What is Dai?

DAI is a type of digital money issued by MakerDAO that's designed to always be worth the same as one US dollar. It's called a "stablecoin" because it's meant to be more stable than other cryptocurrencies that can change a lot in value.

Stablecoins are like digital versions of regular money, such as the US dollar or the Euro. People like using stablecoins because they don't have to worry as much about their value suddenly dropping, like can happen with other types of cryptocurrencies.

Quick Facts

• DAI is a stablecoin linked to stable assets such as the dollar, pound, or gold.

• It is built on the Ethereum blockchain and can be stored and transferred directly without intermediaries.

• DAI is decentralized and not controlled by a centralized organization, unlike Tether and other stablecoins.

• DAI is commonly used to protect against market fluctuations.

• It is used in decentralized loans and interest-bearing funds.

Who is MakerDAO, issuer of DAI?

MakerDAO is like a bank that runs on the internet, using a special computer system called the Ethereum blockchain. This bank has created a special kind of digital money called DAI that is designed to always be worth the same amount as the US dollar.

Unlike a regular bank, which is controlled by a few people behind closed doors, MakerDAO is controlled by a group of people who own special tokens called MKR. These token owners can vote on important decisions that affect the bank and the value of the digital money it creates.

To make sure the digital money stays stable, the bank requires people to put in a certain amount of another digital currency called Ethereum as "collateral."

This means they have to lock up some of their Ethereum so they can create an equivalent amount of DAI. The bank can adjust how much Ethereum people need to lock up and how much interest they earn to encourage people to save or spend the digital money.

By using this system, MakerDAO is trying to create a fairer way to create stable digital money without relying on a few people making decisions behind closed doors. Anyone can become an MKR holder and participate in the bank's decision-making process.

How does DAI work?

DAI is a type of cryptocurrency that is designed to be "stable" and keep its value at around $1 USD. Unlike other cryptocurrencies like Bitcoin, whose value can fluctuate wildly, DAI is created with a smart contract on the Ethereum blockchain that is meant to maintain a one-to-one ratio with the US dollar. This stability makes DAI a useful cryptocurrency for people who want to avoid the volatility that can be present in other digital assets.

To acquire DAI, you have a few different options.

You can buy it on different exchanges, both centralized and decentralized. Or, you can create it by depositing other cryptocurrencies into a Maker collateral vault. This is like a digital savings account that holds your collateral in escrow until you pay back your loan.

When you put your cryptocurrency into a Maker collateral vault, you are essentially taking out a loan in DAI, which you can then use for different purposes like trading, investing, or participating in decentralized finance (DeFi) applications.

However, it's important to remember that when you create DAI through a collateral vault, the value of the collateral you deposit must be worth more than the value of the DAI you receive.

This is to ensure that the system remains stable and that you don't lose your collateral if the value of DAI drops. If the value of your collateral falls too much, the Maker Protocol will automatically liquidate your collateral to recover the DAI that you borrowed.

This means you need to be careful when taking out a loan and make sure you have enough collateral to cover your debts.

Once you have DAI, you can use it in a variety of different decentralized applications. For example, you can lend it out to earn interest, or borrow more DAI against your collateral to make additional investments.

You can also use it to purchase other cryptocurrencies or goods and services that are priced in DAI. When you're finished using DAI, you can either sell it on an exchange or use it to repay your loan and recover your collateral.

Founder of MakerDAO

In the early days of MakerDAO, Christensen's goal was to create a stable cryptocurrency that would allow users to transact without worrying about the volatility typically associated with other cryptocurrencies. He believed that such a currency would be essential for the development of a decentralized economy.

To achieve this goal, Christensen and his team started building Maker Protocol, which would later become the backbone of MakerDAO. Maker Protocol is a decentralized platform that allows users to generate DAI by locking up collateral in CDPs. The smart contracts governing these CDPs ensure that the value of the collateral is always greater than the amount of DAI generated, thus maintaining the stability of the currency.

Once Maker Protocol was launched, DAI was created and made available for users to generate and transact with. Since its launch, DAI has gained a significant following and has become one of the most popular stablecoins in the cryptocurrency space.

Despite being the creator of MakerDAO and the driving force behind the project, Christensen has relinquished ownership of the project to the Maker community. MakerDAO is now a decentralized autonomous organization (DAO) that is run by MKR owners who vote and decide on the development of smart contracts, including DAI.

This democratic and decentralized approach ensures that MakerDAO's governance is not controlled by any single entity or individual, but instead is distributed among its stakeholders.

Advantages of DAI

Stability

• DAI is a reliable option for users in countries with unstable currencies who need to keep USD holdings.

• DAI allows residents of these countries to benefit from stable USD equivalent currency holdings.

Security

• DAI offers secure cryptocurrency wallets for deposits to ensure funds are safe from theft.

• Users should take necessary precautions to keep their wallets and associated accounts secure from unauthorized access.

Low Barriers to Entry

• DAI is available in many countries and crypto exchanges.

• It doesn't require a minimum account balance, making it an attractive option for small cryptocurrency investments.

Bypassing Withdrawal Limits

• DAI allows users to withdraw additional funds over daily withdrawal limits imposed by some governments in low-income countries.

Passive Income

• DAI holdings can earn account holders extra funds through interest payments set by the annual savings rate.

Reliable Operations

• DAI's blockchain technology is always available online through a decentralized network of servers, providing fast payment processing times.

• Customers can receive instant payments at any time, bypassing the delays of wire transfers and bank clearing processes.

Expanding Ecosystem

• DAI is expanding its use cases by partnering with many app developers and service providers.

• DAI owners can gain access to new regional markets and technical services for personal or business purposes.

What influences DAI’s price?

Several factors can influence DAI's price, including:

1. Supply and demand

Like any asset, the price of DAI is influenced by the forces of supply and demand. If there is high demand for DAI and limited supply, its price will increase. Conversely, if there is low demand and a surplus of DAI, the price will decrease.

2. The value of the collateral assets backing DAI

DAI is a stablecoin that is backed by a basket of other cryptocurrencies, known as collateral. If the value of these assets increases, the value of DAI will also increase. However, if the value of the collateral decreases, it could lead to a drop in the value of DAI.

3. Market sentiment

Like any cryptocurrency, DAI's price can be influenced by market sentiment. If investors are optimistic about the future of DAI, they may buy more, leading to an increase in price. Conversely, if they are bearish, they may sell, leading to a decrease in price.

4. Regulatory changes

Changes in government regulations or policies related to cryptocurrencies, stablecoins, or the blockchain industry as a whole can also impact the price of DAI.

5. Competition from other stablecoins

As stablecoins become more popular, there is increasing competition between them. If other stablecoins offer more attractive features or better incentives, it could lead to decreased demand for DAI and a drop in price.

How To Buy DAI?

To buy DAI, you will need to:

1. Set up a wallet that supports the storage of DAI. Some options for DAI wallets include MyEtherWallet, Trust Wallet, and Ledger Nano.

2. Find a cryptocurrency exchange that supports the purchase of DAI. Some popular exchanges that offer DAI include Uniswap, Compound, and Kraken.

3. Create an account on the exchange of your choice and complete the necessary identity verification processes.

4. Deposit funds into your account using a payment method supported by the exchange.

5. Search for DAI on the exchange and place an order to buy it using the funds in your account.

6. Once the order is complete, DAI will be credited to your account on the exchange. Make sure to transfer it to your wallet for safekeeping.

It is important to note that the process for buying DAI may vary slightly depending on the exchange you are using. Be sure to carefully read and follow the instructions provided by the exchange to ensure a smooth and secure transaction.

Final Thoughts on DAI

DAI offers a wide range of benefits, including its flexibility and utility, as well as its price stability that is tied to the U.S. dollar. When you purchase DAI, you can utilize it across the Ethereum network in various ways. These include staking idle tokens to earn interest, using it to purchase other coins, using it as a stable investment to hold profits from other token sales, and even for in-game purchases.

However, one potential drawback is the possibility of losing your overcollateralized asset if you borrow DAI through the Maker Protocol. Nevertheless, the advantages of this unique asset make it a simple and practical way to get involved in the world of cryptocurrency and is worth considering as a viable investment option.