What is Maker (MKR)?

Maker (MKR) is an important cryptocurrency in the decentralised finance (DeFi) space, playing a critical role in one of the first widely adopted DeFi applications. Let’s dive in and explore Maker and its role in shaping the future of finance.

The Maker ecosystem

Before we go into more detail about MKR, it’s important to know a few key concepts and terms that surround this crypto asset.

To start with, there’s MakerDAO, the Decentralised Autonomous Organisation that manages the open-source Maker project. Unlike traditional organisations, a DAO doesn’t have a central authority running things. Rather, decisions and changes are voted on by participants who hold MKR tokens.

Sky governs the Maker protocol, a project running on the Ethereum blockchain.

The Maker protocol allows users to generate DAI, a stablecoin pegged to the US dollar. Unlike many stablecoins that rely on centralised reserves, DAI achieves its stability through a decentralised mechanism involving collateralised positions.

How the Maker protocol works

Users lock up their crypto assets, usually Ethereum (ETH), in smart contracts known as Collateralised Debt Positions (CDPs). Once assets are locked in CDPs, users can generate DAI, the stablecoin, in proportion to the value of their locked crypto.

To regain access to their crypto, users need to pay back the DAI they’ve generated, plus a stability fee. The stability fee is determined through the governance process and contributes to maintaining the peg of DAI to the US dollar.

In essence, this is a decentralised way of taking out a loan. Users provide their crypto as collateral in exchange for DAI, and need to pay back what they borrowed plus “interest” (the stability fee) to receive their collateral back. And this is all done without a centralised authority setting the terms.

While the Maker protocol is used to generate the stablecoin DAI, the MKR token is not a stablecoin.

The role of MKR tokens

Maker (MKR), the cryptocurrency, functions as a governance token in this ecosystem. Participants who hold MKR have voting power to decide on any changes made to the Maker protocol’s functionality. The more MKR they hold, the more voting power they have.

Additionally, MKR plays a vital role in risk management. If there’s a shortfall in the collateral backing DAI, new MKR tokens are minted and sold to cover the deficit. This not only ensures the stability of the DAI stablecoin, but also incentivises MKR holders to act safely, since minting new tokens reduces the scarcity and value of existing tokens.

MakerDAO's rebrand to Sky

In August 2024, MakerDAO announced a name change and the launch of two new tokens. MakerDAO is now known as Sky, with a new governance token, Sky (SKY), and a new stablecoin, Sky Dollar (USDS). You can read more in this CoinDesk article about MakerDAO’s renaming and new tokens.

Some key points to note:

• Luno currently supports the MKR token only, not SKY or USDS. Don’t send SKY or USDS to Luno.
• The Maker (MKR) token remains unchanged and will continue to exist in circulation.
• Your MKR won’t be automatically changed to SKY.
• You don’t need to take any action and can continue to use MKR as per usual. If you’d like to voluntarily convert your MKR to SKY, you’d need to transfer it out of your Luno wallet and do that yourself.