MKR is the native token of the Maker protocol and an ERC-20 token. It is a decentralized finance (DeFi) project and is also known as the multi-collateral Dai (MCD) system. It allows users to leverage their assets to generate Dai, a centralized cryptocurrency that tracks the price of USD. Maker works on the governance system in which the holders of MKR are able to vote for the betterment of the protocol and the proposals that affect Dai. It is one of the largest decentralized apps (dApp) on the Ethereum blockchain.
Holders of MKR tokens are a type of shareholder of the company, which has ownership of the protocol in proportion to the proportion they hold of the total supply. It was one of the first platforms to achieve significant success in DeFi projects.
Dai is an unbiased stablecoin pegged to the US dollar, it has a complicated concept as it is a stablecoin whose price roughly follows the US dollar. Dai was created to help people who were reluctant to use Bitcoin because of its volatility and make optimum use of blockchain technology.
Dai is an unbiased stablecoin as it is not managed by any central authority like other stablecoins USDT. A new Dai can be minted by the Maker protocol user by depositing a certain number of other cryptocurrencies in a smart contract in order to mint the new Dai. Dai holders can stake Dai on Maker Protocol to earn rewards as mentioned on Dai Saving Rate.
A Dai is generated on Maker protocol through a smart contract known as Maker Vaults. These contracts can be created through various web UIs and apps that basically act as portals to access networks. When a user wants to retrieve its collateral asset from the network, they have to return Dai generated by minting along with Stability fees.
Maker tokens can be used to govern the Maker Protocol. The maker holder has the power to pass any proposal, so the Ethereum address that receives the most approval from MKR is granted access to make changes to the proposal in the Protocol.
The smart contract engine is a smart contract system where Maker is distributing excess $DAI from the surplus buffer, which has not been used for any productive task and Maker is not using it as a contingency reserve.
The major difference between the smart burn engine contract and the earlier system that Maker used to use is that from now on $MKR will be acquired from Uniswap with additional DAI sourced from Surplus Buffer, and will be dumped in the same market to increase the on-chain liquidity of Maker.
There is a limit on the Surplus Buffer of 50 million, which is lower than the current 250 million Dai limit. This means that smart burn engine contracts will be activated when there are more than 50 million Dai available in the Surplus Buffer.
Maker (MKR) plays a vital role in the DeFi ecosystem as the native token of the Maker protocol. It enables the creation of Dai, an unbiased stablecoin pegged to the US dollar. MKR holders have governance power in the protocol, allowing them to influence decisions and proposals that affect Dai. The recent implementation of the smart burn engine contract aims to enhance on-chain liquidity and optimize the protocol’s functionality.