Prices of cryptocurrencies are highly unpredictable and they frequently fluctuate. Consider Bitcoin – the current market value of this coin is around USD 30,365.9 as of 19th April 2023. When the epidemic hit in April 2020 and rattled global markets, the same asset traded for less than USD 7,000, and by November 2021, Bitcoin had risen to almost USD 67,000.
Stablecoins are a solution to this problem of extreme volatility. These digital currencies, such as the US dollar, are pegged to a stable value to reduce price volatility. And Maker’s decentralized autonomous organization (DAO) and stablecoins (MKR and DAI) are an attempt to solve these issues.
In this article, let us find out What Is Maker (MKR) and all about it before you decide to invest in it.
What is Maker coin?
Maker (MKR) is an Ethereum-based smart contract platform that promises to address market volatility. It forms the backbone of a blockchain-based banking system of the future that facilitates instantaneous and cheap cross-border transactions between individuals. As a collateral-backed cryptocurrency, the DAI Stablecoin is the target of this effort. Maker’s proprietary Collateralized Debt Positions smart contracts are the key to this success.
Anyone with access to Ethereum can use the platform to create DAI by leveraging their existing holdings. Once a user acquires DAI, they can give it to another person, use it to buy things online or in-store or save it as a long-term investment.
Recognizing the Dual System of Maker
Understanding the platform’s dual coin mechanism is the first step in understanding its inner workings. There are two official cryptocurrencies on the Maker platform: Makercoin (MKR) and Dai Stablecoin (DAI). DAI is built for payments, savings, and collaterals and has fairly regular pricing, whereas Makercoin is utilized to control the network as a whole.
The DAI was established to shield MKR from the extreme swings in the market. The exchange rate for one DAI is one US dollar. DAI’s decentralized nature makes it well-suited for use in the financial sector, the casino industry, open accounting systems, and cross-border commerce.
What purpose does Makercoin (MKR) serve?
MKR is not a stablecoin like DAI; hence its value fluctuates. The coin is essential to the platform’s supply mechanisms and ecology. It’s multipurpose, acting as both a medium of exchange and a medium of governance for a network. The different charges for creating DAI are paid for with MKR. MKR is burned whenever transaction fees are settled. The supply of MKR influences the demand for DAI.
Holders of MKR also have a say in how the Maker system handles risks and conducts operations.
How does this system function?
Collateralized Debt Positions (CDP) are Maker’s smart contract system. Users must deposit collateral assets, which are owned by CDPs, to create DAI. A user also incurs debt while generating DAI. Until the debt is repaid and the collateral is withdrawn, the assets deposited by the user are effectively locked inside the CDP. It’s important to remember that the collateral value is always greater than the amount of DAI produced (and the importance of accruing debt).
Buying and Selling Maker
You can purchase both Maker and DAI via a cryptocurrency exchange. This is the method to utilize if you wish to buy, sell, or exchange Bitcoin for other cryptocurrencies or the US currency. Suppose you need clarification about where to buy or sell cryptocurrencies like MKR, DAI, etc. A crypto brokerage can help. Unlike cryptocurrency exchanges, they are user-friendly and subject to oversight.
If you want to invest in Maker and keep them safe long-term, you can use a hardware or a software wallet. Hardware wallets are more secure, but their higher price tag may put off casual or casually wealthy investors. Software wallets, on the other hand, typically cost less. Since DAI’s value is unlikely to fluctuate considerably, it would be better to invest in MKR.
Conclusion
Each potential investor must make up their mind about whether or not a given financial item is worthwhile. Now that you have gained a headstart on this cryptocurrency, you can conduct thorough research about the MakerDAO project and its potential future performance before making a call on the MKR coin.