What is Dai (DAI)?
Dai (DAI) is a crypto asset that aims to maintain the stable 1:1 value with $ by locking the other crypto assets in contracts.
This means that unlike any other asset-backed cryptocurrencies, which may be issued for the profit companies, DAI is the product of an open source software called the Maker Protocol, a decentralized application running on the top of the Ethereum blockchain.
Who created Dai?
Founded in 2014 by developer Rune Christensen, Maker protocol is an open-source project created as a decentralized answer to all controversial centralized stablecoin protocols of the time.
In 2017, DAI is officially launched on Maker Protocol. Designed to provide a non-volatile, secure lending asset for individuals and businesses alike, Dai is able to do all of that without satisfying the decentralization.
Since getting maker protocol up and running, maker foundation has renounce all authority on the platform to MakerDAO, a decentralized independent organization that now governs the entire Maker Protocol.
Features of DAI
- Dai is an open-source currency.
- Dai is fastly gaining the trust of the users.
- It is a decentralized currency by nature, which is a collateral-backed stable cryptocurrency.
- DAI and MKR tokens are separate tokens to deal.
- Its objective is to solve the every problem that exists with the existence of cryptocurrencies.
- DAI ensures better transparency and security between transactions.
- DAI is guarded by the central authority to ensure that the price remains stable.
What makes DAI unique?
You may have guessed the power of stablecoins from their name, lies in their ability to offer a stable store of value in an otherwise volatile market.
Maintaining the stability of price is most commonly tackled through the use of large, centralized entities- however, maker protocol operates Dai in a completely decentralized manner, even leaving governance of protocol up to the distributed network of the users making up the MakerDAO.
How to use Dai
In addition to being a secure and stable method of payment, Dai offers crypto traders a powerful tool for reducing their risk. During the time of extreme volatility that have become somewhat synonymous with greater crypto currency market, users may park all or some of their funds in Dai to mitigate losses.
It also offers users the ability to access collateralized loans in a way that offers more and more advantages over existing options. Without any sort of requirement of approval from creditors. The Dai users can lock up their digital assets as the collateral and receive DAI, which they can use to buy anything.
Advantages of DAI
- DAI offers a consistent value, and helps to stabilize the crypto loans.
- Offers more privacy
- It is secure, transferable and transparent within the Ethereum ecosystem.
Disadvantages of DAI
- DAI can fluctuate
- Users are limited in currencies they can be used as collateral
- Lack of Liquidity
How does DAI work?
Dai exists as a key component in the concept of CDPs (Collateralized Debt Positions. Collateralized Debt Positions are the smart contracts of the Maker Protocol that users are able to lock their collateral assets in (BAT, ETH, etc) and generate Dai.
A good way to think of CDPs is as secure vaults used for locking the collateral while having the ability to get liquid, stable crypto-cash.
Dai is over-collateralized to prevent liquidation, due to the volatile nature of the assets being collateralized.
To reclaim your collateralized assets, you must return the DAI that was loaned along with an additional fee.
Frequently Asked Questions (FAQ)s
What gives DAI value?
The supply of DAI is based on demand. When a user deposits any supported ERC20 token into Market platform to use as collateral, DAI is created and loaned to the user at a collateral-to-loan ratio of 66%, which increases the supply of DAI. This is where value of Dai is primarily derived from.
How is the DAI network secured?
DAI is an Ethereum-based ERC-20 token, which means that Ethereum Ethash Algorithm secures it.
How do we Store DAI?
DAI is an ERC20 token so it can be stored in any ERC20 compatible wallets such as Metamask, Jaxx, Atomic etc. They can also be stored in hardware wallets such as Trezor or Ledger. Hardware wallets are way more secure to store your tokens as they are not connected to internet.
Bottom Line
There are many stablecoins in the crypto market, but DAI is truly unique, as it is an ERC20 token based on Ethereum blockchain. It’s democratic system of governance makes it stand out from the crowd.
It can be also used as a hedge against the inflation as it maintains the value of $1 in any condition. What makes it unique is that it does it through an automated system of smart contracts on Ethereum blockchain.