Maker is a smart contract developed on the Ethereum network. Its principal function is to support and strengthen DAI’s value and use a sophisticated and dynamic CDP system with autonomous feedback systems and external actors.
Keeping in mind the DAI’s price volatility, MKR tokens are created and subsequently destroyed. The token’s primary goal is to keep the DAI value close to USD 1.
MKR tokens are also used to pay Maker system transaction fees and grant holders voting rights. It lets users actively contribute to the Maker smart contract and its native cryptocurrency MKR.
The Maker uses the Ethereum network to handle and manage its Stablecoin DAI (an ERC-20 token). Maker DAI is a trust-based stablecoin. A Stablecoin is a cryptocurrency whose coins connect to an asset. DAI’s base asset is the US Dollar. A Stablecoin’s design is to solve a significant issue that cryptocurrencies suffer – volatility.
Dai is decentralized and collateralized. It strives to strengthen the Maker Protocol’s security, transparency, and trustworthiness. Dai (DAI) is an Ethereum (ETH) stablecoin that tries to keep USD 1.00. Unlike other stablecoins, US dollars do not back DAI coins. Instead, MKR collateral supports it on the Maker platform.
However, DAI develops on the Maker platform, unlike other stablecoins. DAI’s value proposition is that it combines a stablecoin’s stability with the decentralized Ethereum blockchain’s truthfulness.
Maker DAI allows anyone can deposit ETH as collateral and create new DAI tokens by starting a CDP. These DAIs can trade on secondary exchanges against multiple cryptocurrencies and fiat currencies.
Its native MKR token carries out and finance transactions on the ETH-based Maker Blockchain. The focus is on building CDPs to issue DAI tokens (Centralized Debt Positions).
When redeeming CDPs, MKR tokens shall pay the stability fee. MKR coins help administer and build the Maker Protocol and govern collateral.
What MKR-DAI Relationship Adds to the Table
Decentralized Governance: MKR token holders controls the Maker Protocol, the smart contracts that power Dai.
Low volatility financial freedom: Users can rapidly generate DAI on their terms. As a result, one can gain liquidity without giving up any ETH tokens.
Limited supply, and growing demand: MKR burns with each transaction, so the total quantity of MKR coins in circulation will decrease over time. Like Bitcoin, the value of MKR and DAI projects rises as supply decreases.
Rapidly expanding ecosystem: Wallets, DeFi platforms, gaming, and other applications have all integrated Dai into an exploding ecosystem.
After a period of significant volatility in the early days of euphoria, MKR has begun to trade with lower volatility. MKR has gained 13.2% this year, starting at $433.2 and ending at $513.9 (UTC close on Sep 28).
Furthermore, the more popular MKR or DAI gets, the higher demand for MKR and the quantity of MKR destroyed — leading to a significant jump in MKR price. With that, MKR has solid support around $500, followed by $455, and resistance around $600, followed by $670.
However, DAI has been relatively constant around $1 ($1.02 as of Sep 28 close); therefore, significant fluctuations above and below $1 should have monitoring in addition to the DAI’s primary usage.
As stated previously, the relationship between DAI and MKR appears to be based on DAI’s market cap and MKR’s pricing. This year, DAI market cap and MKR price have also correlated +40%, with MKR showing a beta sensitivity of $0.26 for every $1M increase in DAI market cap.
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