Dai (DAI) is a decentralized stablecoin operating on the Ethereum blockchain, designed to maintain a 1:1 peg with the US dollar. Unlike traditional stablecoins backed by centralized reserves, Dai relies on collateralized crypto assets to ensure stability. It is generated through the Maker Protocol, governed by MakerDAO—a decentralized autonomous organization (DAO) where MKR token holders vote on key decisions. Launched in 2017 by Danish entrepreneur Rune Christensen, Dai provides individuals and businesses with a low-volatility digital asset.
How Dai Works
Dai’s stability is maintained via the Collateralized Debt Position (CDP) mechanism:
- Deposit Collateral: Users lock Ethereum (ETH) or other supported ERC-20 tokens into a smart contract as collateral.
- Generate Dai: For example, depositing $200 worth of ETH might allow minting 100 Dai (150%+ collateralization).
- Liquidation Protection: If collateral value drops, the system automatically liquidates assets to preserve Dai’s peg.
- Repayment: When users repay Dai, it’s burned, and collateral is released.
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Key Features:
- Decentralized: No single entity controls Dai.
- Transparency: All transactions are on-chain.
- Dynamic Supply: Adjusts based on demand and collateral.
Pros and Cons of Dai
| Advantages | Limitations |
|---|---|
| ✅ Hedge against volatility | ❌ Lower capital efficiency |
| ✅ DeFi integration | ❌ Risk of liquidation |
| ✅ Censorship-resistant | ❌ Complexity for beginners |
FAQs
1. Is Dai truly decentralized?
Yes. MakerDAO’s governance is community-driven via MKR token holders, eliminating centralized control.
2. What happens if Dai loses its peg?
Arbitrage mechanisms incentivize traders to restore the peg by buying/selling Dai near $1.
3. Where can I use Dai?
Dai is widely accepted in DeFi platforms for lending, trading, and payments.
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