Maker (MKR) has popped in an otherwise forgettable on the crypto-market. MKR is up 11% at the time of post and there might be fundamental reasons why more are buying into the coin.

If not familiar, Maker MKR is the proprietary token for Maker, and it is backed by Ether rather than fiat currency. This is the basis of a simple banking system built on blockchain technology that allows for simpler international payments and peer-to-peer transfers. DAI is a stablecoin designed along fractional reserve banking ideals and linked to the Maker MKR. Simply put, it’s a safe haven that should avoid the volatility of the main market.

At the end of January, MKR announced an update to Oasis, one of the first decentralized exchanges completely on-chain.

“We believe there is a critical need for a place where people can trade Multi-Collateral Dai and the multitude of collateral assets backing Dai, including security tokens, while also conveniently accessing CDP features for all of these assets. That means that we will pursue a new solution that complies fully with applicable global regulations. We are also planning to integrate fiat on-ramps for greater convenience. The new solution will launch after Multi-Collateral Dai goes live and will showcase the full potential of the Multi-Collateral Dai platform.”

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The breakdown of the back is simple: One Dai for one dollar. The warning against the Maker and DAI ecosystem is really about the the collateralization with Ethereum, which is supposed to back the value of DAI. The value of MKR may rise as more ETH is injected into the ecosystem. However, the Maker project still has to prove itself as being capable of preserving the value of both MKR and DAI.

The company’s rebuttal to this fear is as follows:  “If the value of ether held as collateral is worth less than the amount of Dai it’s supposed to be backing, then Dai would not be worth one dollar and the system could collapse. Maker combats this by liquidating CDPs and auctioning off the ether inside before the value of the ether is less than the amount of Dai it is backing. Basically, if the price feed into the CDP indicates that the value of ether has gone below a certain threshold (let’s use 125% of created Dai), then the CDP is “liquidated” and the ether inside the CDP is auctioned off for Dai until there is enough Dai to pay back what was extracted from the CDP.”

 

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