In the world of digital currencies, mainstream digital currencies such as Bitcoin and Ethereum are extremely volatile, which makes investors often choose to convert funds into stablecoins for hedging when faced with market uncertainty. USDT is one of the most well-known stablecoins currently, and today we are going to focus on the MKR token.
What is MKR?
MKR is the abbreviation of MakerDAO token, which is issued by Maker, a decentralized autonomous organization (DAO). Maker is a blockchain built on Ethereum that aims to minimize price fluctuations between its own stable currency Dai and the International Monetary Fund's international currency basket. Dai is benchmarked against the U.S. dollar, which means 1 Dai = 1 U.S. dollar. Dai is a cryptocurrency that automatically adjusts to exchange rate changes in international markets to stabilize its value against the world's major currencies.
MKR coin is the management token and utility token of the Maker system, used to pay Dai's stability fees and participate in the management of the entire Maker system. Unlike Dai, which is pegged to the dollar value, the value of MKR is closely tied to the entire system and can only be used within the Maker system.
What is MKR used for?
Due to the value stability of Dai, it has been widely used in traditional financial fields, such as mortgage loans, leveraged transactions, international remittances, etc., all of which can have the same effect as the US dollar. MKR is equivalent to a pass to enter the Maker system. If you want to join the Maker system, you must hold MKR. MKR holders have the highest level of rights in the Maker system. They are responsible for the maintenance and management of the system, and use a certain amount of MKR as collateral to exercise certain rights.
If managed well, the holder will receive MKR as a reward; if managed improperly, the staked MKR will be lost as a penalty. This is the reward and punishment mechanism within the Maker system, and MKR is the universal currency in the system.
Such a mechanism allows objects holding MKR to maintain a cautious attitude in management, while further optimizing the Maker organization and wholeheartedly benefiting the development of the organization.
How Maker works
Maker is built on "smart contracts" like CDP (Collateralized Debt Position). Using smart contracts, blockchain allows everyone to transfer value without a centralized agency, just like the Internet allows everyone to transfer information without an intermediary agency.
CDP (Collateralized Debt Position) CDP is a collateralized debt position that allows users to use crypto assets as collateral to generate Dai. Such a mechanism not only ensures the stability of Dai, but also provides users with a flexible way to manage funds.
Advantages of MKR
Participate in management and receive rewards
As a token in the Maker system, MKR plays a large role in the system and can participate in management and obtain rewards. If the Maker system operates successfully, the value of MKR will be significantly enhanced.
Advanced operating model: The operating model of the MKR project is very advanced, incorporating many financial attributes and developing many functions. It is an attempt in the future blockchain financial field and has great market prospects.
Dai and the US dollar are constant: the value of Dai is stable, and MKR is the decider of the Dai exchange ratio. If Dai can be widely used in the future, then MKR will have the decision-making power and the benefits will naturally be great.
Disadvantages of MKR
Impact of policy orientation: Policy orientation has a greater impact and there is strong uncertainty. If supervision is not relaxed, there will be no room for development.
The impact of alternative currencies: For example, USDT is the most powerful opponent. USDT has occupied a considerable share of the market, which poses a challenge to the promotion and application of MKR.
Market uncertainty: If countries issue their own digital currencies in the future, MKR will lack application value. This is a potential risk faced by all cryptocurrencies.
Conclusion
The above is the main content of today, introducing what MKR is. At the investment level, as I said before, currency projects and market value are not directly proportional, so everyone needs to be cautious. As an emerging stablecoin project, MKR has its unique advantages and potential, but it also faces many challenges. When making relevant investments, investors should fully understand the risks and potential returns and make wise decisions.