In the wake of the recent collapse of the Terra blockchain and its native stablecoin, UST, investors have been seeking stability in the cryptocurrency market. One token that has benefited from this shift is Maker’s MKR token.
MKR is the governance token of MakerDAO, a decentralized lending and borrowing protocol. Users can deposit their cryptocurrency as collateral in a Maker Vault and borrow against it in the form of DAI, a stablecoin pegged to the US dollar.
What is MakerDAO?
MakerDAO is a decentralized autonomous organization (DAO) that governs the Maker Protocol. The protocol allows users to borrow DAI against their cryptocurrency collateral. DAI is an algorithmic stablecoin, meaning that its value is maintained by a system of smart contracts rather than by a central authority.
Why is MKR Surging?
There are several factors that have contributed to the recent surge in MKR’s price.
- The collapse of Terra has led investors to seek stability in the cryptocurrency market. DAI is seen as a more stable alternative to UST, as it is overcollateralized, meaning that it is backed by more collateral than the amount of DAI in circulation.
- The Maker Protocol is healthy, liquid, and solvent, with a 164% collateralization ratio and billions in liquidity reserves.
- MKR is the governance token of MakerDAO, giving holders the right to vote on changes to the protocol.
What’s Next for MKR?
The future of MKR is uncertain, but there are several factors that could contribute to its continued growth.
- The continued growth of the DeFi ecosystem could lead to increased demand for DAI.
- The Maker Protocol is constantly being developed and improved, which could make it more attractive to users.
- The collapse of Terra could lead to increased interest in other stablecoins, including DAI.
Overall, MKR is a promising cryptocurrency with a strong team and a solid foundation. It is well-positioned to benefit from the continued growth of the DeFi ecosystem and the increasing demand for stablecoins.
FAQs
- What is a stablecoin?
- What is a decentralized autonomous organization (DAO)?
- What is a collateralization ratio?
A stablecoin is a cryptocurrency that is pegged to the value of a fiat currency, such as the US dollar. This is typically achieved through the use of smart contracts and algorithms.
A decentralized autonomous organization (DAO) is a type of organization that is managed by its members through the use of smart contracts and blockchain technology.
A collateralization ratio is a measure of the amount of collateral that is required to back a loan. In the case of MakerDAO, the collateralization ratio is 164%, meaning that for every $1 of DAI that is issued, there is $1.64 worth of collateral backing it.
Credit and rights: BITboosters