Investing in Dai (DAI) – Everything You Need to Know

Dai USD (DAI +0%)

What is Dai?

Dai (DAI +0%) is a digital asset structured to function as a decentralized stablecoin.  Its stability is derived through an algorithmic approach, which makes use of a variety of assets to attain over-collateralization of circulating DAI.

What is the Purpose of Dai?

Like most stablecoins, the purpose of Dai is to provide traders and investors with access to a digital asset imbued with the stability and reliability of the US Dollar.

By achieving said stability, Dai is able to function not only as a means of value transfer, but as a financial safe haven within the notoriously volatile digital asset market.

How Does Dai Work?

Dai (DAI) is a decentralized stablecoin which, unlike traditional stablecoins that rely on a centralized entity to maintain stability, achieves stability through an algorithmic approach.

Dai is collateralized by different types of assets, primarily Ether (ETH), which users lock into smart contracts called Collateralized Debt Positions (CDPs). These CDPs generate Dai tokens as debt against the locked collateral. To maintain stability, users are required to overcollateralize their positions, ensuring that the value of the collateral exceeds the value of the generated Dai.

The value of Dai is designed to be soft-pegged to the US dollar, aiming for a 1:1 ratio. To maintain this peg, MakerDAO implements a system of autonomous feedback mechanisms, including the Dai Savings Rate (DSR) and the Stability Fee. The DSR offers an incentive for users to hold Dai by earning interest, while the Stability Fee adjusts the cost of borrowing Dai to manage supply and demand.

This algorithmic approach allows Dai to achieve decentralization, transparency, and resistance to censorship. It operates on the Ethereum blockchain, providing users with the benefits of programmability and interoperability with other decentralized applications (dApps).

Compared to centralized stablecoins, Dai offers greater decentralization and transparency since it is governed by the MakerDAO community rather than a single entity. Additionally, Dai’s value stability is not reliant on external reserves or audits. However, the requirement of overcollateralization may limit the scale and accessibility of Dai compared to centralized stablecoins, which can be issued more flexibly.

History

Dai (DAI) was launched in December 2017 by MakerDAO, a decentralized autonomous organization focused on creating a stable digital asset. The development of Dai was driven by the goal of providing a decentralized and trustless stablecoin within the Ethereum ecosystem.

The initial version of Dai, known as Single-Collateral Dai (Sai), relied solely on Ether (ETH) as collateral. Users could lock their ETH into a Collateralized Debt Position (CDP) to generate Sai tokens. However, this model had limitations, as it relied on a single type of collateral, which posed potential risks to stability.

In November 2019, MakerDAO introduced Multi-Collateral Dai (MCD) to address these limitations. MCD allowed for additional collateral types beyond just Ether.  This expansion diversified the collateral pool, enhancing the stability and security of Dai.

Over time, Dai gained recognition and adoption within the decentralized finance (DeFi) ecosystem. Its algorithmic stability mechanism, which adjusted the cost of borrowing and incentivized Dai holders, helped maintain its soft-peg to the US dollar.

The launch of MCD was accompanied by various updates and improvements to the MakerDAO protocol, including the introduction of new features like the Dai Savings Rate (DSR). The DSR allowed users to earn interest on their Dai holdings by depositing them into a smart contract.

As the DeFi industry experienced significant growth, Dai became one of the prominent stablecoins in the ecosystem. Its decentralized nature, transparency, and algorithmic stability mechanisms attracted users seeking stability and autonomy in their financial transactions.

Today, Dai continues to evolve and adapt to the changing landscape of the cryptocurrency market and DeFi space. Its decentralized governance model, governed by MakerDAO token holders, ensures community-driven decision-making for the future development and stability of the Dai stablecoin.

Regulatory Status

Like more traditional stablecoins –  such as USDT, USDC, etc – algorithmic variants are currently in a state of regulatory limbo.  With every jurisdiction being unique, makes sure to research how such assets are viewed before purchasing.

While not necessarily related, the collapse of the Terraform ecosystem in 2022 and TerraUSD have resulted in fears surrounding algorithmic stablecoins.  Despite this, Dai has managed to maintain its stability over time, and continues to be a popular options for digital asset enthusiasts seeking a reprieve from market volatility.

How to Buy Dai (DAI)

Currently, Dai (DAI) is available for purchase on the following exchanges.

Uphold – This is one of the top exchanges for United States residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.

Uphold Disclaimer: Terms Apply. Cryptoassets are highly volatile. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest. This is a high-risk investment, and you should not expect to be protected if something goes wrong.

Coinbase – A publicly traded exchange listed on the NASDAQ. Coinbase accepts residents from 100+ countries, including Australia, Canada, France, Germany, Netherlands, Singapore, the United Kingdom, and the United States (excluding Hawaii).

Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry and offers trading access to over 190 countries, including Australia, Canada, Europe, and the United States (excluding Maine, and New York).

Kraken Disclaimer: Not investment advice. Crypto trading involves risk of loss. Payward European Solutions Limited t/a Kraken is authorised by the Central Bank of Ireland.

Dai (DAI) – MakerDAO’s Solution to Stability

Overall, Dai provides a unique approach to stability by combining decentralized governance, collateralization, and algorithmic mechanisms, offering a stablecoin alternative with the potential for broader financial inclusion in the decentralized ecosystem.