- Dai is a stablecoin designed to maintain its value near $1.
- Unlike other stablecoins, it is not backed by any fiat currency; instead, it relies on collateral.
What is Dai?
Dai is considered an unbiased cryptocurrency since it operates in a decentralised manner without any controlling organisation. It is a stablecoin built on the Ethereum blockchain and is maintained by the Maker DAO Protocol.
Dai is a stablecoin, but what makes it interesting and different from others is that, unlike other stablecoins, it is not backed by dollar or gold. Instead, Dai is backed by crypto assets. It maintains a list of all cryptocurrencies that can be used to back this stablecoin.
Dai offers numerous benefits, contributing to its rank among the top 17 cryptocurrencies in terms of market cap on the CoinMarketCap. Some of these benefits include secured transactions, lower transaction fees, quick settlements, and instant transfer.
One of the major benefits of using the DAI token is the stability it provides.As a stablecoin, it is designed to offer stability, but DAI takes it to a higher level due to its unique functioning. The stability of DAI was evident during the Terra Luna collapse, which affected many cryptocurrencies. Despite a $2 billion decrease in market cap, DAI managed to maintain its stability and even started trading at a premium within two weeks.
Working of Dai
The theory that Dai follows to function is called Game Theory.
Dai operates as a bank for cryptocurrencies, but it exclusively provides loans in its own cryptocurrency, DAI. It utilises cryptocurrency as collateral to provide loans. There is a fixed list of verified cryptocurrencies against which Dai provides loans, including major cryptocurrencies like Bitcoin, Ethereum, and Cardano.
The amount of loan you can receive will be 60% of the value of the asset you have collateralized. This ensures that in case you do not repay the loans, your asset will be auctioned to recover the losses. Any surplus obtained after recovering the losses will be stored in reserves, which will be used to cover any loss caused by selling assets.
Utility of Dai Stablecoin
Dai currency is used to pay the loan amount. For example, if an investor takes a loan by keeping one Ethereum as collateral, they will get Dai tokens equivalent to 66% of the value of Ethereum. Once the time period is over, they need to return a Dai token of the same value. These returned Dai tokens will be burned, and new Dai tokens will be produced to provide loans.
What Makes Dai Unique?
Decentralised Autonomous Organisation
Most of the other stablecoins are operated and managed by big investment companies, which makes these stablecoins biased. These companies have a significant influence on the working of stablecoins and can manipulate it according to them. However, this is not the case with Dai. It is a truly decentralised autonomous organisation that operates on algorithms and is collectively managed by its stakeholders
Diversified Portfolio
Other stablecoins are mostly pegged to fiat currencies like the US dollar. But Dai is backed by collateral, which is diversified, and includes all the top cryptocurrencies.
