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Offering a viable stablecoin substitute to Tether, Maker is a smart contract platform that controls and sells Dai. Decentralized and trustless, the Maker platform stabilizes the value of Dai to one U.S. dollar using external market mechanisms and economic incentives.
Eliminating the necessity to trust a centralized organization and the hassle of third-party audits, Maker offers a transparent stablecoin system that is fully inspectable on the Ethereum blockchain.
The Maker Platform has two coins: Makercoin (MKR) and Dai (DAI).
Makercoin – A token with a volatile price that is used to govern the Maker Platform
Dai – A price stable coin that is suitable for payments, savings, or collateral
Similarities
Differences
Due to their immense volatility, normal cryptocurrencies are not ideal for any form of direct payment or use as collateral. To prevent huge fluctuations in value, stablecoins are needed to mitigate the market risk of mercurial crypto-assets.
Dai Stablecoin Uses
Maker covers four broad markets that could benefit from the use of Dai.
MKR has three essential roles on the Maker Platform:
1. Utility Token
You can only use MKR to pay the fees accrued on CDPs that generate Dai in the Maker system. When you pay fees, the MKR is “burned” or removed from the supply. MKR supply will decrease as MKR is burned. If demand for Dai and CDPs increases, the demand for MKR should also increase.
2. Governance Token
MKR holders use the token to vote for the risk management and logistics of the Maker system. Maker’s voting process is done through continuous approval voting.
Continuous approval voting – Every MKR holder can vote for any number of proposals with the MKR he or she holds. Any MKR holder can also submit a new proposal. Voters can withdraw or cast votes for any proposal at any time. The proposal that has the most votes from all MKR holders becomes the “top proposal” and can be activated to implement changes to the risk parameters of the system.
3. Recapitalization Resource
If parts of the collateral portfolio become under-collateralized, the Maker system automatically creates new MKR tokens and sells them on the market. This instantly raises money to capitalize the shortfall of value in the system and brings the entire Maker system back from insolvency. Bad governance will result in the value of all MKR tokens becoming diluted. This creates a penalty system that should align Maker voter’s interests with the interests of the entire Maker system.
For a user to interact with the Maker System, he or she must first create a collateralized debt position.
Collateralized Debt Positions
To create Dai on the Maker Platform, a user must leverage his or her Ethereum in Maker’s unique smart contracts known as Collateralized Debt Positions (CDPs). Although CDPs generate Dai for the user to use, they also accrue interest over time known as the “Stability Fee”.
Currently, Pooled Ether (PETH) is the only collateral type accepted on the Maker Platform. In order to obtain Dai from a CDP, a user must first convert his or her Ether to PETH.
User interaction with a CDP has four basic stages:
Risk Parameters of CDPs
MKR holders vote on four key risk parameters for CDPs to ensure the stability of the Maker System:
The Maker Stablecoin System uses external market factors and economic incentives to peg Dai to the value of a dollar.
Target Price
Dai’s Target Price has two primary functions on the Maker Platform:
Target Rate Feedback Mechanism
In case of severe market instability, the Target Rate Feedback Mechanism (TRFM) can be automated. When turned on, the Dai Stablecoin System adjusts the Target Rate in order to stabilize Dai’s market price closer to the Target Price.
Engaging the TRFM breaks the fixed peg of Dai to the US dollar but changes the Target Rate to incentivize market participants to keep the price of Dai at the Target Price.
Market Price Falls Below Target Price
If the market price of Dai is below the Target Price, TFRM will increase the Target Rate.
An increase in Target Rate causes Dai generation to become more expensive. At the same time, an increased Target Rate causes the capital gains from holding Dai to increase. Increased capital gains will stimulate Dai’s aggregate demand.
An increase in Target Rate will reduce the supply of Dai while simultaneously increasing the demand for Dai. Basic economics should cause Dai’s market price to increase back towards the Target Price.
Market Price Climbs Above Target Price
If the market price of Dai is above the Target Price, TFRM will decrease the Target Rate.
A decrease in Target Rate causes Dai generation to become less expensive. At the same time, a decreased Target Rate will lower capital gains associated with holding Dai. Decreased capital gains will decrease Dai’s aggregate demand.
A decrease in Target Rate will increase the supply of Dai while simultaneously decreasing the demand for Dai. Basic economics should cause Dai’s market price to decrease back towards the Target Price.
Sensitivity Parameter
The stablecoin system’s sensitivity parameter determines the magnitude of Target Rate in response to any change in the market price of Dai.
Anytime the Sensitivity Parameter and the Target Rate are both equal to zero, Dai will be pegged to current Target Price.
Global Settlement
A decentralized last choice option, global settlement guarantees Dai holders receive the Target Price in case of dire emergency. Global settlement slowly shutdowns the entire Maker system and ensures all users receive the net value of assets they are entitled to.
For a global settlement to occur, MKR voters must vote on the situation to ensure a system shutdown is truly necessary. Some cases that may merit a global settlement include long-term market irrationality, a security breach, or system upgrades.
No system is perfect. Maker outlines its biggest risk factors in the implementation of its platform. It also lists its actions to mitigate these risk factors.
As Dai is soft-pegged to the price of one U.S. dollar, it’s not meant for trading. To generate Dai, download an Ethereum browser such as MetaMask and surf over to the Dai platform.
MKR was initially sold in a public forum and had multiple private offerings before moving over to Openledger. Currently, MKR and Dai are sold through the Oasis Decentralized Exchange (OasisDex).
To connect to OasisDex, open an Ethereum browser and navigate to OasisDex.
MKR currently has a circulating supply of 618,228 out of a total supply of 1,000,000.
Both Maker and Dai are standard Ethereum Tokens adhering to the ERC-20 standard. Therefore, Maker and Dai must be stored in an ERC-20 compliant wallet such as MyEtherWallet.
Offering better security than software wallets, hardware wallets such as the Ledger Nano S and Trezor are generally the safest way to store ERC-20 standard tokens.
The first fully decentralized stablecoin on Ethereum, Dai officially went live on December 18th, 2017.
In the next six to twelve months, the Maker Platforms plans to expand the number of collateral types that can be used to generate Dai. At this moment, only Pooled Ethereum can be used to create CDPs and make Dai.
Maker’s development roadmap is quite aggressive and focused on the widespread adoption of Dai over time in multiple blockchain applications.
Founded almost three years ago, MakerDao has quickly grown from a tiny team to over thirty-five team members. MakerDao is lead by Rune Christensen, its CEO and founder.
With the veracity of Tether’s dollar reserves in question, Maker’s Dai provides a viable stablecoin substitute. Maker has created fully inspectable and transparent stablecoin system that is truly decentralized and trustless. The entire blockchain ecosystem should benefit from the launch of Dai.
--
This article is originally posted on CoinCentral.com and was written by Johnny Sessa
Offering a viable stablecoin substitute to Tether, Maker is a smart contract platform that controls and sells Dai. Decentralized and trustless, the Maker platform stabilizes the value of Dai to one U.S. dollar using external market mechanisms and economic incentives.
Eliminating the necessity to trust a centralized organization and the hassle of third-party audits, Maker offers a transparent stablecoin system that is fully inspectable on the Ethereum blockchain.
The Maker Platform has two coins: Makercoin (MKR) and Dai (DAI).
Makercoin – A token with a volatile price that is used to govern the Maker Platform
Dai – A price stable coin that is suitable for payments, savings, or collateral
Similarities
Differences
Due to their immense volatility, normal cryptocurrencies are not ideal for any form of direct payment or use as collateral. To prevent huge fluctuations in value, stablecoins are needed to mitigate the market risk of mercurial crypto-assets.
Dai Stablecoin Uses
Maker covers four broad markets that could benefit from the use of Dai.
MKR has three essential roles on the Maker Platform:
1. Utility Token
You can only use MKR to pay the fees accrued on CDPs that generate Dai in the Maker system. When you pay fees, the MKR is “burned” or removed from the supply. MKR supply will decrease as MKR is burned. If demand for Dai and CDPs increases, the demand for MKR should also increase.
2. Governance Token
MKR holders use the token to vote for the risk management and logistics of the Maker system. Maker’s voting process is done through continuous approval voting.
Continuous approval voting – Every MKR holder can vote for any number of proposals with the MKR he or she holds. Any MKR holder can also submit a new proposal. Voters can withdraw or cast votes for any proposal at any time. The proposal that has the most votes from all MKR holders becomes the “top proposal” and can be activated to implement changes to the risk parameters of the system.
3. Recapitalization Resource
If parts of the collateral portfolio become under-collateralized, the Maker system automatically creates new MKR tokens and sells them on the market. This instantly raises money to capitalize the shortfall of value in the system and brings the entire Maker system back from insolvency. Bad governance will result in the value of all MKR tokens becoming diluted. This creates a penalty system that should align Maker voter’s interests with the interests of the entire Maker system.
For a user to interact with the Maker System, he or she must first create a collateralized debt position.
Collateralized Debt Positions
To create Dai on the Maker Platform, a user must leverage his or her Ethereum in Maker’s unique smart contracts known as Collateralized Debt Positions (CDPs). Although CDPs generate Dai for the user to use, they also accrue interest over time known as the “Stability Fee”.
Currently, Pooled Ether (PETH) is the only collateral type accepted on the Maker Platform. In order to obtain Dai from a CDP, a user must first convert his or her Ether to PETH.
User interaction with a CDP has four basic stages:
Risk Parameters of CDPs
MKR holders vote on four key risk parameters for CDPs to ensure the stability of the Maker System:
The Maker Stablecoin System uses external market factors and economic incentives to peg Dai to the value of a dollar.
Target Price
Dai’s Target Price has two primary functions on the Maker Platform:
Target Rate Feedback Mechanism
In case of severe market instability, the Target Rate Feedback Mechanism (TRFM) can be automated. When turned on, the Dai Stablecoin System adjusts the Target Rate in order to stabilize Dai’s market price closer to the Target Price.
Engaging the TRFM breaks the fixed peg of Dai to the US dollar but changes the Target Rate to incentivize market participants to keep the price of Dai at the Target Price.
Market Price Falls Below Target Price
If the market price of Dai is below the Target Price, TFRM will increase the Target Rate.
An increase in Target Rate causes Dai generation to become more expensive. At the same time, an increased Target Rate causes the capital gains from holding Dai to increase. Increased capital gains will stimulate Dai’s aggregate demand.
An increase in Target Rate will reduce the supply of Dai while simultaneously increasing the demand for Dai. Basic economics should cause Dai’s market price to increase back towards the Target Price.
Market Price Climbs Above Target Price
If the market price of Dai is above the Target Price, TFRM will decrease the Target Rate.
A decrease in Target Rate causes Dai generation to become less expensive. At the same time, a decreased Target Rate will lower capital gains associated with holding Dai. Decreased capital gains will decrease Dai’s aggregate demand.
A decrease in Target Rate will increase the supply of Dai while simultaneously decreasing the demand for Dai. Basic economics should cause Dai’s market price to decrease back towards the Target Price.
Sensitivity Parameter
The stablecoin system’s sensitivity parameter determines the magnitude of Target Rate in response to any change in the market price of Dai.
Anytime the Sensitivity Parameter and the Target Rate are both equal to zero, Dai will be pegged to current Target Price.
Global Settlement
A decentralized last choice option, global settlement guarantees Dai holders receive the Target Price in case of dire emergency. Global settlement slowly shutdowns the entire Maker system and ensures all users receive the net value of assets they are entitled to.
For a global settlement to occur, MKR voters must vote on the situation to ensure a system shutdown is truly necessary. Some cases that may merit a global settlement include long-term market irrationality, a security breach, or system upgrades.
No system is perfect. Maker outlines its biggest risk factors in the implementation of its platform. It also lists its actions to mitigate these risk factors.
As Dai is soft-pegged to the price of one U.S. dollar, it’s not meant for trading. To generate Dai, download an Ethereum browser such as MetaMask and surf over to the Dai platform.
MKR was initially sold in a public forum and had multiple private offerings before moving over to Openledger. Currently, MKR and Dai are sold through the Oasis Decentralized Exchange (OasisDex).
To connect to OasisDex, open an Ethereum browser and navigate to OasisDex.
MKR currently has a circulating supply of 618,228 out of a total supply of 1,000,000.
Both Maker and Dai are standard Ethereum Tokens adhering to the ERC-20 standard. Therefore, Maker and Dai must be stored in an ERC-20 compliant wallet such as MyEtherWallet.
Offering better security than software wallets, hardware wallets such as the Ledger Nano S and Trezor are generally the safest way to store ERC-20 standard tokens.
The first fully decentralized stablecoin on Ethereum, Dai officially went live on December 18th, 2017.
In the next six to twelve months, the Maker Platforms plans to expand the number of collateral types that can be used to generate Dai. At this moment, only Pooled Ethereum can be used to create CDPs and make Dai.
Maker’s development roadmap is quite aggressive and focused on the widespread adoption of Dai over time in multiple blockchain applications.
Founded almost three years ago, MakerDao has quickly grown from a tiny team to over thirty-five team members. MakerDao is lead by Rune Christensen, its CEO and founder.
With the veracity of Tether’s dollar reserves in question, Maker’s Dai provides a viable stablecoin substitute. Maker has created fully inspectable and transparent stablecoin system that is truly decentralized and trustless. The entire blockchain ecosystem should benefit from the launch of Dai.
--
This article is originally posted on CoinCentral.com and was written by Johnny Sessa
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