Dai is a stablecoin designed to trade as closely to $1 as possible. Unlike most other stablecoins, Dai is collateralized exclusively by other crypto assets. This is facilitated through the Maker protocol on the Ethereum blockchain. Users who hold DAI tokens can earn some passive income through the Dai Savings Rate mechanism. The Maker protocol is governed by the MakerDAO decentralized autonomous organization that consists of holders of the MKR governance token.
What is DAI?
As of writing, Dai was trading at $0.0109 USD. This is a huge valuation discrepancy, especially when compared to other stablecoins. For instance, Tether (USDT), which is a USD-backed stablecoin, has a market cap of over $30 billion, but its USDT market value is under $800 million. As a USD stablecoin, Tether claims it is backed by US dollars held in US bank accounts. Tether claims the account balances can be verified by USDT’s publicly registered address. The validity of this claim is open to debate, though, because no one has been able to verify these accounts. Traders who bought the Dai token when it was trading at around $0.0040 USD are currently sitting on profits worth more than $2.8 million.
How does it work?
Users who own DAI can use the Dai Savings Rate mechanism to hold funds in an escrow account with a digital or fiat bank. The escrow funds can be redeemed as long as the contract is active on the Ethereum blockchain. To redeem a deposit, the user's DAI tokens need to be redeemed by the MakerDAO blockchain. However, some participants may redeem their funds without holding any DAI tokens. As the funds are held in a smart contract and thus do not require additional trust in the network, redemption without holding DAI tokens is possible. Once the withdrawal of the digital or fiat bank account is completed, the DAI tokens are finally transferred to the contract that holds the Dai reserve funds.
Who is the MakerDAO?
MakerDAO is a decentralized autonomous organization (DAO) that represents holders of MKR governance tokens. MakerDAO has a goal to improve cryptocurrency liquidity through the innovation of new models. The vision is to develop “marketplace utilities for cryptocurrency” through a decentralized platform. As a result, MakerDAO is currently building a number of products and projects. The Foundation component of the MakerDAO framework is a DAO that develops and maintains services and products on top of the Maker protocol. Although the organization has no governance or management structure, members control the platform and decide on its future.
Why is Dai different from other stablecoins?
Most other stablecoins are backed by fiat currencies, such as USD and EUR, but Dai is backed by crypto assets. By investing in Dai, you own crypto assets that you can trade like any other asset. But the main advantage of Dai over other stablecoins is that it is collateralized by other crypto assets, which creates a natural hedge against the volatility of the crypto asset holding Dai. Is there a primary difference between Dai and many other crypto-backed stablecoins? Dai is the first "mainstream" stablecoin that is backed solely by crypto assets. In general, a stablecoin is a stablecoin that holds a pre-defined value. Other coins, such as DASH, Dash, and Monero, can also have stablecoin-like characteristics, but they are mostly backed by fiat money, such as USD or EUR.
What does Dai's stability look like over time?
DAI is a digital asset that trades in real-time on the Ethereum blockchain. During the course of a month, DAI trades at a relative one-for-one rate to the U.S. dollar, which means that it is fundamentally a stablecoin with one unit of real value for each unit of digital value on the blockchain. However, what this article is not is a comparison of how DAI vs. Bitcoin has held up over time. Trading in real-time makes it impossible to tell how stable the price of a stablecoin has been. Since real-time trading typically involves only very small fractions of overall trading volume, the information generated through real-time data is often ambiguous. Over the course of a month, the value of DAI holds fairly steady compared to the value of Bitcoin, the world's largest crypto asset.
The Dai Project is focused on improving security and stability in the world of cryptocurrency. What started off as a side project for the co-founder of Ethereum Vitalik Buterin has blossomed into one of the best stablecoin options available on the market.