What is Maker (MKR) / Dai?

Maker (MKR) is a token that gives voting rights to the borrowing and lending system 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 and borrowing system. The website is https://makerdao.com, check it out, there your learn about Oasis.App (where you can borrow and lend).

“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 (ETH, LINK, BAT, etc).

To borrow using ETH as an example, the borrower locks ETH up as collateral in a Maker Vault 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 “save” their Dai and get a kickback paid in Dai 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 or check out the MakerDAO Community’s “learn” section of their website.

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 Vaults. 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 “dai stability rates” (interest rates on borrowing Dai) to affect the Dai supply (sort of like the Fed would do with the US dollar) or make other changes to the system.

Does MKR Pay Dividends? MKR doesn’t pay dividends, but there is an incentive built into the system for MKR holders. Part of Dai collected from Vaults each year is tallied up in MKR and removed from the system (MKR’s supply decreases as Vaults are closed; which in theory should raise the value of MKR over time). With that noted, if needed more MKR can be printed, so if for example, something goes wrong, the MKR supply can increase (in theory lowering the value of MKR). This thread on the Maker DAO reddit explains it well.

Author: Thomas DeMichele

Thomas DeMichele has been working in the cryptocurrency information space since 2015 when CryptocurrencyFacts.com was created. He has contributed to MakerDAO, Alpha Bot (the number one crypto bot on Discord),...