MakerDAO’s community proposal for an alternative for governance Token MKR- why and consequences 

• On Monday, community leader monet-supply proposed an alternate token economic mechanism on the MakerDAO forum. 

• If the proposal is approved by a full governance vote, the protocol’s present governance token, MKR, could be replaced with a new token named stkMKR.

The idea includes the creation of a new MKR token that will serve as a bonding asset for MKR staked in governance initiatives. MakerDAO’s decentralized stablecoin platform’s community is considering a major tokenomics move that might replace its governance token, Maker (MKR).

The mixed reactions

Within a few hours of it being uploaded, there were numerous reactions, the majority of which were positive and focused on the technical aspects of the solution.

The proposal and debate stages must be submitted as a Maker Improvement Proposal (MIP) for a formal vote by MKR holders, which typically takes two weeks.

Why made the community think of alternatives?

The current tokenomics paradigm, which employs a “buyback and burns” strategy, has problems and inefficiencies that the staking proposal seeks to address. Because buyback and burn return all money to MKR holders,’monet-supply’ noted that there are various concerns with the existing procedure.

A “poor crypto narrative” can be overcome, according to ‘monet-supply,’ thus enhancing the system. Furthermore, the current technique offers little security against attacks on governance or vote manipulation.

As the recommended approach, MakerDAO’s core governance token, MKR, would be replaced with a new stkMKR token. Those that deposit MKR for governance purposes will receive either a staking or bonding token in exchange, depending on how they use it.

Advantage of replacement

The staking approach tackles various shortcomings and inefficiencies in the current tokenomics model, which employs a “buyback and burn” method. According to monet-supply, the existing mechanism has various flaws, including a lack of tailored incentives because buyback and burn return all capital to MKR holders.

According to monet-supply, there is also a “poor crypto narrative,” and MKR issuance might be used to improve the system. The existing approach also provides no deterrence against attacks on governance or voting manipulation.

According to Monet-supply, the rewards process has been modified, and there will be more incentives to stake utilizing the new system.

Users can deposit crypto assets as collateral to generate the decentralized stablecoin Dai using MakerDAO (DAI). This can then be used in other places, such as different Defi protocols or liquidity pools. When the “loan” is repaid and the collateral is withdrawn, the DAI is burned.

According to CoinGecko, MKR prices were trading flat on the day at $1,766 at the time of writing. However, the token has declined 11% in the last two weeks and is now down 72% from its all-time high of $6,292 in May 2021.

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Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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