Governance Staking: In return for their participation, MKR holders may receive rewards in the form of protocol fees or other incentives determined by the governance framework. However, these rewards are not guaranteed and may vary depending on the specific governance actions and the overall health of the MakerDAO ecosystem.

Custodial Staking: Centralized third-party providers typically employ strategies where assets from various plans and types are pooled and allocated for yield generation across different on-chain opportunities. These opportunities may include mining, staking, liquid staking, proprietary market-neutral algorithmic trading, and collateralized on-platform lending.

Governance staking involves interacting with Maker protocol and smart contracts:

Smart Contract Risk: Interacting with smart contracts deployed on the blockchain includes inherent technological risk. These smart contracts may contain bugs, vulnerabilities, or security risks that could result in financial losses if exploited by malicious actors or if the contracts behave unexpectedly.

Custodial staking, while offering opportunities for passive income, also comes with certain risks that users should consider before participating:

Platform Security: It's important to choose a reputable and secure platform for custodial staking to mitigate the risk of potential security breaches or hacks. Consider the platform's track record and reputation within the cryptocurrency community to gauge its reliability.

Counterparty Risk: When staking funds with a custodial provider, users are essentially lending their assets to the platform. This introduces counterparty risk, where there is a possibility that the custodial provider may default on their obligations or become insolvent.

Regulatory Risk: Regulatory uncertainty and evolving legal frameworks surrounding cryptocurrency lending and staking can pose risks to participants. Before engaging in custodial staking, users should familiarize themselves with the regulatory environment in their jurisdiction and any potential legal implications.

Liquidity Risks: Depending on the terms and conditions of the custodial staking arrangement, users may face liquidity risks, especially if there are lockups or restrictions on withdrawing staked funds. Evaluate the platform's withdrawal policies and lock-up periods to assess the potential liquidity risks.

MKR serves as a governance token within the Maker protocol. MKR holders have the authority to participate in decision-making processes and vote on adjustments to the protocol's smart contracts and system parameters, including Stability Fees and the Dai Savings Rate (DSR).

The MKR token serves two primary purposes within the Maker protocol:

Governance: MKR holders participate in voting on proposals to ensure the protocol's health and efficiency. This involves both proposal polling to gauge community consensus and executive polling for formal approval or rejection of proposals, with the winning proposal being implemented. Examples of proposals include adding new collateral assets or adjusting the Dai Savings Rate.

Recapitalization: MKR tokens are used in recapitalization efforts, where they are either minted and sold for Dai in debt auctions during system debt surpassing surplus or burned through surplus auctions when surplus exceeds debt. This mechanism encourages responsible governance by aligning MKR holders' interests with the protocol's stability and success.

Maker operates as a decentralized lending protocol, providing loans and managing savings in its stablecoin, Dai. Unlike traditional finance, Maker requires only cryptocurrency collateral, eliminating the need for extensive verification processes. Users lock collateral into Maker Vaults on Oasis to obtain Dai loans, with the loan amount determined by the collateral's value and the chosen collateralization ratio. Dai loans accrue interest known as Stability Fees but can also be earned through the Dai Savings Rate (DSR), contributing to the stablecoin's peg to the US dollar.