DAI is a stablecoin that operates on the Ethereum blockchain with its value pegged to the US Dollar. DAI manages to maintain its worth without a centralized trust, which sets it apart from its centralized and regulated competitors – like Tether (USDT) or Paxos (PAX).
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What Is Dai?
DAI is a stablecoin that operates on the Ethereum blockchain with its value pegged to the US Dollar. DAI manages to maintain its worth without a centralized trust, which sets it apart from its centralized and regulated competitors – like Tether (USDT) or Paxos (PAX). DAI's decentralized nature and lack of regulating authority mean that no government can influence it or shut it down.
DAI was created by Maker – an autonomous organization whose another project – Makercoin (MKR) – is also an ERC-20 decentralized asset.
The price stability of the coin is maintained through a lending system on the Ethereum (ETH) network. To create DAI, users deposit their ETH into a Collateralized Debt Position – a personal smart vault that stores Ethereum. With the deposited ETH stored in the vault as collateral, a comparable amount of DAI is sent to the Ethereum holder.
DAI is backed with ETH that is locked in publicly-viewable contracts. What's more, the amount of ETH locked in these contracts always exceeds the value of all DAI in circulation. With all contracts openly stored on the blockchain, any user can perform a real-time audit if necessary.
Maker gives DAI its stablecoin properties by implementing a series of balancing mechanisms that kick in if DAI's value strays too far from the dollar. When the price of a single DAI falls below $1, the system encourages users to increase its price. If one DAI is worth over $1, the same incentives encourage the price to decrease. In both cases, money can be made as a result of the price swings.
The further DAI deviates from its $1 equivalent, the better financial incentives there are in forcing it back to its original price.
Pros and Cons of Dai
- Being a stablecoin, DAI supports its value during volatile market shifts;
- DAI is a decentralized token that cannot be limited by regulatory agencies, which makes it an appealing option for users looking to distance their assets from third-party supervision;
- The DAI lending process offers certain monetary perks for its participants;
- Like all other ERC-20 tokens, DAI can be easily stored on any Ethereum wallet.
- Does not have nearly as many trading pairs as its competitors;
- The coin is dependent on Ethereum, which is a rather volatile asset;
- Some experts warn against calling DAI a stablecoin, implying that its stability an aspiration and not a reality.
Where to Buy Dai?
Storing DAI: Best Dai Wallets
DAI is innovative and one-of-a-kind in a variety of ways: it is the first decentralized stablecoin to be fully backed by another crypto and has a complex and well-design mechanism behind its price stability. Since its launch in 2013, the coin has shown steady growth in both usage and overall market cap growth.
Experts predict that DAI will attract more interest as its developers increase its functionality and focus on additional liquidity options. As any company would, Maker strives to make DAI as successful as it can be. The company realizes the risks of backing their currency by crypto and is constantly developing new ways to make its stablecoin system perfect.
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