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Dai is a unique stablecoin that operates on the Ethereum blockchain and offers a solution to the volatility of traditional cryptocurrencies. Unlike other cryptocurrencies, the value of Dai is pegged to the US dollar, providing stability and protection from market fluctuations.
To generate Dai, users must deposit Ether, the native cryptocurrency of the Ethereum blockchain, as collateral into Maker Vaults. This acts like a loan, where users receive Dai in return for their locked up Ether. Borrowers can only withdraw their Ether after they have repaid the Dai they borrowed, along with a small interest fee. The creation and management of Dai is made possible by the Maker Protocol, which is a set of smart contracts. These smart contracts are self-executing computer programs that automatically complete functions when certain conditions are met. Dai can be stored in digital wallets and is supported on the Ethereum blockchain as well as other blockchains.
Dai is a decentralized stablecoin that is pegged to the U.S. dollar. Unlike other stablecoins such as tether (USDT), USD coin (USDC) and binance USD (BUSD), Dai is managed and maintained by the open-source project, MakerDAO, which operates on the Ethereum blockchain. People who hold the governance crypto token, MKR, are responsible for managing the Maker Protocol and the financial risks of dai.
Dai is built on the Ethereum blockchain, leveraging the underlying technology of Ethereum to offer stability and security to its users. Dai can be used as a currency to trade against other crypto assets, as well as a means for lending, borrowing, and investment in various applications, protocols, services, and products. Some exchanges have even implemented dai as a base trading option, along with other stablecoins.
The creation of Dai occurs when a user borrows against their locked collateral. In order to mint Dai, the user must deposit a certain amount of ether as collateral. For example, if you wanted to mint $1,000 worth of Dai, you would need to deposit $1,500 worth of ether. To maintain its peg to the U.S. dollar, Dai uses a “target rate feedback mechanism,” or TRFM, which adjusts the price in a decentralized manner through a software protocol governed by MakerDAO. The oracle system of Dai and MakerDAO collates price data from various external price feeds, which are then written to the Ethereum blockchain through smart contracts owned and deployed by feed operators.
