What is Governance?
As you learn more about blockchain, you will see the word "governance" more often.
Governance is a word that means management and control.
In the context of blockchain, it refers to the process by which a particular stakeholder makes decisions about important changes to the system in his or her organization or community.
In MakerDAO, the decision-making on Dai, such as policy decisions and roadmaps, is done autonomously and decentralized, not by a specific manager.
This mechanism is called a DAO (Decentralized Autonomous Organization).
The concept of DAO is not limited to MakerDAO, but is used in various blockchain projects.
In the case of MakerDAO, its own token, MKR, serves as a voting right, and this MKR is required to vote on decisions in MakerDAO.
This means that the more MKRs you have, the more influence you can have on MakerDAO decisions.
Discussions on MakerDAO are held in the forums, and are open to non-MKR holders.
MKR is not required just to participate in the discussions.
MKRs are needed to vote on the topics discussed in the forum.
Many blockchain-based projects, like MakerDAO, have tried and successfully incorporated governance mechanisms.
By doing so, they are able to run their projects in a decentralized manner.
In order for governance mechanisms to work well, they need to be designed in advance so that proper stakeholder control can be implemented autonomously.
Therefore, the project could be described as "incentivist" rather than democratic.
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Let's understand the MakerDAO voting system
Voting is used to make project decisions by MKR holders.
There are two types of voting systems in MakerDAO: Governance Vote and Executive Vote.
Governance Vote
The Governance Vote is used to make decisions on important matters that need to be resolved by the MKR holders.
This voting method is also used to discuss how the project as a whole should be managed in the future.
The purpose of the Executive Vote is to get the reaction of the MakerDAO community before making a decision at the next Executive Vote.
Executive Vote
The Executive Vote is used to decide how to implement the decisions made in the Governance Vote in order to reflect them in the system.
For example, when a decision to increase Dai's collateral assets is actually put into action, the Executive Vote is used to decide what percentage of the assets to collateralize and how much to set the stability fee.
The relationship between these two voting methods is that the Governance Vote predicts future signals in advance, and the Executive Vote actually takes action.
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Knowing the role of MKR tokens
MKR tokens are unique tokens issued by MakerDAO, and have three main roles.
Governor token
The first is its role as a governance token.
A governance token is a token that is required to vote on decisions in MakerDAO.
Since MKRs are required to vote on decisions in MakerDAO, the very fact that you have MKRs is basically important.
Utility tokens
The second is its role as a utility token.
The term "utility" is often used in the context of blockchains with the nuance of ease of use.
As we learned in Lesson 3, to issue Dai, you needed to deposit Ether, BAT, etc. in a vault.
And in order to withdraw the deposited collateral assets, you need to pay a fee called Stability Fee in addition to the issued Dai.
The Stability Fee could only be paid in MKR as of October 2019.
However, at the time when BAT was added to the price backing assets of Dai, the Stability Fee can now be paid in Dai.
Thus, you can now choose between MKR and Dai to pay the Stability Fee.
Capital Modification for MakerDAO Projects
The third role is in correcting the course of the entire MakerDAO system.
If, for some reason, the price of Dai plummets or is severely damaged by unforeseen circumstances, MakerDAO can issue new MKRs to raise funds.
This role is for emergency preparedness only and is not normally activated.
In order to run a project in the form of a DAO, it is important to have a contingency plan in place.
MakerDAO is no exception in that it has a contingency plan in place.
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