HomeCrypto blogWhat is DAI? | DAI Token Explained

What is DAI? | DAI Token Explained

What is DAI token? A decentralized cryptocurrency called DAI strives to keep a constant 1:1 value relative to the US dollar. Consequently, 1 DAI must be equivalent to 1 USD. In this article, we’ll be looking at what DAI is, who designed it, how it works, and what is a die token and I’ll be sharing my thoughts on it. 

What exactly is DAI Crypto? 

What is DAI token? DAI or Dii is an Ethereum blockchain erc20 token. It’s a stablecoin with a one-to-one correlation to the value of the US dollar. It tries to keep its value concerning us dollar by tying up other crypto assets and contracts. 

DAI is a decentralized application that runs on top of the Ethereum blockchain and is the result of open-source software known as maker protocol. Unlike other cryptocurrencies directly backed by us, dollar DAI is linked to cryptocurrency collateral. This means that DAI stable coins are created through the maker protocol platform, which takes a variety of cryptocurrencies as collateral. DAI can also be purchased on various cryptocurrency exchanges using fiat money such as us dollars. 

If consumers want to buy die they can use eth to buy the stablecoins dollar equivalent on any exchange or utilize the maker protocol to collateralize eth and other assets. DAI is also widely used in the decentralized finance ecosystem, making it a helpful stablecoin by supporting numerous Defi functionalities like lending, borrowing, and trading.

Decentralized Oracles
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Who created DAI Token?

The maker protocol formally released the DAI in December of 2017. As a non-volatile lending asset for businesses and people. The maker protocol was developed by the maker foundation and launched in 2014 by Rune Christensen the maker foundation quickly relinquished control of the protocol to make her DAO a decentralized autonomous organization or dap that now oversees the maker protocol. The primary reason for creating DAI was to increase openness and audibility. Ether is the direct collateral for DAI and it’s tightly confirmed on the Ethereum blockchain, furthermore because intelligent contracts manage it no government or regulatory authority can confiscate or censor it.

How does DAI stablecoin work?

What is DAI token? DAI is built on the maker protocol which enables nearly anybody to create stable coins using several cryptocurrencies as collateral. This protocol is an open-source project to run a credit system that allows users to take out loans secured by cryptocurrency. These loans enable a lender to secure a loan by utilizing crypto-based assets that they control. They also offer lower interest rates than unsecured loans because lenders can seize and sell the purchase if the borrowers cannot repay the debt. Likewise, DAI preserves its value by using eth as collateralized debt. The maker protocol operates on Ethereum through smart contracts in the form of collateralized obligations allowing borrowers to lock in eth and other crypto assets, thus collateralizing them to generate new DAI tokens in the form of loans.

A DAI is produced when a loan is taken out on the maker DAO. Once DAI has been built it functions as a stable ERC 20 coin. Similarly when the debts are repaid dai is destroyed. If the borrower wants to get the locked heath back he must return the die to the protocol and pay a charge. The maker protocol will then take the collateral and sell it through an internal market-based auction mechanism.

The smart contracts also keep the price of die under check and execute themselves automatically. If the price of die deviates too far from one dollar maker or MKR tokens and Ethereum tokens are burned or generated to keep the cost of DAI stable. DAI has been relatively stable for over three years with only slight variations from its one-dollar price peg. 

To summarize DAI is essentially an Ethereum token that anyone can use without authorization. DAI is an erc20 currency that can be included in any decentralized application that requires a stable asset or payment system and is easily transferred between Ethereum wallets.

Future of Crypto currency
Cryptocurrency the Future of money.

What is DAI Stablecoin?

DAI is the maker DAOs native stablecoin, it’s tied one-to-one to the us dollar and is the currency with which users borrow and repay on the maker protocol. It’s easily transferable, transparent, and secure as evidenced by its insurance on the Ethereum blockchain. It can be stored in personal hardware wallets like an erc20 token, where users retain custody of the private keys.

A transaction with die does not necessitate opening an account or completing any KYC procedures. It is without a doubt the most private stablecoin available. DAI has a market capitalization of over 7.2 billion dollars at the time of writing this article. DAI provides traders with an effective tool for avoiding the severe volatility of various cryptocurrencies, the values of which are determined by the open market.

Related: Custodial vs Non custodial wallets


What is DAI token? DAI’s new stablecoins are appearing at a rapid rate in the stablecoin arena. As a result, all the latest and existing stablecoins compete fiercely. DAI is now the fourth largest stablecoin in terms of market capitalization trailing only behind USDT, USDC, and BUSD. Although DAI is a rising stablecoin it has some flaws that could cause problems in the long run.

One of these issues is that it’s only listed on a few major exchanges and has far fewer trading pairs than other controlled stablecoins such as USDT or USDC. Another issue is that it’s collateralized by Ethereum, which is a risky asset in and of itself, it indicates that holders of algorithmic-based stablecoins face far greater risk than holders of centralized stablecoins collateralized by money. It’s also more vulnerable to us dollar price wings than centralized stablecoins because Ethereum primarily collateralized it. I hope you got value from this article and have a better understanding of what DAI is so what are your thoughts on DAI leave a comment below.



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