Cryptocurrency
What is Maker (MKR) and Why Did it Blow Up 40% Today?
Maker (MKR) is not a well known project but after today it will be known by many more people after blowing up 40%. Maker is an ERC-20 token connected to DAI coins which are pegged to the USD and used to pair with Ethereum (ETH) trading. Maker is part of a complicated project that reads more like a leveraged hedge-fund or futures market than next-generation blockchain company.
Tether is the first coin that pegs its value to the USD at $1.00 per USDt and used for trading on various exchanges for crypto. Where Tether differs is the rumors of being not fully backed as advertised by USD deposits. With the connection to Bittfiniex there is speculation that Tether is being used to manipulate the large crypto coins like Ethereum (ETH), Bitcoin (BTC) and Litecoin (LTC) markets through sudden issue of tokens when markets decline.
Maker (MKR) is connected to DAI coins based on collateral of Ethereum (ETH). After locking into smart contracts we have a coin with verifiable deposits on the blockchain that secures the creation of DIA. The issued Dia coins are then pegged to the USD. This might seem complicated as most would assume they could exchange Ethereum directly rather than trade Ethereum for another coin. This is where Maker is different from Ethereum, Ripple (XRP), IOTA (mIOTA), and Stellar (XLM).
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Using Leverage on the Etethereum Blockchain
Wallstreet loves to use leverage when making trades. Maker (MKR) allows for traders to use leverage to take positions on Ethereum by trading Ethereum for DIA to make trades. This can get quite complicated for those not familiar with advanced trading in stocks. To simplify the concept let’s examine the following example with a use case for the Maker (MKR) from the whitepaper found here.
Bob wishes to go margin long on the ETH/Dai pair, so he generates 100
USD worth of Dai by posting 150 USD worth of ETH to a CDP. He then buys another
100 USD worth of ETH with his newly generated Dai, giving him a net 1.66x
ETH/USD exposure. He’s free to do whatever he wants with the 100 USD worth of
ETH he obtained by selling the Dai. The original ETH collateral (150 USD worth)
remains locked in the CDP until the debt plus the Stability Fee is covered.
In this example Bob is confident Ethereum is going to increase in price and wants to own Ethereum. He uses collateral locked into a smartcontract in exchange for Dai. He then uses the Dai coins to purchase Ethereum giving him $250 in Ethereum to enjoy the market movement of Ethereum. To unlock his collateral he would need to return the $100 Dai. If Ethereum increases in price he can sell enough Ethereum for $100 Dai and return it to his smart contract pocketing the difference.
Maker gets much more complicated than this simple example above which opens any number of different advanced trading options to those willing to take the risk. This differs from Tether as Tether does not allow the use to take leverage with the deposited USD. Maker also differs from Tether as USD deposits for tether cannot be verified unlike Ethereum smart contracts on a searchable blockchain. While the price of Ethereum is not fixed the number of coins is locked into the contract. The whitepaper explains how risk is mitigated with volatility on the marketprice.
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The price boom today over 40% on Maker (MKR) tokens was a result of a $300 million stress test performed on the blockchain plus the upgrade of the MKR tokens and re-launch of the Oasis market which helps to match Ethereum and Dai trades. $300 million is 1/3 of the market value of Maker proving large influx of funds and issue of Dai was able to keep a stable price of both.
Following the blow-up and relaunch Maker (MKR) is well positioned to add new exchanges looking for a verifiable, stable, and pegged crypto-currency for trading. While USDt has much wider utilization, Maker may start to take market share for exchanges looking to move away from USDt. Yesterday OKex, the 5th largest crypto exchange by volume i nthe world, announced the addition of Maker (MKR) to the trading platform. The importance of this addition can be seen with current volume of the MKR token.
With a market value of $1 billion today we should see 2-5% daily market volume. On MKR the last 24 hours shows a volume of only $1.8 million for a liquidity ratio of only 0.18%. Such a low volume makes the price of MKR susceptible to price manipulation. The addition of OKex will broaden the volume and hopefully get closer to 1% or more in daily volume. The volume on OKex is not yet reflected on CoinMarketCap as trading is less than 24 hours old.
Maker (MKR) may be a complicated project. For three years it has been growing with little publication. After today’s 4-% growth and movement to the top 50 on CoinMarketCap, Maker is becoming much more known in the crypto economy. The addition of trading on OKex and the stress test to ensure explosive growth and issue of Dai proved stable shows this coin is ready to grow. Ripple (XRP), Stellar (XLM), Cardano (ADA) and Ethereum (ETH) have proven that financial focused coins have the most interest in the next generation blockchain economy. Now Maker is trying to prove that advanced trading may be the next step and the next crypto coin to boom.