What is DAI and how does it work?

What is DAI?

DAI is a stable cryptocurrency on the Ethereum blockchain.

1 DAI is worth roughly 1 USD.

Since DAI is a token on the Ethereum blockchain, it allows smart contract creators to accept DAI instead of volatile ETH.

DAI is also a fully decentralized cryptocurrency, which means it has many of the same benefits of Bitcoin and Ether: you can be your own bank.

Other stablecoins such as USDT are generated by a central organization holding USD in a bank account. This is not decentralized as the bank account can be shut down or the company can decide to take back the token.

The DAI cryptocurrency is peer to peer electronic cash.

How does it work?

Imagine Ethereum investors who are holding large amounts of ETH. They believe in the long term value of ETH and want to continue holding it, but they also need some spending money.

Using the MakerDAO smart contract, they can deposit and lock up the ETH, and in exchange, generate 67% of it’s value in DAI tokens.

This way, they can get some spending money from their ETH, but if the ETH price goes up a lot they will still own all their ETH and can still make money off it!

Of course, if the ETH price goes down too much, they will have to pay back their loan or risk losing their ETH.

Through this process, DAI is generated and spent, making it available for anyone to use as a decentralized and stable cryptocurrency.

tl;Dr

1 DAI = $1 USD

DAI is decentralized cryptocurrency

DAI is backed by scarce crypto assets

DAI is P2P electronic cash

Use DAI with Mosendo.com