What Is MakerDAO and Dai? How Does DAI Work?
What Is Dai (DAI)?
Dai functions as a stablecoin, keeping its value stable by being tied to the US dollar. Unlike conventional stablecoins, Dai is backed by a blend of various cryptocurrencies, which are securely stored in smart-contract vaults when new Dai tokens are created. MakerDAO oversees Dai, an algorithmic stablecoin that can vary in its maximum supply. It is worth noting that the Ethereum blockchain allows for transparent monitoring of the collaterals that protect Dai’s value, distinguishing it from other well-known stablecoins that rely solely on USD support.
The DAI coin exchanges, which operate without intermediaries and are overseen by a DAO, guarantee a smooth, transparent, and unhindered blockchain network. The term “stablecoin” signifies the strong connection between 1 DAI and 1 USD.
As the DeFi industry continues to expand, Dai and MakerDAO will capitalize on new opportunities to gain widespread acceptance and adoption. The Maker protocol’s upgrade has facilitated the development of other DeFi applications that function within the Dai system. These applications empower users to securely access a wide range of financial services through a decentralized and trustless approach. This growth will not only provide more investment options but also create more avenues for individuals to harness the decentralized nature of blockchain technology.
Origin Of Dai
Dai’s history began on December 18, 2017, when it was introduced on the Ethereum blockchain within the MakerDAO ecosystem. Its main feature was its strong connection to the USD. The founder of MakerDAO, Rune Christensen, had already created a peer-to-peer cryptocurrency lending platform two years prior to the development of Dai in 2015. The goal was to offer decentralized financial services, and Dai was a groundbreaking addition as the first decentralized stablecoin.
Initially, the Maker protocol only accepted ETH as collateral for generating Dai. To acquire Dai, users had to buy ETH and lock it in a smart contract. However, in November 2019, the system was modified to include BAT and USDC, making it easier to generate Dai using alternative digital assets. This change made the Dai system multi-collateral, allowing for a wider range of cryptocurrencies to be used as collateral. As a result, users could now generate Dai without needing to obtain ETH and larger amounts of Dai could be issued.
Working Of Dai
Dai operates as an ERC-20 token, obtainable on both centralized and decentralized cryptocurrency exchanges. It serves as a collateralized loan within MakerDAO’s Oasis financial lending app, backed by digital assets.
It is worth noting that the DAI-USD peg is flexible, resulting in slight fluctuations in DAI’s value while generally staying close to the USD market value. The DAO ensures a 1:1 peg with USD through the use of algorithms on the DAI blockchain. This is achieved by:
• Governing interest rates in the DAO smart contracts,
• Adjusting collateral assets to generate DAI, and
• Managing the supply of DAI coins in the market.
How Is DAI Token Valued?
The value of the DAI token can be obtained through both DEXs and centralized cryptocurrency exchanges. However, for those who prefer borrowing DAI, the Maker Protocol offers an alternative solution. By submitting Ethereum-based assets as collateral, users can obtain the desired amount of DAI. It is important to note that a larger collateral deposit is required to maintain network liquidity and protect against potential losses if the value of the user’s cryptocurrency drops below the market value of the issued DAI tokens. On a positive note, the borrowing limit increases as the collateral value rises. To ensure a secure loan experience, the Maker Protocol acts as an escrow account, holding the collateral until the borrowed DAI and processing costs are repaid.
It is also worth mentioning that Dai coins are always over-collateralized, meaning there is never a direct 1:1 backing of coins with their underlying assets.
Uses & Benefits Of DAI
DAI possesses remarkable qualities and benefits that make it truly exceptional. Its seamless integration with the Ethereum network allows for its utilization in a wide range of applications, including non-fungible tokens (NFTs), decentralized finance (DeFi), and gaming.
Additionally, holders of DAI have the opportunity to maximize the potential of their idle tokens through the DAI Savings Rate (DSR) program. This initiative enables users to earn interest over a predetermined period of time.
Moreover, DAI’s decentralized nature eliminates the need for intermediaries or credit checks, providing investors with unrestricted and effortless access to their funds.
How To Buy DAI Token?
Acquiring DAI tokens is possible through various online platforms, which include decentralized finance (DeFi) token swap protocols like Compound and Uniswap, among other options. Moreover, these tokens are also obtainable for buying on conventional cryptocurrency exchanges such as Coinbase Pro, HitBTC, Binance, and several others.
Predictions & Future Of DAI Crypto
The future of DAI cryptocurrency looks promising. MakerDAO’s autonomous stablecoin, DAI, is designed to have a steady value of one US dollar, making it a safe investment option for those interested in cryptocurrency. Unlike other coins, DAI offers stability and reduces the risk associated with volatile markets. Industry experts predict that DAI could potentially reach $3.50 by 2025, providing investors with an exciting chance to profit from the growing crypto industry.
Wrapping Up
DAI was developed with the aim of becoming a stablecoin that would offer a viable alternative to the US dollar, enabling global access and usage without restrictions. This objective has been effectively achieved, as the coin has gained significant popularity among cryptocurrency investors and users in the decentralized finance (DeFi) sector. Its steadfast commitment to stability and trustworthiness has positioned DAI as an ideal asset for the DeFi industry, contributing to its increasing prominence as the sector continues to expand and evolve. With its unwavering stability, reliability, and global reach, DAI is primed to play an even more prominent role in the future of the DeFi industry.
