The stablecoin DAI is an important building block in the thriving DeFi ecosystem of permissionless trading, borrowing and lending.
DAI is an algorithmic stablecoin by MakerDAO, an Ethereum-based protocol that aims to maintain an exact one-to-one ratio to the US dollar. It is primarily used as a means of lending and borrowing crypto assets without the need for an intermediary.
What is DAI Coin?
The first decentralized, collateral-backed cryptocurrency, DAI is a crypto asset that attempts to maintain a stable 1:1 value against the US dollar by locking other crypto assets in contracts.
This means that unlike other asset-backed cryptocurrencies that can be issued by for-profit companies, DAI is the product of open-source software called Maker Protocol, a decentralized application that runs on top of the Ethereum blockchain.
DAI therefore maintains its value not by being backed by US dollars held by a company, but by using collateralized debt in Ethereum’s cryptocurrency, Ether (ETH).
If you’re not familiar, secured loans provide a way for a lender to secure a loan using the assets they hold. Historically, these loans have a lower interest rate than unsecured loans because they allow lenders to confiscate and sell the asset if borrowers are unable to repay the loans.
Maker Protocol, via smart contracts running on Ethereum, allows borrowers to lock up ETH and other crypto assets, thereby collateralizing them to create new DAI tokens in the form of loans.
If borrowers want to reclaim locked ETH, they will have to return DAI to the protocol and pay a fee. In the event of liquidation, the Constructive Protocol will take the collateral and sell it using an internal market-based auction mechanism.
Due to its design, DAI provision cannot be changed by any party in the network. Instead, it is maintained through a system of smart contracts designed to dynamically respond to changes in the market price of the assets in its contracts.
Who Founded DAI?
Founded by Rune Christensen in 2014, the Maker Foundation has created Maker Protocol, an open-source project whose purpose is to operate a credit system that will allow users to obtain loans secured with cryptocurrencies.
DAI officially launched the Maker Protocol in 2017 as a means of securing a permanent credit presence for businesses and individuals.
The Maker Foundation eventually relinquished control of the software to MakerDAO, a decentralized autonomous organization that now administers the Protocol.
How DAI Works?
DAI is a crypto asset collateralized by other cryptocurrencies.
If users want to buy DAI, they can spend ETH to buy the dollar equivalent of DAI on an exchange or secure ETH and other assets using the Maker Protocol.
The second method allows users who do not want to sell their ETH to acquire DAI.
Secured Debt positions
Collateralized Debt Positions (CDPs) are smart contracts on Maker Protocol that users can use to lock in collateral assets (i.e. ETH or BAT) and generate DAI
For example, users need to spend $200 in ETH to get $100 DAI, which means it takes into account the possible drop in ETH value. As a result, if ETH loses 25% in value, $100 in DAI will be securely collateralized with $150 in ETH. CDPs can be considered safe vaults to store the aforementioned collateral. To account for the volatility in crypto collateral, DAI is often over-collateralized, meaning that the amount of deposit required is typically higher than the DAI value.
To recover stored ETH, the user must return the DAI and pay a stabilization fee.
Why Use DAI?
Users may be interested in purchasing DAI as it offers the efficiency and transparency advantages of cryptocurrency while providing protection from price volatility.
DAI, like many other cryptocurrencies, is unlimited, programmable and easy to transfer, and has the advantage of offering a fixed price.
DAI Coin Stability Advantage and Security Features
DAI is softly pegged (or correlated) with the value of the US dollar. The increased price stability provided by DAI stablecoins has motivated investors to view DAI not only as a stable store of long-term value, but also as a viable option for day-to-day trading purposes, which has greatly expanded the utility of blockchain. technology and cryptocurrency systems as a whole.
DAI Stablecoin Benefits and Use Cases
No Minimum Account: Many people around the world have the minimum amount of assets required to be eligible to open a bank account. However, there is no minimum balance required to use DAI.
Stable Value : DAI can provide an alternative stable currency and financial inclusion instruments for citizens living in areas with severe economic instability.
Decentralized Freedom: As DAI is a transparent and permissionless system, it helps ensure users have more unrestricted access to their wealth. In contrast, some governments, such as Zimbabwe and Myanmar, have been known to impose limits on citizens’ ability to access their fiats by placing daily or monthly withdrawal limits on bank accounts. In 2019, Zimbabwe implemented weekly withdrawal limits as low as 20 Zimbabwe Dollars (ZWD). Similarly, in 2021, the Myanmar government set a daily withdrawal limit of 500,000 kyat (approximately 350 USD).
Income Generation : Through the DAI Savings Rate (DSR) system, users leverage DAI tokens to earn income through lock-in and interest generation. DAI does not have its own staking mechanism as it is built on the Ethereum blockchain and therefore leverages the network’s own consensus mechanism. However, the MakerDAO system allows DAI token holders to earn returns by investing DAI in a MakerDAO smart contract. This particular smart contract system secures the minimum investment of the user and can be withdrawn at any time.
Fast & Cheap: In many cases, international wire transfer fees can be exorbitantly high and the time it takes to finalize a transfer can be uncomfortably long. With DAI’s nominal transfer fees and fast transaction times, global transactions from one user’s wallet to another become much more transparent and efficient.
Every Za man Open: Traditional financial institutions only operate during “business” hours. Therefore, transactions made through such institutions can be pending for days and only become final after the banking institutions are opened and transfers are actually processed. However, through the DAI and Ethereum blockchain, transactions can be completed in minutes at any time and on any day of the year.
S on Degrees W uv width: MakerDAO system is known to perform extensive audits and research to help ensure the solid security of the platform. Through mathematical analysis, developers formally validate all smart contracts and underlying protocol mechanisms that make up the internal structure of the system.
DAI Coin Review and Future
MakerDAO is working hard to brand DAI as the “world’s first neutral currency” and dollar ($), euro (€) and the pound (£) symbols he wants to be as common and recognizable as the logo. .
In its quest to become the first unreliable major currency, DAI will need to be adopted and used by millions of people – a task that requires not only branding but also marketing and education. While it is no easy task, no other stablecoin is better positioned to make it happen.
