What is Dai?

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DAI is an ERC20 token on the Ethereum blockchain that has a steady value of one US dollar. It is also the key to the MakerDAO lending system.

There are plenty of stable digital currencies available, but only one can claim to be widely used, decentralized, and trustless. In this article, we find out why DAI stands out from the rest of the stablecoin pack.

Crypto with steady value isn’t new or rare. Tether(USDT) has been around for years and is by far the largest stablecoin available. We also have stablecoins such as USDC, PAX, Gemini Coin, and the upcoming Libra all competing to be the stable cryptocurrency of choice, but they all rely on trusting someone to honestly keep dollars in the bank. DAI changes that.

What is DAI

DAI is an ERC20 token on the Ethereum blockchain that has a steady value of one US dollar. It is also the key to the MakerDAO lending system. When a loan is taken out on MakerDAO, DAI is created. It’s the currency users borrow and pay-back.

Once DAI is created, it functions simply as a stable Ethereum token. It can be used to pay for things and is easily transferred between Ethereum wallets.

Who Invented DAI?

DAI is a product of MakerDAO, which was founded by Rune Christensen, the current CEO.

Did you know?

The current version of DAI is technically an updated version of the stablecoin called multi-collateral DAI because it allows multiple types of crypto assets to be used to create DAI. The old version of DAI is now called SAI and known as single-collateral DAI because it could only be created by using ETH as collateral. The first crypto asset besides ETH accepted in the new multi-collateral DAI system is Basic Attention Token (BAT).

What’s so special about it?

The price of DAI is kept in check through a system of smart contracts automatically executing themselves. If the price of DAI fluctuates too far from one dollar, Maker (MKR) tokens are burned or created in order to stabilize the price of DAI. MakerDAO’s algorithms automatically manage the price of DAI so no one person needs to be trusted to keep the currency steady. If the system works as intended and one DAI equals one US dollar, MKR holders benefit because the total supply of MKR decreases–making MKR more rare and valuable.

To date, DAI has remained stable for two years with only minor fluctuations from its one dollar price peg.

Did you know?

MakerDAO recently upgraded their system to include the DAI Savings Rate in which DAI holders can lock their DAI holdings into the MakerDAO’s Oasis app to earn interest.

What else is different?

Since DAI is simply a token on Ethereum, anybody can use or build with DAI without permission. As an ERC20 token, DAI functions as a building block that can be incorporated into any dapp needing a stable asset or payment system.

Developers can also wrap DAI in different smart contracts and modify it for different uses. For example, xDAI takes DAI and puts it on a superfast and low-cost sidechain to make transfers and payments easier and more efficient. Chai and rDAI takes normal DAI, puts it in an interest generating pool, and lets users control what happens to the interest as it accumulates.

How is DAI produced?

DAI is created whenever someone takes out a loan on MakerDAO. DAI is destroyed when loans are paid back.

How do you get hold of DAI tokens?

The most direct way to get DAI is by taking out a loan on MakerDAO’s Oasis platform. You can also trade DAI on that same platform or use a centralized exchange such as Coinbase.

What can you do with DAI?

One of the main uses for DAI is as a stable hedge or counterweight against the volatility of more popular crypto-assets such as Ethereum or Bitcoin. The stable value of DAI means it is good for investors or traders who believe the market is about to go down.

Since DAI is stable, it’s also one of the most ideal crypto assets to spend. The Coinbase Card allows users to spend DAI and other crypto assets by converting the crypto into fiat on a Visa card. If you are in the UK or Europe, you can also spend DAI using the Monolith Visa debit card.

MakerDAO is working hard to brand DAI as the “world’s first unbiased currency” and it’s starting with the logo, which they want to be as ubiquitous and recognizable as symbols for the dollar ($), euro (€), and pound (£). In the quest to become the first trustless mainstream currency, DAI will have to be adopted and used by millions of people–a task requiring not only branding, but also marketing and education. Though not an easy task, no other stablecoin is better positioned to make it happen.