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What is Maker Token? Fully Explained. Is MKR overpriced?

What is Maker Token? Fully Explained. Is MKR overpriced?

Fathoming the applied use case of the Maker Token.

Introduction

The current situation of the cryptocurrency market is on the higher end of the volatility spectrum. It is this attribute of the cryptocurrency market, which is made use of, by the investors in order to generate immense amounts of profits from the fluctuations. The high price volatility was the precise reason for the exponential rise in the price of Bitcoin in December 2017. This incident marked as a turning point in the history of the cryptocurrencies till date where not even a single cryptocurrency has managed to reach Bitcoin’s all-time high of approximately $20,000. Due to the increasing scalability issues in the popular cryptocurrencies, this volatility has led to losses for the users, as it takes longer time for confirmation of the transactions and prices starts slipping. The Maker token was created to solve this issue.

Problems due to volatility

1. If we recall the services offered by the traditional financial sector, then sanctioning loans is also one of the major among them. Now imagine if similar kinds of loans were to be transacted in the cryptocurrency market. Keeping the interest rates in mind, due to the high volatility in the market prices the actual loan value itself might get deteriorated. Due to which, either the company or the user might suffer losses.  Hence, having a stabilized cryptocurrency in the market which is not influenced by the people or any other market conditions has become an obligation.

2. Also, it is highly inconvenient for the day traders to use the traditional USD, in order to trade between different cryptocurrencies and exchanges to make profits, as the Fiat currency transfer requires longer duration than the cryptocurrencies. Hence if there were a cryptocurrency, which could stimulate the exact use case of a Fiat currency then the rate of trading could be increased substantially.

The Maker Token

Understanding the need for a stabilized coin in the cryptocurrency domain, the Maker company launched the Maker Token in August 2015, which can be incorporated to govern the functionalities of all the Maker projects. The Ethereum based, Maker token (MKR) control all of the company’s projects.

The actual value of the Maker token depends on the successful utilization and improvement of the Maker projects. One of it’s most renowned project is the creation and development of the stable coin named DAI which is the core currency of the MakerDAO system. The coin’s value is pegged to that of USD, in simpler words, 1 USD = 1 DAI.

Why Maker Token?

The Maker token is incorporated to stabilize the price of the DAI. However, Ether is at the first line of defence, to maintain the stability of DAI. A smart contract is executed automatically when the price of DAI starts to fluctuate so as to counterbalance the fluctuation. But if the market experiences high fluctuations then this Ether is also not enough and a second layer must be utilized, which is done by the Maker token.

All the owners of the Maker token are for the Governance of the Maker Smart Contracts  (which stabilizes DAI), and they receive fees as a reward to regulate the system. The Governance of the Maker token holders is highly appreciable as it is evident from the incident once the MKR had lost almost $300 million market capitalization in order to keep the DAI stable and surprisingly even the MKR price has been recovered successfully.

Is MKR overpriced?

The value of the Maker Token is indirectly dependent on the usage of DAI. Until and unless the DAI, is highly incorporated in the crypto industry, the price of the MKR tokens would be increased substantially. Until now the cryptocurrencies, have not been into transacting loans for the customers. This stable coin might open up opportunities for such kind of business models. Thereby all these facts mark that the MKR or Maker token is invariably not highly priced but indicate the widespread application of its services. The cryptocurrencies not only are beneficial and helpful due to their price fluctuations but also are expected to create a globalized economy for a faster and efficient transfer of payments from one part of the world to the another.

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