DAI is an algorithm stable currency issued by MakerDAO. Maker Dao is an agreement based on Ethereum, which aims to maintain an accurate ratio of one to one with the US dollar. It is mainly used as a way to lend and borrow encrypted assets without intermediaries, thus creating a transparent and least restrictive unlicensed system. So, what exactly is DAI? This article will tell you what DAI is.

Maker DAO was first launched by Rune Christensen, CEO and founder in 2015. The infrastructure of Maker Protocol DAI stable coin was launched in December 2017. The model designed by Make DAO for DAI is different from other major stable coins.

First, DAI is characterized by unprecedented degree of decentralization. Although stable currencies such as USDT (tether) provide cryptocurrencies supported by statutory asset reserves managed by central institutions, no entity controls the issuance of DAI. On the contrary, users who want to hold DAI will submit Ethereum based assets to a smart contract, which uses these assets as collateral to maintain the linkage between DAI and the US dollar.

Second, it is different from most stable coins. The stable currency is backed by a single legal currency or cryptocurrency. DAI can use different cryptocurrencies as collateral: ETH, BAT, USDC, wBTC, COMP, etc. Initially, the Maker Agreement only supported ether as collateral.

However, in November 2019, the technology was updated to include British American Tobacco and USDC, creating today's multi parallel DAI system. The increase in the number of mortgageable currencies reduces user risk and increases the price stability of DAI. New collateral options are increasing through the vote of the MakerDAO community.

Third, token holders earn interest from tokens. Those who hold MKR (maker Dao's local governance token) set the Dai's savings rate (DSR) and act as the Dai's guarantor - which means that if the system crashes, their MKR tokens can be liquidated. This structure encourages the guarantor to ensure the normal operation of the DAI system and its collateral tokens.

DAI is an ERC-20 token that can be purchased from centralized exchanges and decentralized exchanges (dex). In addition, you can open a Maker collateral repository through the Oasis Borrow dashboard of MakerDAO to generate and borrow DAIs, and deposit Ethereum based assets as collateral.

Maker collateral vault - formerly known as collateralized debt position (CDP) in the early iteration of Maker protocol - is a smart contract that holds collateral in custody before the borrowed DAI is returned. The value of the collateral you deposit must always exceed the value of the DAI you receive. If the value of collateral is lower than the value of issued DAI tokens, your collateral will be liquidated. DAI is one of the most integrated digital assets in the blockchain ecosystem. Once borrowed, it can be used for decentralized financial (DeFi) applications or blockchain games.

In addition, the exchange rate between the DAI and the US dollar is soft linked. The higher price stability provided by DAI stablecoins urges investors to consider DAI not only as a stable storage means of long-term value, but also as a feasible choice for daily trading purposes, which greatly expands the overall utility of blockchain technology and cryptocurrency system.

summary

The above is an overview of DAI. In addition, DAI is not a hard linked stable currency, so its value may be slightly different. It actually maintains a free floating linked exchange rate system, which is consistent with the low volatility of the US dollar. As a stable currency, DAI aims to be as close as possible to US $1. It may change from time to time because the ratio of collateral to debt under the agreement is always changing.