Fundamentals of the MakerDAO Governance Token

Abstract

We study the fundamentals governing the price of the MakerDAO governance token MKR. Governance tokens are minted in response to liquidations, and burned in response to growth in the system surplus. MKR tokens appreciate with an increase in system surplus and depreciate with a rise in systemic risk due to DAI liquidation spirals. We discuss incentive compatibility conditions that need to be satisfied for the protocol to maintain the DAI stablecoin peg. 2012