Ethereum-based token maker (MKR) has recently started outperforming the larger cryptoasset market – as MKR has recorded a 37% price rise so far this month.
Currently, MKR tokens are trading $534 after rising 3.4% in the last 24-hour period, and the market capitalization of the maker platform stands at $529.3 million – making it the 17 largest in the cryptocurrency space. On February 14, each MKR token was priced at 4.6 ETH, which is notably the token’s highest valuation since October 8, 2018.
At press time, MKR’s value against ETH has corrected back to approximately 4.16 ETH, presumably after some traders sold some of their holdings in order to take profits.
As explained on its official website, MakerDAO is a smart contract platform built on the Ethereum blockchain . The value of DAI, MakerDAO’s native stablecoin, is backed by ETH and it is also “soft-pegged” at a 1:1 ratio with the USD. DAI’s peg has been created via a system of collateralized debt positions (CDP). Functioning as a loan payment system, MakerDAO uses ETH as collateral, which is required for the governance of DAI in Maker’s ecosystem.
2% Of All ETH In Circulation Locked In MakerDAO Loans
So far this month, MKR’s value has appreciated considerably – when compared to its performance in previous months. According to Sebastian Sinclair, a market analyst and IT journalist, MKR’s recent price movements are a sign that the current bear market is “beginning to falter.”
Maker tokens are issued or burned according to DAI’s price movements – in order to maintain its peg. As Sinclair pointed out, the MakerDAO ecosystem has managed to perform relatively well during the prolonged crypto bear market – as 2% of all ETH in circulation is currently locked into MakerDAO loans.
At press time, over 1.97 million ETH have been locked up in Maker’s primary contract – which accounts for approximately 1.87% of over 104.86 million ETH in circulation. This figure is substantially higher than the 1% of ETH locked by Maker in November 2018. As Sinclair has observed, DAI is “overcollateralized” by over 200% (on average). This means that for every DAI that is issued, there is about $2-3 in ETH locked in CDPs. Because of this, when ETH’s value depreciates, more of that digital asset needs to be locked in Maker’s contracts – in order for DAI to remain collateralized.
MakerDAO Offers “Independent” And Competitive Interest Rates
Moreover, MKR tokens are used to cover transaction costs on the Maker platform and they provide investors with voting rights within MakerDAO’s “continuous approval voting system.”
Recently, MakerDAO’s management increased the platform’s stability fee from 0.5% to 1% – so that fluctuations in DAI’s price are reduced. This should (theoretically) help DAI maintain, or keep its peg close to the USD.
Commenting on the usefulness of MakerDAO, with its ability to offer “competitive” interest rates that are independent of the US Federal Reserve’s rates, Tanner Hoban, a former equity researcher and currently involved with ConsenSys, noted (via Twitter):
#DeFi and @MakerDAO are doing something completely unheard of – issuing financial products/services at an interest rate that is completely independent (and highly competitive) of the Fed funds rate. CeFi/DeFi is my proposition to generate mass adoption. https://t.co/TcYwyZ59ZE
— Tanner Hoban (@tehoban1) February 8, 2019