How does Maker work?
Maker is a decentralized autonomous organization (DAO) that works on the Ethereum blockchain.
It is designed to reduce the volatility of the Dai stablecoin, a cryptocurrency pegged to the US dollar. The Maker system consists of two tokens: Maker (MKR) and Dai (DAI). MKR is an Ethereum-based token that is used to pay transaction fees and reward users for participating in the network.
DAI is a stablecoin that is pegged to the US dollar and can be used as a medium of exchange. The Maker system works by having users deposit collateral into a smart contract, which creates DAI tokens. These tokens are then used to purchase goods and services, or they can be exchanged for other cryptocurrencies or fiat currencies.
The collateral deposited into the smart contract acts as a buffer against price fluctuations in the market, ensuring that DAI remains stable. When users want to redeem their DAI tokens for their original collateral, they must pay back an additional amount of MKR tokens as a fee. This fee helps to maintain the stability of the system by incentivizing users to hold onto their DAI tokens instead of redeeming them for their original collateral.
The MKR token also serves as an incentive for users to participate in governance decisions within the Maker system, as holders of MKR are able to vote on proposals that affect how it operates.
