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What is Dai (DAI)?
Dai is a stable coin and decentralised cryptocurrency which was produced and controlled by Maker DAO. The value of DAI is secured at $1USD that makes it a stable coin.
Understanding Stable Coin
The CDP (collateralized Debt Position) is a concept related to financial cryptocurrency that’s been developed as a part of the MakerDAO project and offers a solution to the highly volatile nature of cryptocurrencies through DAI which is a stable coin.
Stablecoins are a distinguished set of cryptocurrencies that are created with an intent to alleviate the volatility associated with Cryptocurrencies. Stablecoins also offer certain benefits such as ensuring secure transactions, lower fees, instant transfer etc., DAI is a stable coin that enables its users of all these features as it is backed by underlying assets.
Maker Protocol
It is the foundational system that has been developed by the creator of DAI R.Christensen. The point of the Maker protocol is to enable anyone from around the world to produce DAI stable coins by making use of a variety of cryptocurrencies as collateral.
Ethereum, USD Coin (USDC) are some of the examples of these coins or tokens that are accepted as collateral.
Decentralised Exchange
It is a cryptocurrency exchange that enables users to exchange coins and tokens. The nature of DEX (decentralised exchange) transactions is such that there is no involvement from a third party making it a permissions transaction.
However, DEX runs on computer code that can lead to smart contracts that run on a blockchain. The blockchain and smart contract together ensure the execution of any transaction without any need for bank approval, credit check.
Who are the founders of Dai (DAI)?
MakerDAO was founded by Danish entrepreneur R.Christensen in the year 2014 with its operating system being Ethereum.
Co-Founder and CE: Rune Christensen
What makes Dai (DAI) unique?
- A Dai is always worth USD1D each
- A DAI can be owned, accepted and transferred by anyone if they have an Ethereum wallet.
- The users have the liberty of trading it freely which is similar to other ERC20 tokens
- The exchange doesn’t involve any middlemen.
- It doesn’t have any individual or company’s control over it and can’t be shut down by the government.
- With DAI, USD can now be transferred across the borders without any fees.
How Many Dai (DAI) Coins are in circulation?
The supply of DAI is dynamic with no upper limit on the total supply. There are around 940 million DAI in circulation as of 2020.
Why is DAI finer than many other stable coins?
DAI is one of the examples of stablecoins while other ones are USSR and USDC. These tokens’ issuance and the regulation are under the control of governing companies that make it difficult to call them deconcentrated.
USDT is a token that is issued by Tether and every time a USDT token is minted by Tether it must be by a USD. Therefore, there should be an individual or an organisation that can keep track of the minted tokens to make sure each one is backed by real money. In the year 2019 $5 billion worth of stablecoins were accidentally minted but destroyed promptly.
In the year 2017 -18 Tether was accused of minting tokens that aren’t backed by underlying assets. The accusations also suggested that the tokens were used by Tether to buy Bitcoin and subsequently manipulate its price. Since these tokens are controlled by companies and subjected to human intervention such problems are bound to arise. On the contrary,y DAI is independent since its issuance and governance are controlled by smart contract- programs that are run on the immutable blockchain.
How do we buy DAI?
DAI is available for purchase on all major exchanges and decentralised exchanges. A simple deposit of fiat currency and exchanging it for DAI would work fine. Through
Maker Collateral Vault one can generate as well as borrow DAI which can be created through Maker DAO’s Oasis Borrow dashboard and subsequently deposit assets that are Ethereum based as collateral.
The same works for loans that are traditionally collateralized. Once the borrowed DAI is returned, it unblocks the collateral upon deducting a fee. The implementation of all of this is made possible by the smart contracts that make Dai an efficiently decentralised stable coin.
How does Dai (DAI) Work?
Dai has been created with the intent to carefully balance the economic incentives by enabling it to continuously approach the United States dollar value. USD 1D)
The mechanisms are designed in such a way that they work to decrease the price when Dai is above USD 1 and vice versa. This is why the value of Dai is either above or below $1USD but never achieved.
Uses of Dai
If you own DAI, it can be used in numerous ways across the network of Ethereum such as Staking idle tokens to generate interest, borrowing DAI to purchase other coins, Dai can also be a stable investment for holding profits from other token sales, in-game purchases etc.,
Purpose of Maker token
There are 2 distinct features to the Maker token.
One of which is owning Maker enables you with the right to vote on the Maker system.
This is why Maker is called Maker DAO
( Decentralized Autonomous Organisation). The holder of MKR can vote on debt ratios and can even shut down the entire system in case of a ruinous failure.
The second distinct feature is paying down debt in a Collateral Debt Position (CDP) would require the owner to pay an annual fee of 1% for taking out the loan which is payable only in MKR. The MKR thus used to pay off the loan will be destroyed. This burning of MKR encourages the value of MKR to increase in the long run.
Conclusion
DAI offers immense flexibility and utility value with its price stability. DAI is prominently used to provide equity for projects of DeFi. However, one downside of DAI is one can end up with a huge loss of overcollateralized assets if DAI is borrowed on Maker protocol. On the bright side, active and informed decisions made regarding the investment are always rewarding. To read more interested articles about cryptocurreny, visit Zeen blog.
