions (CDPs), which generate DAI.
- Scarcity Mechanism: Fees paid in MKR are burned, reducing supply and potentially increasing value over time.
Circulating Supply: 1,005,577 MKR (as of writing).
What Is Dai (DAI)?
Dai is Maker’s stablecoin, pegged 1:1 to the US dollar. It combines the benefits of cryptocurrency (decentralization, transparency) with the price stability of fiat currency.
How Dai Achieves Stability
- Collateral Backing: Each DAI is overcollateralized by ETH or other approved assets held in smart contracts.
- Market Mechanisms: Automated feedback loops adjust supply/demand to maintain the peg.
- Decentralization: Unlike Tether (USDT), Dai’s issuance is fully decentralized and transparent.
Circulating Supply: 263,134,662 DAI (as of writing).
Comparison: Dai vs. Tether (USDT)
| Feature | Dai (DAI) | Tether (USDT) |
|----------------------------|----------------------------------------|---------------------------------------|
| Backing | Crypto-collateralized (ETH, etc.) | Fiat reserves (allegedly) |
| Decentralization | Fully decentralized | Centralized (Tethed Limited) |
| Blockchain | Ethereum (ERC-20) | Bitcoin (Omni Layer) |
| Transparency | Public smart contracts | Audits disputed |
👉 Explore how Dai’s stability mechanisms outperform centralized stablecoins
How MakerDAO Works: Collateralized Debt Positions (CDPs)
- Deposit Collateral: Users lock ETH or other assets into a CDP smart contract.
- Generate Dai: The system issues DAI based on the collateral’s value (e.g., $150 DAI for $200 ETH).
- Repay to Unlock: To retrieve collateral, users repay the DAI borrowed plus a fee (paid in MKR).
Example: If ETH’s price drops, the CDP may be liquidated to protect Dai’s stability.
Compatible Wallets
While exchanges offer convenience, hardware wallets (e.g., Ledger, Trezor) are recommended for security.
👉 Discover the top hardware wallets for safeguarding MKR and DAI
MakerDAO Team
- Rune Christensen (CEO): Background in biochemistry and international business.
- Andy Milenius (CTO): Former AWS engineer and DappHub contributor.
- Matt Richards (Marketing Director): Ex-Disney and crypto investor.
The team spans 50+ global members, operating as a Decentralized Autonomous Organization (DAO).
FAQs
1. Is Dai truly decentralized?
Yes. Unlike Tether, Dai’s issuance and governance are managed by smart contracts and MKR holders.
2. How is Dai’s peg maintained?
Through CDPs, market arbitrage, and automated feedback mechanisms.
3. Can MKR tokens be mined?
No. MKR is only minted or burned via governance actions or CDP fees.
4. What happens if my CDP is liquidated?
A 13% penalty fee is applied, and leftover collateral is returned after repaying the DAI debt.
5. Is MakerDAO audited?
Yes. Regular audits ensure smart contract security and collateral adequacy.
Conclusion
MakerDAO pioneers decentralized stability with MKR (governance) and Dai (stablecoin). By leveraging overcollateralization and community governance, it offers a trustless alternative to traditional finance.