Oct 13, 2018 at 13:25
Oct 13, 2018 at 13:25 UTC
If you were playing the word association game for crypto enthusiasts and someone said “stablecoin!”, you’d probably blurt out “Tether“, for that is the most common stablecoin the crypto world has known till now. However, Tether has major transparency issues and is often linked with Bitcoin price manipulation. All this calls its well-advertised claim of stability to question. “Then what’s next?”, you’d probably ask. The answer to that question comes in the form of Maker, who have come up with a stablecoin powered by the Ethereum blockchain and supported by a dual-coin framework. How does that work you ask? Let’s break it down by having a look at the 10 key features of the Maker coin.
1. Duality: Maker works on a two-token system with MKR and DAI being its two coins. Both these tokens are created according to ERC-20 standards and make use of Ethereum as a trading pair.
2. Backed by both USD and Ether: The DAI token is pegged to the US Dollar, and the smart contracts are designed to ensure that the value of one DAI is always equal to that of one USD, no matter what the market situation is. The Maker token is backed by Ether and allowed to fluctuate freely. Basically, an Ether (ETH) is covered in a token that is compliant and then moved into the MKR. After this, the user finds his/her account credited with equivalent amount of DAI tokens. In the same way, users can choose, any time, to have their DAI exchanged for ETH.
3. Soft-pegged: Halfway between being completely fixed against a specific currency and having a freely floating rate of exchange, these coins are soft-pegged to ensure that if ever the USD comes crashing down, DAI won’t follow suit.
4. Powered by Ethereum Blockchain : The MKR and DAI coins exist on a decentralized ecosystem which exists entirely on the Ethereum blockchain. MKR serves as the coin that provides collaterals and transaction fees for the running of the system.
5. Decentralized: Unlike Tether, no centralised authority exists to provide backing up the value of the Maker coins. Even its USD pegging is not dependent on validation by a traditional financial institution like a bank. DAI coins exist solely within the Ethereum ecosystem and smart contracts ensure all changes are controlled by preset stipulations. No individual person or corporate entity controls the Maker coins and it is not subject to any governmental control or regulatory adherence simply because of its inherent nature. Since there is no need to trust any authority figure, Maker remains completely decentralized.
6. Easy Access: Any person who has a registered wallet with the Ethereum network can have ownership, purchasing and transferring rights over these tokens.
7. Democratic, with Voting Rights: Any person who holds MKR tokens earns rights to vote in Maker’s continuous approval system. As poor governance can lead to devaluation, MKR owners are automatically encouraged to vote fairly. Apart from being decentralized, the Maker system is also entirely democratic.
8. Last Resort System: Those who hold the MKR tokens are obliged to buy DAI tokens as a last resort in case the system fails. Therefore, this is a further reason for them to keep the network running fairly and democratically.
9. Stable and Transparent: A very obvious feature of the Maker coins is that they are extremely stable, and mostly manage to escape the high levels of volatility that usually affect the cryptocurrency market and cause them to peak and plummet with little warning. Even when inflation and exchange rates shift around, the swings in price based in fiat currencies are never too wild to be untenable. Since Maker DAI is soft-pegged to the USD, it has a layer of protection against crypto volatility and a second layer of protection against any volatility that might affect the USD itself.
The platform is also far more transparent than Tether because it provides open access to two years worth of records of its meetings, on the MakerDAO SoundCloud.
10. Generated on Demand: A Maker DAI coin is not mined in the way a Bitcoin (BTC) is. It is generated upon demand, in exchange for the ETH tokens the user already holds. For DAI to be protected against chances of both inflation and deflation, it is accounted for by exchanging a higher number ETH tokens for a given number of DAI coins. The ETH is then tied up in the form of something called the CDP. Collateralized Debt Position, as CDP stands for, is nothing but a smart contract enabling program to separate the user’s equity value in the system.
Therefore, with all these exciting features that promise to make Maker a stable, decentralized, transparent and democratic form of cryptocurrency, the MKR and DAI tokens are hopefully looking at a bright future ahead.