Maker Coin (MKR) Explained
What is Maker Coin MKR?
Maker is one of the early coins released on the Ethereum blockchain. It is also the most valuable ERC20 coin (coin for coin) in the entire cryptocurrency top 50. Maker coin waits in the wings to provide value to a project that produces DAI, a coin which is always valued at $1. This concept is complex in its execution, but some early investors in Maker MKR only care about the current Maker coin price: over $700, with a past all time high of almost $1,300, after a debut at just over $20. Anyone who understands those numbers knows that Maker has been a wild ride for investors, and the Maker coin price has provided incredible profits for many. But why and how does this work? Read on and we'll explain.
How Does Dai Coin Relate to Maker?All right, let's review. Maker exists as part of a larger system that involves a stability coin called DAI. You can't understand Maker without understanding DAI. DAI's "stability" means that the DAI price is always set at $1, no matter what. But where does DAI's value come from, and how is this different than Tether? You'll remember that Tether claims to be backed by US Dollars, one Dollar for every Tether. But there are more than 2 Billion Tethers out there, and Tether has never proven they actually have this money. Users just have to hope and trust that it's true and that the whole system doesn't one day crash and burn. Maker coin and DAI solve this problem. To use DAI, a user has to deposit other cryptocurrencies or digital assets as "collateral". Then, they get issued a certain amount of DAI, in proportion to how much collateral they've locked away in the Maker smart contract. Think of this as the trader financing her own loan. So why would anyone do this? Well, a stable currency is very helpful for traders. Say you want to buy NEO, but only if the price hits $60. You can wait and hope, but when NEO prices dip it usually means the entire cryptocurrency dips with it. The crypto that the user would be saving to buy NEO would lose value just like NEO, meaning that it did no good to wait and save. However, a price stable coin could hold value no matter what the market did. When things dip, buy with the stable coin. Profit! There are other uses for DAI, but this is the big one. However, what would happen to DAI's value if the coins used as collateral to back it were to suddenly lose their value? Would the whole system collapse?
Maker Coin Saves the Day
If collateral currency prices crash, new Maker coins are issued, and these are sold to make up the difference. In this case the Maker coin price goes down, because there are more Maker MKR coins in circulation. However, if the collateral currency prices stay the same or go up, Maker coins aren't needed much at all. Maker MKR coins are then destroyed, raising the price of investors' MKR. By a lot! There are only around 600,000 MKR in circulation. That's absolutely tiny for cryptocurrency. Bitcoin has a relatively small supply at 17 million, and Maker coins represent only about 3.5% of that value! As Maker has become more used, this has driven the price of individual MKR coins up and up and up, with no sign of stopping. The coins only lost value recently because the crypto market crashed, and yet they are still expensive at $700+. The whole Maker system is based on the expectation that cryptocurrency is going to thrive in the future. In this case, Maker won't have to bail out the DAI collateral. Instead, MKR owners will be getting rich, and enjoying the right to use their MKR holdings for voting power in the Maker community. There's a lot more to learn about Maker coin MKR, DAI coin, and the Maker system at large. You're free to dig into the Maker whitepaper and online communities for more details. It's a deep rabbit hole.