What is Maker (MKR) in Crypto?

Since 2015, MakerDAO has brought developers worldwide to work on early development. In December 2017, MakerDAO released its first white paper, introducing the Dai Stablecoin System, initially called Sai.

Now known as the Maker Protocol, this system allows various Ethereum-based assets to be used as collateral. These assets are approved by MKR token holders, who also vote on the rules for each collateral type. This voting process is crucial for MakerDAO's decentralised governance, helping to keep the system secure and responsive to the community's needs.

This article will provide an overview of MakerDAO and its native token, MKR, explaining how they contribute to stablecoins and decentralized finance.

What is MakerDAO?

MakerDAO is a decentralized project focused on making the cryptocurrency world more stable. It uses two types of tokens: Dai, a stablecoin that keeps its value steady, and MKR, a token that gives its holders the power to make decisions about how the system is run. The idea is that by having a stable digital currency (Dai) and a strong governance system (MKR), both businesses and individuals can fully benefit from digital money.

MakerDAO aims to open up the world of decentralized finance (DeFi) to everyone, making it easier for people to access the global financial market without barriers.

The latest update to MakerDAO, called Multi Collateral Dai (MCD), introduces several key features:

• It allows a variety of Ethereum-based assets to be used as collateral for generating Dai, as long as MKR holders approve these assets and set the rules for using them.
• A new version of the Dai token has been introduced.
• There are more options for what can be used as collateral in the system, starting with Ethereum (ETH) and Basic Attention Token (BAT).
• To manage collateral, users can go to a platform called Oasis Borrow.
• There's a new Dai Savings Rate (DSR) feature, which lets users earn interest on their Dai through Oasis Earn.
• The system has improved mechanisms to keep Dai's value stable, with MKR tokens acting as a safety net.
• Fees for maintaining stability are now collected more frequently, which helps manage the system better.

Despite these changes, the way MKR token holders govern the system stays the same. Oasis Trade is also introduced as a place to trade tokens easily. In short, the MCD update makes MakerDAO's system more flexible and user-friendly, encouraging wider participation in decentralized finance.

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MKR Token

The MKR token, central to the governance of the Maker Protocol, empowers its holders with voting rights on crucial protocol decisions. It's important to note that while only MKR holders can vote, anyone can propose changes for consideration.

To safeguard against potentially harmful proposals, the Governance Security Module (GSM) can be activated, imposing up to a 24-hour delay on implementing any approved changes. This delay allows MKR holders to respond proactively to any malicious attempts to alter the protocol in detrimental ways, such as modifying collateral parameters against established policies or disabling security features, by potentially initiating a Shutdown.

Governance Process: Polling and Executive Voting

The governance model incorporates two main stages: proposal polling and Executive Voting. Polling gauges the community's sentiment, laying the groundwork for a consensus before proceeding to Executive Voting, which determines the approval or rejection of proposed changes to the protocol's operation.

At the heart of this process are smart contracts—specifically, the Proposal Contract for each vote. These are one-time-use contracts that, once executed, apply their programmed changes to the protocol's governance variables and cannot be reused.

Engagement in Governance

Any Ethereum Address can introduce valid Proposal Contracts. MKR holders then vote to select the Active Proposal, which, upon gaining the highest approval votes, is authorized to adjust the protocol's governance variables.

MKR Token’s Additional Role: Recapitalization

Beyond governance, MKR serves a critical role in the protocol's financial health. Should the system's debt outpace its surplus, the supply of MKR can be increased through a Debt Auction to recapitalize, incentivizing holders to govern wisely and minimize risk.

MKR Holder Responsibilities

MKR holders have the responsibility to:

• Approve new collateral assets, each with specific Risk Parameters.
• Adjust existing Risk Parameters or introduce new ones for collateral assets.
• Modify the Dai Savings Rate.
• Select Oracle Feeds and Emergency Oracles.
• Initiate Emergency Shutdown.
• Implement system upgrades.
• Allocate funds from the Maker Buffer for operational needs, such as Oracle infrastructure and risk management research. 

The Maker governance framework is designed for flexibility and adaptability, with the potential for more complex Proposal Contracts in the future, as decided by the MKR holder community. This could include bundled proposals, addressing multiple aspects of the protocol in a single vote, and ensuring the system remains responsive and evolves in line with community guidance.

Conclusion

Maker (MKR) plays a foundational role in the MakerDAO ecosystem, serving as the governance token that drives the decentralized decision-making process. It enables MKR holders to vote on key aspects of the protocol, from approving new collateral types to adjusting financial parameters that ensure the stability and security of the Dai stablecoin. Beyond governance, MKR also acts as a financial backstop, with mechanisms in place to recapitalize the system in case of deficits, thereby aligning the interests of MKR holders with the long-term health of the protocol. Through this comprehensive governance model, MakerDAO not only promotes financial stability and innovation in the DeFi space but also paves the way for a more inclusive and accessible global financial system.