There are many stablecoins out there, but DAI is at a different level altogether. In this review, we will explain everything in detail. According to the DAI structure, it’s a trustless and decentralized stablecoin that has a worldwide adoption and usage. So the question now is, what makes DAI different from others?
Before DAI, there have been other cryptocurrencies with an enduring value. For instance, Tether is one of the oldest and largest stablecoin in the market. Others like Demini Coin, USDC, PAX, and even the upcoming stablecoin from Facebook called Diem.
While these coins are vying for recognition, DAI has upturned the status quo. In this article, we’ll take you through the whole concept, process, and operations of DAI to broaden your understanding of stablecoin.
DAI is a stablecoin maintained and governed by a decentralized autonomous Organization (DAO). One of the ERC20 tokens issued through smart contract mechanisms on Etherum Blockchain with a value of 1 United States Dollar (USD).
The process of creating DAI involves taking out a loan on the platform. DAI is what the users of MakerDAO borrows and pays at the due time.
DAI facilitates the Maker DAO’s lending operations and has maintained steady growth in overall market cap and usage since its inception in 2013. It is founded by the current CEO, Rune Christensen.
Once there’s a new DAI, it becomes a stable Ethereum token that users can utilize to pay or even transfer from one Ethereum wallet to the other.
Unlike other stable coins, which rely on Company holding collateral, Each DAI is valued at 1 USD. Hence no particular company controls it. Instead, it uses a smart contract to handle the entire process.
The process starts when a user opens (Collateralized Debt Position) CDP with Maker and deposits Ethereum or another crypto. Then depending on the ratio, Dai would be earned in return.
Part of or entire Dai earned could be deposited back while claiming back the Ethereum initially deposited. The amount of Etherium is also determined by a ratio that helps to maintain the price of Dai around 1 USD.
Skipping the first stage, a user can also buy Dai on any exchange and know that it’ll be worth close to $1 in the future.
Over the years, Cryptocurrencies with steady value have been in existence, such as Tether, USDC, PAX, Gemini coin, etc. All in a competition to be the most desired stable cryptocurrency, but one needs to trust another to keep dollars in the Bank. However, this is different for DAI.
When a loan is taken out on Maker DAO, Dai is created, that is the currency users borrow and payback. The Dai token creates functions simply as a stable Etheruem token, which can easily be transferred between Ethereum wallets and pay for other things.
The current version of Dai allows multiple types of crypto assets to be used to create Dai. It is technically an updated version of the stable coin called multi-collateral Dai. The first crypto asset besides ETH accepted in this system is Basic Attention System (BAT). Moreover, the old version is now called SAI, known as Single-collateral Dai, because users can only use ETH collateral to create it.
Maker DAO’s algorithms automatically manage the price of Dai. No single person needs to be trusted to keep the currency steady. A price fluctuation of Dai away from the dollar leads to the burning or creation of Maker (MKR) tokens to bring back the price to a stable level.
But if the system works as intended, the DAI price gets stable, in this case, the number of MKR in supply will reduce thereby MKR becomes rare and more valuable, hence MKR holders benefit. For over three years now, Dai has remained stable with only minor fluctuations from its one dollar price tag.
Moreso, anybody can use or build with Dai without permission since it’s simply a token on Ethereum. As an ERC20 token, Dai serves as a pillar to be incorporated into any decentralized application (dapp) needing a stable payment system.
In different smart contracts, developers include Dai and modify it for different uses. Example; xDAI, for easy and more efficient transfers and payments systems used in superfast and low-cost side chains. rDAI and Chai allow users to control what happens to the interests as it accumulates using a normal DAI to design an interest-generating pool.
Because of its proven market stability, no one can overemphasize the uses and benefits of Dai Crypto. However, below are the highlights of the major ones;
This is perhaps one of the reasons for the growing popularity and adoption of DAI by the crypto industry. You can use this stable coin to pay debts, pay for goods and services that you purchase, or even send money to other countries. The good news is that the processes of all these transactions are very fast, convenient, and cheap.
Comparing the same process to using the conventional financial systems, you’ll incur more costs, experience unnecessary and annoying delays, and sometimes cancellations. Imagine a cross-border transaction through the Bank of America and Western Union; you’ll be looking at spending at least $45 and $9, respectively.
This is not so when going through Maker Protocol. The system is on the trustless blockchain and supports peer-to-peer transfers. As such, you can send money to someone in another country within few seconds at a small gas fee.
By locking the Dai stable coin into a special smart contract, members can earn the Dai Savings Rate (DSR). To this, no additional cost is required, no minimum deposit, no geographical restrictions, and no sanctions on liquidity. Part or all of Dai locked can be withdrawn at any time.
The Dai Savings Rate is not only a paddle to financial freedom with complete user control features, but also a game-changer to the Defi movement. The DSR contract is accessible via Oasis save and other DSR integrated projects, including; Agent wallet and OKEx Market place.
One of the annoying aspects of our traditional systems is that users don’t know exactly what happens with their money. They don’t understand the inner workings of the systems, and no one bothers to let anyone know.
But this is not so on the MakerDAO protocol. Users of the network get insights on every single thing that happens on the platform, especially concerning both DAI and DSR.
Moreover, transactions on the blockchain itself are open, as everything stores on the public ledger, which everyone can see. So, with the built-in checks and balances on-chain, users get to understand what’s happening.
Another important aspect is that audited and verified smart contracts on the Maker protocol are accessible to technical users. So, if you’re know-how is advanced, you can even review these contracts to understand the workings more.
We all agree that our conventional financial systems cannot allow such a level of access or information to get into the hands of their customers.
Aside from buying Dai from various Exchanges, some people generate Dai daily from the Maker Protocol. The simple process includes locking surplus collateral in Maker Vaults. The Dai token generated is strictly based on the amount of collateral a user locks on the system.
Many people do this to acquire more ETH with the turnover, as they believe ETH price will increase in the future. Some business owners do this to generate more capital, girding crypto’s volatility but locks their funds in Blockchain.
DAI is helping the Maker ecosystem to gain credence and global adoption. As more and more projects recognize stablecoin and use its features, many people will start to use DAI.
One of the good things about DAI is that developers can rely on it to provide a stable asset for transactions in their respective platforms. By so doing, risk-averse individuals can participate more in the crypto space. As the user base grows, the Maker Protocol will become more stable.
Given that DAI is one of the foundational holders of decentralized finance as it serves as a way to store value in the movement. It also helps users to generate passive income, measure collateral and transact easily. So, if more people begin to adopt DAI, the Defi movement will also continue to expand.
The government in some countries with an increased rate of inflation, has routinely placed restrictions on capitals, including withdrawal limits that affect its citizens. Dai is a good alternative to such people as one Dai is equivalent to a US dollar and can be exchanged peer-to-peer without interference from the Bank or any third party.
Using the Maker protocol, anybody can create Dai once they deposit collateral in MakerDAO’s Vault, use it to make payments, or earn the Dai Savings Rate. Also, trade the token on popular exchanges or Oasis without the interference of the Central Bank or third party.
The crypto market is fraught with volatility giving that the prices and values fluctuate without warning. So, it’s a relief to have some stability in an otherwise chaotic market. That’s what DAI has brought into the market.
The token is pegged slightly to USD and has a strong backing of collateral locked in the Maker vaults. During seasons of high volatility in the market, users can store DAI without leaving the game due to the adverse situation.
This is a distinguishing aspect between traditional financial services and DAI. With the conventional methods, you’ll have to wait for the set schedules of operations before realizing your financial goals of the day.
Moreover, even if you use other outlets which your banks provide, such as the ATM machine or mobile and desktop app, to transact during the weekends, you’ll still have to wait until the next business day. The delays in these transactions can be frustrating and annoying. But DAI changes all that.
Users can complete every transaction on DAI without restrictions or schedules. The service is accessible every hour of the day.
There’s no central authority governing the operations of DAI or controlling the way users can utilize it. As such, a user can generate the token, use it and pay for services or goods from anywhere, at any time according to personal schedule.
Decentralized Finance experienced global recognition and adoption in 2020. This is why many people also recognize the presence and importance of DAI in the ecosystem.
The stablecoin is one of the critical aspects of DeFi because it facilitates operations in the projects stemming from the movement.
DeFi needs liquidity to be operational, and DAI is a good source for it. If DeFi projects must exist on the Maker protocol and Ethereum, there must be adequate liquidity. If any of the DeFi projects don’t provide adequate liquidity, which ensures continuous transactions, no one will use it. This means that the DeFi project will fail woefully.
Liquidity pools are very important to the decentralized finance ecosystem. With these pools, many people believe more in the projects even if their user base is small. When there’s shared liquidity, the trading volume also increases, thereby attracting more people to the ecosystem.
Also, shared liquidity helps the DeFi projects to focus more on customer satisfaction, and with that, they’re able to scale up their projects. This is why DAI’s shared liquidity has become very important as a boost for DeFi projects.
Another aspect is the stability that DAI brings to DeFi projects. It is a stablecoin that facilitates lending, borrowing, and investing across different decentralized applications.
The strong belief of constant rise in the value of Bitcoin has made it a good store of wealth. Many people don’t spend theirs because of fear of having it rise after spending what they have. Using DAI as a currency has little or no risk as it’s a stable coin with a value always around 1USD. Hence one is free to spend and use it as a currency.
Kucoin: This is a popular exchange that lists Dai amongst its assets. To get the stablecoin on the platform, you have to explore two options. The first one is to deposit Bitcoin or any other crypto in your wallet.
The second one is to buy Bitcoin and use it to pay for Dai. Kucoin is not very user-friendly when you compare it to Coinbase. If you’re a newbie, it’s best to leave this platform, but if you’re a pro, Kucoin can work for you.
Coinbase: Though Dai was recently added to Coinbase, it’s seen as the easiest way to buy crypto online. Signing up is fast and easy. You can use either a credit card or bank account for payments. Coinbase equips its users with a secure and reliable cloud-based wallet.
Over the years, many users have confirmed that the wallet is worth trusting. However, the best approach is to use a personal wallet when you have invested hugely in Cryptocurrency. It’s more secure that way.
Even though DAI is a stable coin, it has had a series of challenges in the past. For instance, DAI experienced a crash in 2020, and it shook its stability a little. As a result of the crash, developers came up with a new feature to support it with USDC, another stablecoin to help DAI remain pegged to USD.
Another challenge that the stablecoin faced was also in 2020, 4 months after the market crash. A DeFi lending protocol had an upgrade, and it destabilized the stablecoin again, leading to a vote by the community to increase MakerDAO’s debt ceiling.
Apart from these past challenges, regulators have risen with a STABLE Act to place stablecoin operations on the same page with conventional banks. Many fear that this legislation will affect DAI adversely because it has been operating as a decentralized system.
Image Credit: CoinMarketCap
But it doesn’t matter the challenges facing the stablecoin, now and in the future. More and more people are embracing DAI, and it will continue to grow.
The general outlook is that DAI prices will continue to rise no matter the challenges. According to the developers, they aim to make DAI stablecoin an unbiased global currency that will be the first of its kind.
Also, the team plans to create a logo that will be globally recognized as a DAI symbol, just like Euro, Pounds, and USD symbols.
To be the top trustless mainstream cryptocurrency, DAI stablecoin needs to attract millions of users, not just branding. The MakerDAO team also needs to engage in serious marketing and education to expand its reach.
The good news is that DAI is already garnering global recognition following its adoption on DeFi Projects. As more and more projects use it, it will be easier to get millions of users to its ecosystem.
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