Maker (MKR) is a token that gives voting rights to the borrowing system that is used to generate the decentralized stable coin Dai.
Or in more detail, MakerDAO is a DAO (a decentralized autonomous organization), Maker (MKR) is a token that gives voting rights and fluctuates in value, and Dai is the stable coin created using Maker’s lending system. The website is https://makerdao.com, check it out.
“Maker is comprised of a decentralized stablecoin, collateral loans, and community governance.”
In all cases, the gist is this:
The Maker system lets you borrow against other crypto assets (for now only ETH, but later any Ethereum-based asset, including wrapped versions of other coins and potentially even digital securities; this is called “multi-collateral Dai”).
To borrow using ETH as an example, the borrower locks ETH up as collateral in a “Collateralized Debt Position or CDP” and then gets Dai (a stable coin, backed by the collateral) in return based on the value of ETH.
The borrower can then use this Dai for whatever they might use it for (to buy more ETH, to pay bills, etc), or they can HODL their Dai and get a kickback called the Dai Savings Rate.
Then, when they are ready, they can close the position and get their ETH back by paying back the loan plus a small stability fee.
Dai goes into and out of circulation this way, new Dai is created when borrowed, and old Dai is taken out of circulation when returned.
This system is very cool, but it doesn’t explain why MKR exists.
MKR exists because MKR gives anyone holding MKR voting rights over the entire system described above.
For more, read the official “The Dai Stablecoin System” from the Whitepaper.
How Does Dai Hold its Peg? Dai holds its peg, in theory, by always being backed by collateral. In Tether we trust the company Tehter to be backed by dollars. With Dai, we can check smart contracts and confirm Dai is backed by ETH deposited via CDPs. This doesn’t technically ensure it holds its peg, but it does create a strong foundation. Otherwise MKR holders can vote to raise or lower rates to affect the Dai supply (sort of like the Fed would do with the US dollar).