What is Dai (DAI) Stablecoin Cryptocurrency?
There are plenty of stable digital currencies available, but only one can claim to be widely used, decentralized, and trustless. In this article, we find out why DAI stands out from the rest of the stablecoin pack.
Crypto with steady value isn’t new or rare. Tether(USDT) has been around for years and is by far the largest stablecoin available. We also have stablecoins such as USDC, PAX, Gemini Coin, and the upcoming Libra all competing to be the stable cryptocurrency of choice, but they all rely on trusting someone to honestly keep dollars in the bank. DAI changes that.
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What is DAI Coin/Token?
DAI is an ERC20 token on the Ethereum blockchain that has a steady value of one US dollar. It is also the key to the MakerDAO lending system. When a loan is taken out on MakerDAO, DAI is created. It’s the currency users borrow and pay-back.
Once DAI is created, it functions simply as a stable Ethereum token. It can be used to pay for things and is easily transferred between Ethereum wallets.
In summary, the project brings the following benefits:
- One Dai will always be worth $1.
- No government or other centralized authority can shut it down.
- No individual can control it.
- Like other cryptocurrencies, it can be exchanged directly bypassing all middlemen.
- It can be traded freely as any other ERC-20 token.
- It brings trustless stability to the volatile crypto ecosystem.
- Anyone from any place in the globe can receive and send it just by having an Ethereum wallet.
What is a Stablecoin?
tablecoin is a cryptocurrency whose value is pegged to less volatile assets like fiat currencies, collaterals, other cryptocurrencies, a basket of goods in a consumer price index, precious metals or oil. Some stablecoin projects even attempt to fix a steady value using algorithms. The general idea of a stablecoin is to produce a crypto asset whose value isn’t prone to extreme volatility.
The most popular stablecoins include Tether (USDT), TrueUSD (TUSD), Dai (DAI), Paxos Standard Token (PAX), USD Coin (USDC), Gemini Dollar (GUSD), and others.
Stablecoins play a vital role in the cryptocurrency ecosystem. With them, anyone can:
- Have a stable store of value during volatile market periods.
- Use a stable cryptocurrency for fast and immutable global remittances and payments.
- Send uncensorable transactions to anyone with a wallet and the internet connection.
- Send large amounts of money with lesser fees.
Who is Behind DAI?
DAI is a product of MakerDAO, which was founded by Rune Christensen, the current CEO.
Did you know?
The current version of DAI is technically an updated version of the stablecoin called multi-collateral DAI because it allows multiple types of crypto assets to be used to create DAI. The old version of DAI is now called SAI and known as single-collateral DAI because it could only be created by using ETH as collateral. The first crypto asset besides ETH accepted in the new multi-collateral DAI system is Basic Attention Token (BAT).
What’s Special About DAI?
The price of DAI is kept in check through a system of smart contracts automatically executing themselves. If the price of DAI fluctuates too far from one dollar, Maker (MKR) tokens are burned or created in order to stabilize the price of DAI. MakerDAO’s algorithms automatically manage the price of DAI so no one person needs to be trusted to keep the currency steady. If the system works as intended and one DAI equals one US dollar, MKR holders benefit because the total supply of MKR decreases–making MKR more rare and valuable.
To date, DAI has remained stable for two years with only minor fluctuations from its one dollar price peg.
Did you know?
MakerDAO recently upgraded their system to include the DAI Savings Rate in which DAI holders can lock their DAI holdings into the MakerDAO’s Oasis app to earn interest.
What is MakerDao?
In short:
- MakerDAO is a decentralized organization built on Ethereum to allow lending and borrowing of cryptocurrencies without the need for a middle man
- MakerDAO is made up of a smart contract service that manages borrowing and lending, as well as two currencies: DAI and MKR to regulate the value of loans.
- MakerDAO is a part of the “DeFi” movement — a catch-all term for financial tools and services that don’t rely on centralized parties to coordinate and control access.
Using crypto to borrow crypto used to be very tricky. Since most crypto assets fluctuate so wildly, the amount someone borrowed in crypto and the amount someone had to pay back could be wildly different over a short period of time. That’s where MakerDAO comes in. By combining loans with a stable currency, MakerDAO wants to allow anyone to borrow money and reliably predict how much they had to pay back.
In this article, we learn how the MakerDAO protocol managed to attract over 2% of the total ETH supply by letting you loan money to yourself.
How are MKR tokens produced?
MKR is an ERC20 token that is created or burned depending on how close the DAI stablecoin is to the US dollar. The creation of new MKR is dependent on the stability of DAI. If DAI remains stable, more MKR is burned decreasing the total supply. If DAI fluctuates too far from the one dollar peg, more MKR is created, increasing the total supply.
What can you do with MKR?
Since holders of MKR benefit financially from a stable MakerDAO system, they are incentivized to act in the best interest of the MakerDAO protocol. As a result, MKR holders can vote on governance decisions such as how high to set fees and which collateral types can be accepted as collateral by the protocol. In the MakerDAO system, one MKR token equals one vote so people or organizations with large MKR holdings can have a large influence on voting outcomes.
The Future of DAI?
MakerDAO is working hard to brand DAI as the “world’s first unbiased currency” and it’s starting with the logo, which they want to be as ubiquitous and recognizable as symbols for the dollar ($), euro (€), and pound (£). In the quest to become the first trustless mainstream currency, DAI will have to be adopted and used by millions of people–a task requiring not only branding, but also marketing and education. Though not an easy task, no other stablecoin is better positioned to make it happen.