About Maker (MKR)

Maker Frequently Asked Questions (FAQ)

What is the primary function of the Maker (MKR) token within the MakerDAO ecosystem?


The primary function of the Maker (MKR) token within the MakerDAO ecosystem is to facilitate governance and maintain the stability of the DAI stablecoin. MKR holders have voting rights to participate in decision-making processes regarding the management of the Maker Protocol, including risk parameters and smart contract upgrades. Additionally, MKR is used to pay stability fees (akin to interest payments) by users of the system and is burnt in the process, aiming to align incentives and ensure the integrity of the DAI peg to its targeted value.




How does Maker (MKR) allow its holders to influence the Maker Protocol?


MKR holders have governance rights within the Maker Protocol, allowing them to vote on critical decisions such as smart contract risk parameters and the addition of new collateral types. Votes are weighted by the amount of MKR that is staked, thus MKR acts as a governance token enabling collective decision-making and protocol steering.




Who founded MakerDAO and what is their background?


MakerDAO was founded by Rune Christensen. He is from Denmark and has a background in biochemistry and international business. Prior to MakerDAO, Christensen was involved in various startups and projects related to e-commerce and supply chain management.




What makes Maker's DAI stablecoin stand out in the decentralized finance (DeFi) market?


Maker's DAI stablecoin stands out in the DeFi market due to its collateral-backed structure, where assets deposited by users provide backing for DAI, ensuring its value remains stable. It's a decentralized, unbiased currency free from volatility typically associated with cryptocurrencies. Additionally, the MakerDAO community governs DAI, promoting transparency and democratic decision-making.




Is there a cap on the total supply of Maker (MKR) tokens?


There is not a fixed cap on the total supply of Maker (MKR) tokens. The supply is dynamically managed through a system of governance and smart contracts that can create or destroy tokens in response to economic factors.




How does the Maker Protocol maintain the stability of DAI's value against the US dollar?


The Maker Protocol maintains DAI's stability through a system of collateralized debt positions (CDPs), autonomous feedback mechanisms, and external economic incentives. Users lock collateral (such as ETH) in smart contracts, which allows them to generate DAI. The system ensures that the value of the locked collateral is higher than the value of the DAI created, maintaining over-collateralization. Automated stability mechanisms, such as the Stability Fee (interest rate) and the DAI Savings Rate, adjust to market conditions to incentivize the holding or burning of DAI to keep its value close to $1. These mechanisms work together to expand or contract DAI supply in response to price fluctuations, aiming to achieve a soft peg to the US dollar.




What mechanisms does the Maker system use to adjust the supply of MKR tokens in circulation?


The Maker system primarily uses a stability fee, paid by DAI borrowers, which is partially used to buy back and burn MKR tokens; this reduces the supply. Additionally, if the system debt exceeds surplus, new MKR tokens can be minted and sold to cover the deficit, increasing the supply.




How is the security of the Maker network ensured?


The security of the Maker network is ensured through a combination of its decentralized governance, rigorous smart contract audits, a formal verification process to mathematically prove the correctness of contracts, and a multi-layered security protocol for its stablecoin, DAI. The network is maintained by MKR token holders who have a vested interest in the system's security and are incentivized to act honestly. Security is also reinforced by the resilience of the underlying Ethereum blockchain.




What voting rights do MKR token holders possess in the governance of the DAI stablecoin?


MKR token holders have voting rights to participate in governance decisions of the Maker Protocol, which includes adjusting policy for the DAI stablecoin. This includes voting on collateral types, risk parameters, stability fees, and upgrades to the system.




Can new MKR tokens be minted or existing tokens destroyed, and under what conditions?


Yes, new MKR tokens can be minted and existing tokens can be destroyed. New MKR is minted through the MakerDAO system to cover unpaid Stability Fees if the system becomes undercapitalized. Conversely, MKR is burned (destroyed) when Stability Fees are paid by users of the system. This process is governed by the smart contracts of the MakerDAO ecosystem.