Maker (MKR) Complete Guide - Who is the Real King of DeFi?
What exactly is Maker (MKR)? - From the basics, step by step
Maker (MKR) is, simply put, a 'decentralized bank' that operates on the Ethereum blockchain. However, it is completely different from a regular bank. It is an innovative system that allows loans, deposits, and stable currency issuance without a centralized institution.
The core of the Maker Protocol is the creation of a stablecoin called DAI. DAI is pegged 1:1 to the US dollar, so its price does not go on a roller coaster ride like Bitcoin or Ethereum. Think about it. What if you bought $100 worth of cryptocurrency today and it goes up to $50 tomorrow? That would be scary. That's why we need a stable coin like DAI.
So what is the MKR token? MKR is a 'governance token' that manages and operates this entire system. Simply put, it's like a 'stock' for a company called Maker Protocol. If you have MKR, you can vote on important decisions, and the better the system runs, the more valuable the token becomes.
Maker's Birth Story - How Innovation Began
If you know the history of Maker, you can better understand why this project is special. In 2015, there were no other cryptocurrencies besides Bitcoin. However, Rune Christensen, a developer from Denmark, discovered one problem.
""Cryptocurrencies are too unstable to be used in real economic activities."" Who would want to buy a cup of coffee if the price keeps changing? That's why he decided to create ""a currency that maintains the innovative technology of blockchain while having a stable price.""
In 2017, the first version of DAI was finally released to the world. At first, it only accepted Ethereum as collateral, but it gradually accepted more and more types of cryptocurrencies as collateral. Then in 2019, it released an upgraded version called Multi-Collateral DAI (MCD), which became a real game changer.
Maker took off to a completely different level during the DeFi craze of 2020. At that time, Maker accounted for over 50% of the entire DeFi market. It still reigns as one of the top DeFi protocols today.
How Maker Works - The Secrets of a Magical System
To understand how Maker works, you need to first understand the concept of 'collateralized lending'. It's similar to how we borrow money from a bank using our house as collateral, but here we borrow DAI using cryptocurrency as collateral.
Step 1: Deposit Collateral (Create Vault)
Users deposit Ethereum or other approved cryptocurrencies into the Maker Protocol. This is what is created when a 'Vault' is created. For example, imagine depositing $1,000 worth of Ethereum.
Step 2: Issue DAI
You can issue DAI based on the value of your collateral. However, you won't be lending out 100% of your collateral. Since you usually need to maintain a collateralization ratio of 150% or more, you can issue up to about $666 worth of DAI with $1,000 worth of collateral.
Stage 3: Stability Maintenance Mechanism
This is where the real magic begins! If the price of Ethereum falls and the collateralization ratio reaches a dangerous level, 'liquidation' will automatically begin. At this time, some of the collateral will be automatically sold to recover DAI, and the stability of the system will be maintained.
Stage 4: The Role of MKR
What if there is a problem with the system and the collateral is insufficient? Then, new MKR tokens will be issued to make up for the shortfall. On the other hand, if the system is running well and there is fee income, MKR will be purchased from the market and burned with that income. Then, the total supply of MKR decreases, causing the price to rise.
Let's assume that Mr. A deposited 2 ETH (about 4,000 dollars) as collateral and received 2,000 DAI.
• Collateralization ratio: 200% (safe)
• If the price of ETH falls by 50%, the collateralization ratio becomes 100%, which increases the risk of liquidation
• At this time, the system automatically sells some of the ETH to recover DAI and maintain stability
• Mr. A receives the remaining ETH and DAI minus the fees
Actual use of Maker DAI - Where and how to use it?
The reason why DAI is not simply a 'stable coin' is because there are actually many places to use it. I'll introduce you to things I've personally experienced.
Usage on DeFi platforms
The most representative use is, of course, other DeFi platforms. If you deposit DAI on Compound, you can receive 5-10% annual interest, and you can aim for higher returns on Aave. On DEXs like Uniswap, you can provide liquidity to the DAI/USDC pool and earn fee income.
NFT trading
Nowadays, you can also pay with DAI on OpenSea and other NFT marketplaces. The stability of DAI shines especially when trading large amounts of NFTs. Because you can trade without worrying about price fluctuations.
International remittance
When sending money overseas, if you go through a bank, the fees are high and it takes a long time, but with DAI, you can send money in a few minutes, and at a much lower fee. It is especially widely used in developing countries.
Payment
Some companies pay their employees with DAI. Since it is linked to the dollar, its value is stable, and it can be used anywhere in the world.
In-game currency
DAI is increasingly used as in-game currency in blockchain games. Players can trade items or characters they acquire with DAI, creating real economic value.
Key Partners Connected to Maker - Expanding the Ecosystem
Maker's real power comes from its integrations with various platforms. Partnerships enable things that cannot be done alone.
Major DeFi Protocols
Compound is one of the largest marketplaces for DAI lending. You can borrow or lend DAI here, Aave offers more complex financial products, and Curve Finance allows for efficient exchanges between DAI and other stablecoins.
Centralized Exchanges
You can trade DAI on major exchanges such as Coinbase, Binance, and Kraken. In particular, recently, the number of trading pairs using DAI as a base currency has been increasing, so there are many cases where DAI is used as an intermediary when trading other altcoins.
Payment services
Traditional payment companies such as PayPal and Visa are also considering DAI integration. In some regions, you can already use DAI for online shopping, and even in some physical stores.
Corporate adoption
Although not Tesla, many small and medium-sized companies have started to utilize DAI for their financial management. It is a great tool for reducing exchange rate risk, especially for companies that do business internationally.
The power of the Maker community - the true face of decentralization
The Maker community is truly special. The biggest difference compared to other cryptocurrency projects is that you can 'actually participate in decision-making'.
Governance Voting
MKR token holders can vote on really important decisions. Things like which new collateral to add, how to adjust interest rates, and how to change system parameters. The weekly governance call brings together developers, investors, and users from all over the world to discuss.
Forum and Discord
The official Maker forum is very active. Various topics are discussed, from technical discussions to market analysis and new idea suggestions. Discord allows real-time communication, so it is possible to respond quickly when there are rapid market changes.
Developer Ecosystem
Because Maker is an open source project, anyone can view and contribute to the code. In fact, developers all over the world are writing code, finding bugs, and suggesting new features to improve the Maker Protocol.
Education and Onboarding
The community is actively engaged in education for new users. There are many guides in Korean, and online workshops and AMA (Ask Me Anything) sessions are held regularly.
Setting up a wallet for Maker - A practical guide
To use Maker, you first need a suitable wallet. Here are some recommendations based on my own experience.
MetaMask (most popular)
MetaMask, which can be installed as a browser extension, is the most widely used. It's easy to install and integrates perfectly with the Maker Dashboard. However, you should always keep your seed phrase in a safe place!
Hardware wallets (the most secure)
If you are dealing with large amounts of money, I recommend a hardware wallet like Ledger or Trezor. They are a bit complicated, but they are the most secure. They also work well with Maker.
Mobile wallets
Mobile wallets like Trust Wallet and Coinbase Wallet also support Maker. It's convenient because you can manage DAI on the go, but you need to be more careful about security.
Precautions when setting up
- There are many fake wallet apps, so be sure to download them from the official site
- Write down the seed phrase offline and keep it in a safe place
- Test it with a small amount at first and use a larger amount after you get used to it
- Always hold a small amount of ETH for gas fees (fees)
Risk factors you must know when investing in Maker
To be honest, investing in Maker is not without risk. However, if you know the risks and prepare for them, you can make a smart investment.
Smart contract risk
Maker is made up of complex smart contracts. No matter how many times it has been audited, there is no perfect code. If a critical bug is discovered, there may be a large loss. However, Maker has been operating stably for many years and is continuously upgraded, so it is relatively safe.
Liquidation Risk
Issue DAI