MakerDAO: Governing Stability In The Crypto Economy

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The cryptocurrency economy is characterized by its volatility, with coin prices surging up and down in the blink of an eye. MakerDAO intends to change that, by introducing a new degree of stability to the marketplace.

MakerDAO believes that a decentralized stablecoin is required to have anyone fully realize the advantages of digital money. Their solution, the Maker Protocol employs a two-token system to achieve this vision:

Dai (DAI) – A collateral-backed stablecoin that offers stability in itself.
MKR (MKR) – A governance token, used to maintain the protocol and manage Dai

What is dai?

DAI is an ERC20 token on the Ethereum blockchain, pegged to the US dollar, so that 1 DAI = 1 USD. Dai is the currency used for money lending on MakerDAO. When you take out a loan, Dai is created. When you pay it back, it’s destroyed. Dai can be backed by multiple collateral assets, including Ethereum and Basic Attention Token (BAT).

There are two fundamental differences between dai and other stablecoins such as Tether (USDT).

First, dai is not backed by fiat reserves held in a bank like its other stablecoin counterparts. Second, dai’s transparency can be seen on the blockchain at all times, as opposed to needing an audit to verify its position.

So, if dai is money, what does that make MKR?

The Maker Protocol is governed democratically, and MKR allows those who hold it to vote on changes to the protocol itself.

In practice, this means that if you hold MKR, you have the power to decide key parameters of the protocol. These parameters include stability fee rates, the types of collateral which back dai, and their rates.

As an MKR holder, your vote can decide to:

Add a new collateral asset type
Change the risk parameters of one or more existing collateral asset types, or add new parameters to one or more existing collateral asset types.
Modify the Dai Savings Rate.
Choose the set of Oracle Feeds.
Choose the set of Emergency Oracles.
Trigger Emergency Shutdown.
Upgrade the system.

Learn more about the project and its governance here.

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