|We recommend to buy MKR at Kucoin Exchange|
This review would be unusual, as it would be dedicated to two cryptocurrencies at the same time. They are interconnected as parts of the one ecosystem, though their roles are different. Dai is a stablecoin, and Maker is a utility token, that allows the community governance over Dai. The grand idea behind this ecosystem is quite complex, so let’s go step-by-step.
What is stablecoin?
High volatility is one of the factors slowing down the wider adoption of cryptocurrencies. For example, it’s not uncommon for Bitcoin price to change by 5% a day. Many altcoins may experience even stronger price volatility. Many businesses hardly are able to maintain operations effectively while using a highly volatile currency.
The solution the blockchain industry has come up with is stablecoins. Stablecoins are cryptocurrencies with the fixed price. Usually, a price of stablecoin is $1 (though nothing prevents the creation of a stablecoin pegged to €1 or £1). In the real world, however, the price of a stable coin may not be exactly $1 (for example, USDT price floats between $0.99 and $1.02, and historical record shows even bigger deviations). Apart from that, the USD itself is influenced by inflation.
In other words, the stablecoins are not an absolutely stable measure, but rather a tool to minimize the volatility usual for cryptocurrencies. But apart from debatable stability, stablecoins are often criticized for lack of decentralized governance. As decentralization is the vital feature of blockchain adoption, being centralized limits the use and popularity of stablecoins among the global blockchain community. The stablecoin list includes TUSD, USDT, GUSD, and others.
Concept: Stablecoin with a decentralized governance system
Dai (ticker DAI) is an asset-backed stablecoin. It stands out from other stablecoins by having a decentralized governance system. Dai price is designed to be as close to $1 as possible. This rate is ensured by the supply control system, built into the Ethereum-based smart contract.
The Maker token (MKR) is a smart contract platform on Ethereum. MKR holders are able to participate in the governance of the ecosystem. MKR tokens are also used to pay transaction fees. MKR tokens are created or destroyed depending on DAI price fluctuations. The goal of such actions is to keep DAI as close to $1 as possible.
To put it simply, DAI is a decentralized stablecoin, and MKR ensures DAI decentralized governance and $1 price. This simultaneously resolves the two fundamental issues for the whole blockchain industry—volatility and decentralization.
The whole concept gives a solid solution for building the new digital decentralized economy. The range of potential use cases is wide. It may be even wider than Bitcoin has, as the volatility of the oldest cryptocurrency is still quite high, and not industries may adapt to it.
The Dai/Maker ecosystem has the medium-sized international team. The HQ is located in Santa Cruz, California. Let’s take a look at some of the key members of the team.
Rune Christensen, the Founder, and CEO. Previously, co-founded Try China, a company providing international recruiting.
Steven Becker, President, and COO. A professional with a background in risk management.
Coulter Mulligan, Head of Marketing. Had marketing positions in multiple companies, including GoPro and Tesla.
Quite good social media activity on the main social media channels such as Twitter and Reddit. Regular updates to keep the community informed. The Twitter account has more than 25k followers and 7+k on Reddit.
The Maker website traffic rank is higher than other stablecoins have, and search results are good as well. Evidence of better media attention (or deep knowledge of SEO). Anyway, spreading awareness in crypto space is vital for community growth, which benefits the whole ecosystem.
As for ecosystem partnerships, Maker has some interesting ones. For example, cryptocurrencies Swarm and OmiseGo, blockchain infrastructure projects such as Wyre and Switchain. Moreover, Maker is backed up by Andreessen Horowitz (or a16z), the known venture capital firm from Silicon Valley.
DAI is a stablecoin pegged to the US dollar. It is the first decentralized stablecoin. The decentralization is ensured by the Maker (MKR) token. Maker is Ethereum-based smart contract platform that backs and stabilizes the value of Dai through a dynamic system of Collateralized Debt Positions (CDPs), autonomous feedback mechanisms, and appropriately incentivized external actors. Each Dai coin is backed by collateral and pegged to the U.S. dollar. Contrary to Dai, the MKR token price is free floating, and there is no specific price it is designed to have.
Collateralized Debt Positions are special smart contracts on the Maker platform. CDPs hold collateral assets deposited by a user and permit this user to generate Dai, but generating Dai also accrues debt. An essential part of CDP retrieving the collateral. To perform it, users have to pay down the debt in the CDP and the stability fee that continuously accrues on the debt over time. The stability fee is paid in MKR tokens.
MKR holders are able to govern the ecosystem. The governance mechanism is a voting system, that decides multiple aspects of the ecosystem: adding new CDP types, adjusting DAI savings rate, and others. MKR token is automatically created or destroyed with Dai price fluctuations in order to stabilize Dai and keep it close to $1.
The platform has several security mechanisms. The last line of defence is Emergency Shutdown. This process stops the platform and ensures, that all holder can receive the net value of assets they are entitled to. This process will be started in case of an attack, or if the network will require an upgrade. There is a part of the Whitepaper dedicated to risk management and mitigation, so security of the platform is paid decent attention to.
Maker & Dai Summary
Dai is a stablecoin, but it has a huge advantage over other stablecoins—decentralization. Maker is a tool that ensures that Dai has both decentralized governance and stable price, so the value of Maker is interconnected with the success of Dai. We believe that this ecosystem is a groundbreaking technical solution among stablecoins.
Unsurprisingly, the risks for Maker and Dai are related to the Dai stablecoin nature. Stablecoins are innovative, and it’s still hard to predict the role of stablecoins in the future. The main risk here is their ability to become a popular and used alternative to both fiat and cryptocurrencies with no fixed price. So far, stablecoins are primarily used as trading tools, not as a currency for daily use. Centralization issue, which Dai has solved, was only one among the factors slowing down the adoption of stablecoins. As Maker and Dai offer a cutting-edge solution in the majorly undiscovered area, it’s hard to predict actual adoption in the future.
However, as the project, Maker and Dai have the potential to become a game changer and affect the whole blockchain industry. The more use Dai will get the more valued would become Maker as the unique tool for Dai decentralized governance. Thus, we believe that Maker is among the undervalued cryptocurrencies.