DAI, a decentralized stablecoin cryptocurrency that is softly tied to the US Dollar at a 1:1 ratio, is no stranger to cryptocurrency veterans. DAI was founded by the MakerDAO project (MKR), one of the first decentralized protocols on the market, which has been in operation since 2014. The project’s goal is to provide a solution to the excessive volatility that cryptocurrencies experience while preserving the ease of use that has become a hallmark of the crypto sector.
DAI, like USDC, is a dollar-pegged stablecoin with an exchange rate that reflects US Dollar values against the other fiat currencies. The DAI coin is supported by cryptocurrency collaterals that can be seen publicly on the Ethereum blockchain, unlike some other stablecoins that are directly supported by USD.
So, if you’re interested in investing in DAI coins or just want to learn more about this stablecoin cryptocurrency, let’s take a look at everything you need to know.
DAI In Depth
Unlike central banks, DAI keeps its stability without relying on institutional confidence. Instead, it is run by a decentralized group of people who decide on system parameters by voting. Anyone who has the Maker governance token or MKR can take part in the system’s management.
The Maker platform smart contracts and other mechanisms support this process by allowing the stablecoin to shift and modify in response to market changes to preserve its 1:1 ratio with the US Dollar. The maker does not require a centralized controller to monitor collateralization, unlike other stablecoins. There’s also no need for conventional banking or other institutions to keep things running smoothly.
The coin uses smart contract technology to preserve relative decentralization that can’t be shut down or censored because it is based on the Ethereum blockchain.
Additionally, DAI can be exchanged without the use of a mediator if the two parties involved both have an ERC-20 suitable crypto wallet. You simply need an Ethereum wallet to exchange DAI, whether you’re from the USA, Sweden, or the Philippines. As a result, it is a borderless technology that resembles other cryptocurrencies like Bitcoin and Litecoin.
What may DAI be used for?
DAI is commonly used as a steady hedge or counterbalance to the volatility of more famous cryptos such as Bitcoin and Ethereum. DAI’s consistent value makes it a solid choice for investors or traders anticipating market volatility. DAI is one of the best cryptos to invest in because it is so stable.
What About The DAI Tokens?
On MakerDAO’s Oasis platform, you can sell, buy, trade, and swap DAI, or use the SwissBorg app for convenience.
MakerDAO is a decentralized organization devoted to delivering global financial stability and transparency. The Ethereum blockchain is used to power the project. There are two different crypto tokens in the Maker project. MKR, the governance token that allows decentralized governance, and DAI, the decentralized stablecoin, are both based on the ERC-20 Ethereum standard.
One of the project’s main goals is to develop decentralized digital assets that are linked to various forms of collateral, including gold, fiat currencies, and other real-world assets. The team is well-known, and Vitalik Buterin has backed them up.
The MKR token, which allows holders to vote on crucial platform choices like DAI issuance, target rates, risk parameters, price feed sensitivity, and global settlement decisions, demonstrates the network’s decentralized nature.
The Maker coin, for example, would be used to pay the “stability charge” if someone took out a loan in DAI. MKR coins, on the other hand, can’t be mined and are removed from circulation (or destroyed) during the settlement process.
Balancing Incentives
The goal of having all of these moving pieces is to construct a working game theory to precisely balance financial incentives, all of which work together to keep DAI’s $1 worth consistent.
When a single DAI goes below a dollar, incentive strategies kick in to keep the dollar stable. Furthermore, DAI coins are usually over-collateralized, meaning that they are backed by a surplus collateralization ratio rather than a 1:1 ratio with the underlying asset (such as Ether). If one Ether is worth $100 and the collateralization ratio is 150 percent, you can make 66 DAI.
Final Thoughts
The benefits of DAI are quite a few, especially considering that stablecoins in the crypto world are still very new. Stablecoins like DAI can serve as a bridge between digital currency markets and the real-world economy. The larger DAI in circulation, the more likely people are to trust it as a method of payment.
As its reputation grows, it will gain popularity and stability, increasing its value in the process. With a DAI-powered economy, transferring money could be instant and free, while everyone would have access to digital dollar bills that won’t lose their value or become defunct.
