What is DAI?
DAI is a stablecoin designed to address the volatility issue in the cryptocurrency market. It operates on the Ethereum network as an ERC-20 token, allowing for seamless transfer between users. DAI’s target is to remain pegged to the US dollar, trading as close to $1 as possible. The stablecoin was developed by Maker with the goal of creating a decentralized, low-volatility crypto asset. Launched in late 2017, it has become the leading decentralized stablecoin in the market.
How does DAI work?
DAI operates through the Maker protocol, a system of smart contracts on Ethereum. The process involves users locking their crypto assets, such as ETH and BAT, as collateral in a decentralized smart contract-run vault in exchange for DAI tokens. Over 15 types of tokens can currently be used as collateral for a DAI loan. To unlock their collateral, the user returns the DAI and pays a fee. If the value of DAI rises above $1 on an exchange, users will mint and sell DAI for profit, increasing the supply and bringing the value back down to $1. Conversely, if DAI falls below $1, users will buy DAI on the exchange and lock it as collateral, decreasing the supply and driving its value back towards $1.
Safety measures are in place in case of a collapse in collateral token value, such as over-collateralization and the option to repay borrowed DAI or add more collateral to the vault.
How to use DAI?
Maker has created a dApp called Oasis for utilizing DAI’s features. The platform has a user-friendly interface and only requires connecting a wallet to start using it. Oasis offers three main features: Oasis trade, a decentralized exchange to trade DAI for other ERC-20 tokens; Oasis borrow, allowing users to create vaults and unlock DAI by locking up other tokens; and Oasis save, where DAI holders can earn returns on their stablecoins.
Why is DAI valuable?
DAI’s key value is its stability in a market characterized by drastic price changes. Its system allows its value to remain close to $1. Additionally, DAI is easily tradable on multiple exchanges and offers returns for DAI token holders on Oasis. Its decentralized design makes it a popular choice over centralized stablecoins like USDT and USDC.
How to obtain DAI tokens?
DAI is available for trade on multiple exchanges in the DeFi ecosystem, including the Oasis platform, designed for easy use of the token. Alternatively, DAI can be unlocked from a vault on Oasis by providing another stablecoin as collateral.
Is DAI a good investment?
DAI is the leading decentralized stablecoin for a reason, offering stability as it is pegged to $1. However, it is not typically viewed as an investment due to its low volatility.
How are DAI tokens created?
DAI coins are generated on the Oasis platform through the Oasis borrow feature. Users create a vault by putting ERC-20 tokens as collateral and in exchange, they receive DAI tokens. The ERC-20 tokens can be recovered by returning the unlocked DAI.