What is MakerDAO?

MakerDAO (DAO stands for decentralized autonomous organization) is an organization that builds technology to enable borrowing and savings capabilities. It issues a USD stable coin called DAI by allowing anyone to contribute various crypto assets as collateral and minting against that collateral. It is one of the original Decentralized Finance (DeFi) protocols built on the Ethereum blockchain.

What is the Maker protocol?

The Maker Protocol is responsible for minting DAI, a USD stable coin, by using crypto assets as collateral. Users are able to deposit assets like Ether into a smart contract “vault” and can create DAI that is backed by their deposited collateral. Users must maintain a minimum collateralization ratio in order to ensure that their collateral isn’t liquidated. Users pay the protocol an interest rate (i.e., “stability fee“) for the privilege of borrowing.

The Maker (MKR) token holders control the protocol’s stability fee. Their goal is to balance the demand for DAI and to maintain DAI’s peg to $1 USD. Interest rates fluctuate depending on the price of DAI. If DAI is trading above $1 USD, then interest rates will go down to encourage more minting of DAI, and vice versa.

The protocol also relies on the Maker (MKR) token to protect the solvency of the system. When a liquidation happens and there isn’t enough DAI recovered from liquidations, more MKR will be issued to cover the debt. If there is excess DAI recovered, the excess DAI will be used to buy some MKR and burn it.

What is the Maker (MKR) token?

The Maker (MKR) token is the governance token for the MakerDAO. MKR holders can stake their tokens to vote on critical decisions about the protocol (e.g., interest rates for DAI).

Instead of selling tokens to the general public via ICO, as many crypto platforms did, MakerDAO sold the initial 1 million MKR supply via private sales to friends and family and investors like Andreesen Horowitz and Polychain. Since MKR holders have a strong influence over the direction of the protocol, it was important to build a community of token holders committed to its long-term success.

MKR is an ERC-20 token, meaning it runs on the Ethereum blockchain. Unlike Ethereum or Bitcoin, you can’t mine the token. Instead, you can buy it on centralized or decentralized exchanges. The MKR token supply is also deflationary as the proceeds from vault liquidations are used to buy and burn Maker tokens. As of May 2021, there is a circulating supply of around 900,000 MKR with a max supply of just over 1 million.

Risk statement

Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.

No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform. 

Wealthsimple has performed an assessment of whether MKR can be supported by Wealthsimple’s platform, including whether MKR is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.

We evaluated MKR based on publicly available information, including (but not limited to):

• The creation, governance, usage and design of Maker, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Maker;
• The supply, demand, maturity, utility and liquidity of MKR;
• Material technical risks associated with MKR, including any code defects, security breaches and other threats concerning MKR and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
• Legal and regulatory risks associated with Maker, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of MKR; and
• Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether MKR, or generally about whether the type of crypto asset, is a security and/or a derivative.

Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to MKR may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support MKR.

Like all other crypto assets, there are some general risks to investing in MKR. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.

We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading MKR. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.

Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision). 

The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.

 

Last updated: January 1, 2024