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About DAI
Key Points
- DAI is an Ethereum-based stablecoin managed by the Maker Protocol and MakerDAO.
- DAI is soft-pegged to the U.S. dollar and collateralized by a mix of cryptocurrencies.
- Multi-Collateral DAI was launched in November 2019.
- MakerDAO is a decentralized autonomous organization governed by MKR token holders.
- Rune Christensen founded MakerDAO in 2015.
Generating DAI
- Users generate DAI by depositing crypto-assets into Maker Vaults on the Maker Protocol.
- DAI
About Dai: A Stablecoin Pioneer
Introducing DAI (DAI): A Stablecoin Pioneer
DAI, an Ethereum-based stablecoin, boasts a stable price, courtesy of the Maker Protocol and the decentralized autonomous organization, MakerDAO, which oversee its issuance and development.
The value of DAI is stabilized against the U.S. dollar through a soft peg, with its issuance collateralized by a diversified portfolio of cryptocurrencies, which are deposited into secure smart-contract vaults whenever new DAI is created.
It is crucial to distinguish between Multi-Collateral DAI and its predecessor, Single-Collateral DAI (SAI), which was limited to a single cryptocurrency as collateral. Notably, SAI does not offer the DAI Savings Rate feature, which enables users to accrue interest by holding DAI tokens.
In a significant milestone, Multi-Collateral DAI was successfully launched in November 2019, marking a new era in decentralized finance.
The Visionaries Behind DAI: Unveiling the Founding Masters
One of the distinguishing characteristics of DAI is that it wasn’t conceived by a single individual or a small coterie of co-founders. Rather, the development of the underlying software and the issuance of new tokens are overseen by the decentralized autonomous organization, MakerDAO, and its governing protocol.
MakerDAO is a decentralized autonomous organization, a novel entity that operates independently through the utilization of smart contracts – self-executing agreements codified in software code and deployed on the Ethereum blockchain.
This organization is democratically governed by its Maker (MKR) governance token holders, who wield influence akin to shareholders in a traditional company. With voting power proportionate to their MKR holdings, these stakeholders can cast ballots on pivotal decisions shaping the future of MakerDAO, Maker Protocol, and DAI.
MakerDAO was originally founded in 2015 by Rune Christensen, a visionary Danish entrepreneur. Prior to embarking on the Maker ecosystem, Christensen pursued studies in biochemistry and international business in Copenhagen, and successfully established Try China, an international recruiting firm.
Generating Dai: A Step-by-Step Guide
Dai, the second-largest decentralized stablecoin by market capitalization, has recently been surpassed by Terra’s native stablecoin, UST. Both are cryptocurrency-backed and pegged to the US dollar, whereas top stablecoins like USDT, USDC, and BUSD are collateralized by traditional assets, including cash, corporate bonds, US treasuries, and commercial papers (which have faced increased scrutiny in the case of USDT). So, what exactly backs Dai? As a collateral-based cryptocurrency, Dai is soft-pegged to the US dollar. Users generate Dai by depositing crypto-assets into Maker Vaults on the Maker Protocol. Through interfaces like Oasis Borrow or community-built platforms, users can access the Maker Protocol and create Vaults. On Oasis Borrow, users can lock in collateral such as ETH, WBTC, LINK, UNI, YFI, MANA, MATIC, and more. Subsequently, they can borrow against their collateral in Dai, provided it falls within the collateral ratio, which ranges from 101% to 175%, depending on the risk level of the locked asset.
The Unparalleled Characteristics of DAI
DAI’s primary benefit stems from its stable, soft peg to the value of the U.S. dollar, thereby ensuring a relatively consistent exchange rate.
The cryptocurrency market is infamous for its erratic price swings, with even the most liquid and prominent coins, such as Bitcoin, often experiencing drastic price fluctuations of 10% or more within a single trading day. In this turbulent environment, traders and investors are naturally inclined to diversify their portfolios by incorporating safe-haven assets, whose relatively stable valuations can help mitigate the impact of significant market oscillations.
Among the diverse range of assets, stablecoins stand out, with DAI being a notable example. These cryptocurrencies are distinguished by their pegged value to assets with relatively stable valuations, typically traditional fiat currencies such as USD or EUR.
One of the most significant benefits of DAI lies in its decentralized governance structure, wherein a decentralized autonomous organization, rather than a private entity, oversees its management through a software protocol. Consequently, all instances of token issuance and burning are meticulously managed and publicly recorded via Ethereum-powered, self-executing smart contracts, thereby rendering the entire system more transparent and less susceptible to corruption.
Furthermore, the development of DAI software is overseen through a more democratic process, wherein direct voting by the token’s ecosystem participants ensures a collective voice in decision-making.
The Circulating Supply of DAI [DAI] Coins: An Overview
In contrast to Bitcoin (BTC) and Ethereum (ETH), which rely on mining to generate new tokens, and unlike Tether (USDT), which is issued by a private company according to its own issuance policies, new DAI tokens can be minted by any user through the utilization of the Maker Protocol.
Operating on the Ethereum blockchain, the Maker Protocol is the software that orchestrates DAI issuance. To maintain a stable, soft peg to the U.S. dollar, the Maker Protocol ensures that each DAI token is adequately collateralized by a corresponding amount of other cryptocurrencies. As part of this process, the Protocol enables users to deposit their cryptocurrencies into a vault – a smart contract on the Ethereum blockchain – as collateral, thereby minting a corresponding amount of new DAI tokens.
The total supply of DAI is theoretically unlimited, as it fluctuates dynamically in response to the amount of collateral stored in vaults at any given time. As of November 2020, the circulating supply of DAI stands at approximately 940 million units.
The Security Mechanisms Underpinning the DAI Network
DAI, an Ethereum-based token, boasts ERC-20 compatibility, thereby leveraging the robust security afforded by Ethereum’s Ethash algorithm.
Where to Acquire DAI (DAI) Cryptocurrency?
The acquisition of DAI tokens is facilitated through various online avenues, including prominent Decentralized Finance (DeFi) token swap protocols that provide seamless exchange opportunities.
- Notable decentralized finance (DeFi) protocols such as Uniswap
- and Compound
Furthermore, conventional cryptocurrency exchanges:
- The esteemed Coinbase Pro
- The prominent Binance
- The renowned OKEx
- The distinguished HitBTC
The Downfall of Algorithmic Stablecoins and Its Far-Reaching Consequences for DAI
Although DAI pioneered the concept, it began to cede market share to emerging alternatives during the last bull market, particularly Terra’s UST – now rebranded as TerraClassicUSD. Unlike DAI, UST is an undercollateralized and algorithmic stablecoin pegged to the U.S. dollar. However, lacking sufficient collateral and due to its algorithmic design, the stablecoin and the underlying Terra, now TerraClassic, token were vulnerable to an aggressive sell-off, ultimately unable to withstand the pressure. In the aftermath, the entire Terra ecosystem collapsed, wiping out over $18 billion from UST’s $18.6 billion market capitalization following the crash. Read our comprehensive analysis of the Terra crash.
Unsurprisingly, the precipitous decline of UST had a profound impact on other stablecoins, including DAI. Although DAI successfully maintained its peg to the USD, its market capitalization plummeted from $8 billion to $6.33 billion. However, once the token found its floor, it began to experience a surge in demand, which subsequently drove the price of DAI above its peg, causing it to trade at a premium (slightly above $1).
While the UST crash cast a shadow over the viability of algorithmic stablecoins, the resilient performance of DAI during this tumultuous period suggests that decentralized stablecoins may still have a future. Moreover, this episode underscores the paramount importance of over-collateralization in ensuring the stability of these instruments.
Associated Resources:
Delve into the world of Tether (USDT), a prominent stablecoin whose value is meticulously pegged to the US dollar.
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