Crypto Corner: a profile on MKR

It’s time for another Crypto Corner profile, with this week’s spotlight on MKR. We introduced this token to the Wirex app in May, but to refresh your memory, let’s take a more in-depth look at what it’s all about.

What’s it all about?

The MKR token is a utility, governance and recapitalisation resource for the Maker decentralised autonomous organisation (DAO). MakerDAO is a protocol that runs on the Ethereum blockchain, which issues the DAI stablecoin and facilitates collateral-backed loans without the need for a bank or financial intermediary.

Crypto loans are well-known for distributing funds almost instantly and providing a service to those who may not be able to access traditional banking systems. However, as crypto can be extremely volatile, the amount borrowed and the amount paid back can change drastically over time. To tackle this, MakerDAO combines loans with DAI to allow anyone to borrow money and be able to predict how much they need to pay back.

MakerDAO accepts any Ethereum-based tokens as collateral. A user will lock their assets (e.g. ETH) into a smart contract and can then create a certain amount of DAI. When they’re ready to unlock their assets, they simply pay back the loan and any additional fees on top.

If the collateral’s value drops below a certain point, the loan is liquidated. This means that the asset used as collateral is sold off to repay the borrowed DAI and its fees.

What can you do with MKR?

While DAI is often considered to be the primary service of MakerDAO, its native MKR token actually powers the protocol.

The token can be used for many different purposes. In terms of utility, MKR is required for paying fees given on collateralised debt positions (CDPs) in the system. Only MKR can be used to pay these fees, and tokens are burned once they’re paid off.

MKR also acts as a governance token, as holders use it to carry out votes on key decisions that influence how DAI can be used. For instance, choosing which cryptocurrencies can be locked into the protocol or the amount of these assets that will be sold in liquidation. This process is called the Executive Process, which can only be executed once a Proposal Polling process is carried out first, as this helps holders to understand a proposal before any changes are made.

Finally, in the event of collateral portfolios becoming uncollateralised, MKR triggers an automatic recapitalisation response. This involves the system creating new MKR tokens and selling them on the market in order to raise money to recapitalise the lack of value and prevent a collapse.

Don’t forget that MKR is available to buy and exchange at exclusive OTC rates in the Wirex app, and spent in real life with the Wirex card.

Who came up with the idea?

The Maker protocol was created and launched in 2015 by Rune Christensen and his team of developers. Two years later, the team raised $12 million from selling MKR tokens to a number of firms, including Andreessen Horowitz, Polychain Capital and 1Confirmation.

Any fun facts?

In 2014, a year before Maker was launched, the founders were active on the BitShares community. They even considered launching their project on the platform but found that BitShares lacked the sophistication needed for its system. Fortunately, it was only a year later that the Ethereum blockchain was launched and the team found the perfect network to launch their highly-anticipated project.