Cryptocurrencies are volatile assets, ideal for speculation. Strong price fluctuations make them hard to use in long-term contracts. Today’s surge in the Maker token price comes as Augur (REP) announces it will add DAI to the platform; making it possible to use the stablecoin in prediction contracts.
Although the market is generally looking positive at the start of the week, MakerDAO’s Maker (MKR) token is looking particularly perky. The coin has experienced an approximate $80m increase in its market cap in the early hours of Monday morning. This had taken the token’s individual price up by over $100 to its $740 valuation, by press time.
The Maker token price has been on a steady upswing since the end of last week. This coincided with an announcement from Augur’s core team on Friday that there would be several changes coming with the new version of its protocol. One of the changes would include allowing users to use DAI as the collateral in its prediction contracts.
MakerDAO made easy.
MakerDAO is a decentralized autonomous organization (DAO – the clue’s in the name). Like Dash, MakerDAO has created a governance structure which uses blockchain technology in the decision-making process. MKR tokens give holders voting rights in the project; the amount of tokens is relative to the share of the vote, similar to a public-listed company.
Like Singapore’s Digix, MakerDAO is a stablecoin provider. Rather than a gold-backed digital asset, the project’s DAI token is a collateral-backed cryptocurrency pegged to the US dollar. DAI stablecoins are created through a process known as a Collateralized Debt Position (CDP); users deposit digital assets (currently only Ether), the value is used to create a corresponding number of DAI tokens.
DAI tokens can be used as a payment solution. The main advantage is it mirrors the value of the US dollar, 1:1, without having to actually be backed by it. As the whitepaper explains, parties active in the ecosystem are incentivised to create more DAI to prevent its value from rising above one dollar; similarly, if the Ether used as collateral falls below $1 then the CDP is automatically liquidated.
So why the Maker token price rise?
The vast majority of open bets on Augur are crypto price predictions; putting crypto on bitcoin (BTC) reaching a certain price at a certain time. The problem is the value of the crypto originally placed down can still vary wildly. The price of its native Reputation (REP) token is around a third of what it was at mainnet launch in early July. The stakes are not as high as they once were; gamblers are less likely to make long-term bets if the potential reward will turn out to be worth far less than what was originally placed down.
Adding DAI, which will stay at more or less at the same value as when it was first placed down, will be a strong move for Augur. Whereas some projects need to prove they have real utility, MakerDAO will have a use case for their stablecoin. Whereas the value of DAI cannot rise; today’s surge in the Maker token price reflects this.
Investors are moving into MKR because they see a future for the project. You might say that they’re betting on it…
The author is invested in BTC and ETH, which are mentioned in this article.