Most recent update: [March 11, 2022]
No securities regulatory authority has expressed an opinion about the Crypto Contracts or Maker, made available on the VirgoCX Platform, including an opinion that Maker is not itself a security and/or derivative.
What is Maker (MKR)?
MakerDAO is one of the most popular projects in the cryptospace and, by all accounts, the progenitor of the decentralized finance (DeFi) sector. It is a decentralized credit platform wherein users can lock up their assets in a vault and get the DAI stablecoin. The MKR token is the governance token of the MakerDAO platform. MKR holders can use their tokens to vote on various proposals and network governance.
Currently, the MakerDAO platform has the largest TVL (total value locked) in the DeFi ecosystem, with $18 billion locked up. In addition, the vaults are overcollateralized to account for price volatility. So, users can borrow up to 66% of their collateral’s value. If the overall collateral value falls too low too fast, the system mints more MKR and sells them to the open market to raise more collateral.
How Does Maker Work?
Let’s assume that you are holding ETH and would like to lock it up for DAI. First, you must send your ETH to the vault to make a collateralized debt position or CDP. The CDP runs on the Ethereum chain and exists within the Maker ecosystem. As explained before, the CDP runs on an overcollateralized system.
The user can get back the assets locked inside the CDP only if they have paid back the same amount of DAI they had initially borrowed AND the interest that their position had accrued along the way. CDPs that hold less value than the collateral may get liquidated and sold off. CDPs need to hold a higher value than the collateral initially locked up to be active. Users need to use the Oasis app to use MakerDAO’s lending functionality.
History Of Maker
MakerDAO was created in 2014. The purpose of the DAO is to create a self-sustaining organization that can grow and makes governance decisions without needing a central governing body. In Maker, users must stake their MKR tokens to gain voting power. The more tokens you stake, the higher your voting power.
There is another crucial reason why Maker got so much attention in the first place. DAI happens to be a fully crypto-collateralized stablecoin, unlike USDT and USDC, which are fiat-collateralized. Because of this vital utility, Maker has become the leading light of the DeFi world.
Founders of Maker
The MakerDAO protocol was developed by the Maker Foundation who has worked extensively over the years to reduce their control over the protocol. Rune Christenson is the co-founder of the protocol and was previously the co-founder of Try China, a company providing international recruiting.
Despite their admirable efforts to achieve decentralization, the company isn’t free from internal strife. Maker Foundation established the Maker Ecosystem Growth Fund (MEGF) in 2018 to oversee the protocol treasury. Unfortunately, there were some internal disagreements about how the funds were to be handled, which eventually led to the firing of five board members. MakerDAO has since moved on from that incident.
Currently, Maker has a max supply of 1,005,577 MKR coins and a circulating supply of 988,620 MKR. As we have mentioned, all CDPs accrue interest over time. This interest is also called Stability Fee. The protocol then uses the fees collected to buy MKR off the secondary market and burn it. MKR has a deflationary model due to the token burning system.
Risks Associated With Maker
In May 2019, security audit firm, Zeppelin, found a crucial vulnerability on MakerDAO, which could have potentially locked out user funds. The vulnerability caused the usual weekly governance calls to be disrupted as the MKR holders transitioned out of the old contract. Zeppelin informed the MakerDAO team about the vulnerability, and it has been duly fixed.
Prior to listing Maker on the VirgoCX Platform, VirgoCX performed due diligence on Maker and determined that Maker is unlikely to be a security or derivative under Canadian securities legislation. VirgoCX’s analysis including reviewing publicly available information on the following:
- The creation, governance, and location of Maker and/or its primary development team;
- The supply, demand, maturity and liquidity of Maker; and
- Legal and regulatory risks associated with Maker.
Statutory Rights under Securities Legislation
VirgoCX is offering Crypto Contracts on crypto assets in reliance on a prospectus exemption contained in the exemptive relief decision Re VirgoCX Inc. dated May 30, 2022 (the Decision). Please be aware that the statutory rights in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under the securities legislation of each other province and territory in Canada, do not apply in respect of the Crypto Fact Sheet to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.