Dai (DAI) is a stablecoin pegged to the United States dollar. DAI’s value is regulated by MakerDAO, its decentralized governance community, and its extremely high security. Along with DAI stablecoins produced by its Maker Protocol platform, which accepts a variety of cryptocurrencies as collateral, DAI can also be purchased with fiat money (such as U.S. dollars) on most regulated cryptocurrency exchanges (CEX), including:
- Coinbase
- Kraken
- Uniswap
- ByBit
- Maker Protocol
- KuCoin
- Binance
- Uniswap
- and many more top exchanges
Here’s what you need to know about DAI so you can decide if it’s the right cryptocurrency for you.
How stablecoins work #
A stablecoin is a cryptocurrency that aims to minimize the volatility typical of cryptocurrencies. The benefits of stablecoins include:
- Secure transactions
- Transfers anywhere in the world in an instant
- Reduced fees
- Speedy settlements
DAI, for example, can do this because it is backed by a reserve currency.
Maker Protocol – What is it? #
DAI’s creator Rune Christensen developed the Maker Protocol as the foundation of the system. DAI stablecoin can be produced anywhere in the world using a variety of cryptocurrencies as collateral. A few of the crypto assets accepted as collateral are:
- Ethereum (ETH)
- Compound (COMP)
- USD Coin (USDC)
- Basic Attention Token (BAT)
DAI: The basics #
Here’s a quick rundown of what DAI exactly is and where you can get it:
- DAI is a decentralized stablecoin whose value is pegged 1:1 to one dollar.
- Date launched: December 2017
- Market cap: $5.69 billion (CoinMarketCap, August 2021)
- Availability: Coinbase, Kraken, Uniswap, ByBit, Maker Protocol, and Coinbase, byBit, and Bybit, are all supported by major centralized exchanges.
Should You buy it? #
Since DAI is linked to the U.S. dollar, it provides the transactional benefits of a cryptocurrency with little volatility. DAI is an Ethereum-specific ERC-20 token. ERC stands for Ethereum Request for Comment, which is a standard that was created in 2015 for creating and enabling smart contracts on the Ethereum network.
Either centralized cryptocurrency exchanges or decentralized exchanges offer DAI for sale outright. Using the Maker Protocol, you can also borrow DAI by depositing Ethereum-based assets as collateral to underwrite the amount of DAI borrowed. To ensure network liquidity, DAI requires a larger collateral deposit than the amount borrowed. The collateral can be forfeited if the value of your crypto-collateral falls below the value of the issued DAI tokens. However, your DAI borrowing limit increases proportionally if your collateral increases in value. Like an escrow account, the Maker Protocol holds collateral until the borrowed DAI and processing fees are returned.
The fact that DAI is widely integrated within the Ethereum blockchain is another unique feature. It can be bought or borrowed for use in hundreds of decentralized applications, including:
Here are a few other features worth considering.
1. Passive income #
The DAI Savings Rate (DSR) is another interest-generating program. Through a lockup period, users can put idle DAI tokens to work and earn a variable interest income. Additionally, the DAI owner can deposit tokens directly into a MakerDAO smart contract for passive income. Interest is automatically added to the account by the smart contract. It is possible to withdraw the investment and earnings at any time without a minimum deposit requirement.
2. Decentralized freedom #
DAI investors enjoy unrestricted access to their funds due to the decentralized design of the company. Its permissionless and transparent system eliminates the need for intermediaries, approvals, and credit checks. Other assets and fiat currencies may not have the same advantage.
3. High Security #
DAI’s secure integrated wallet, two-factor authentication, and other security features enhance the ecosystem’s safety. Furthermore, developers in the MakerDAO community verify all smart contracts on the blockchain to ensure their liquidity and viability.
Conclusion #
In addition to the flexibility and utility that DAI provides, the U.S. dollar’s price stability is also a plus. In addition to being able to use DAI across the Ethereum network, it can also be used as follows:
- Earning interest by staking idle tokens
- Buying other coins with DAI
- To hold earnings from other token sales in it as a stable investment
- In-game purchases
The downside of borrowing DAI through the Maker Protocol is the potential loss of your overcollateralized assets. The upside of this unique asset makes it a viable investment that is worth serious thought if you’re looking to dip your toe into crypto.
