Dai (DAI) is a stablecoin, a type of cryptocurrency that strives to keep its value stable relative to a specific asset or a pool of assets. In the case of Dai, it is soft-pegged to the U.S. dollar. It operates on the Ethereum blockchain and is managed by the Maker Protocol and the MakerDAO decentralized autonomous organization. Unlike other cryptocurrencies, Dai is not created by a single entity or a small group of founders. Instead, its development and issuance are governed by the MakerDAO and Maker Protocol, which are managed democratically by the holders of its Maker (MKR) governance tokens.

Dai operates on the Ethereum blockchain and is governed by the Maker Protocol. It is generated by depositing crypto-assets into Maker Vaults on the Maker Protocol. Users can access Maker Protocol and create Vaults through various interfaces. Once the collateral is locked in, users can obtain Dai against their collateral, as long as it is within the collateral ratio, which ranges from 101% to 175%, depending on the risk level of the asset locked. The issuance and burning of tokens are managed and publicly recorded by Ethereum-powered self-enforcing smart-contracts, making the entire system more transparent and less prone to corruption.

Dai's primary use case is to provide stability in the notoriously volatile crypto market. Its soft peg to the U.S. dollar makes it a stable asset for users looking to offset significant market fluctuations. As a stablecoin, Dai seeks to maintain a stable value compared to other cryptocurrencies, which can experience significant price changes within a single day. Additionally, because it is managed by a decentralized autonomous organization via a software protocol, it offers a level of transparency and democratic governance that may appeal to users seeking alternatives to traditional financial systems.

Dai was not created by a single person or a small group of co-founders. Instead, its development and issuance are governed by the MakerDAO and Maker Protocol. MakerDAO was originally founded by Danish entrepreneur Rune Christensen in 2015. It is important to differentiate between Multi-Collateral Dai, launched in November 2019, and Single-Collateral Dai (SAI), an earlier version of the token that could only be collateralized by a single cryptocurrency, Ether, launched in December 2017. As of February 2024, there were around 5.3B Dai in circulation. Dai has generally maintained its peg to the USD, despite market fluctuations and the emergence of other stablecoins.

Unlike other stablecoins, Dai is not controlled by a central organization. Instead, users who aim to hold Dai provide Ethereum-based assets into a smart contract that uses them as collateral in maintaining Dai's peg to the U.S. dollar. Dai can use different cryptocurrencies as collateral, which aims to reduce user risk and increase Dai's price stability. Dai token holders may receive non-monetary rewards for holding Dai. Those who hold MKR, MakerDao's native governance token, set the Dai Savings Rate (DSR) and act as guarantors for Dai. This structure aims to incentivize guarantors to ensure the proper functioning of the Dai system and its collateralized tokens. Dai is an ERC-20 token that can be acquired from both centralized platforms and decentralized platforms (DEXs). Moreover, you can generate and borrow Dai by opening a Maker collateral vault through MakerDAO's Oasis Borrow dashboard and providing Ethereum-based assets as collateral. The value of the collateral you provide should generally exceed the value of the Dai you receive. If the value of the collateral decreases below the value of the received Dai tokens, your collateral may be subject to certain actions.

MakerDAO participates in the Dai ecosystem as it is the Ethereum-based protocol that facilitates collateral-backed transactions without an intermediary, making it a functional protocol in the cryptocurrency ecosystem. MakerDAO's model is distinct as it strives to be decentralized, indicating an aim to have decentralized control over the issuance of Dai, and uses collateral in the form of Ethereum-based assets to maintain its peg to the U.S. dollar. The platform includes several components: Dai, Maker collateral vaults, oracles, and the MKR token. MakerDAO participates in decentralized finance (DeFi), offering a platform that can be utilized by DeFi developers, while participating in the DeFi space.

The Dai system for collateralized obligations accepts a variety of collateral assets. These include Ethereum's native coin (ETH), the reward token for the Brave browser project (BAT), a stablecoin backed by US Dollars (USDC), Wrapped Bitcoin (WBTC), a regulated dollar-backed stablecoin issued by TrustToken (TUSD), a token used within the Kyber Network (KNC), the governance token for 0x (ZRX), the native currency of Decentraland (MANA), Paxos Standard (PAX), Tether USD (USDT), the governance token for the protocol Compound.Finance (COMP), the native token of Loopring (LRC), the token utilized within the decentralized oracle network Chainlink (LINK), the governance token for Balancer (BAL), the governance token for DeFi aggregator system Yearn Finance (YFI), a dollar-backed stablecoin (GUSD), the governance token for decentralized exchange Uniswap (UNI), and an Ethereum token that is 1:1 backed by bitcoin, locked via RenVM (RENBTC). Some collateral types have two variations, A and B, which enable users to obtain Dai from these assets under different sets of risk parameters.

The Dai Savings Rate (DSR) is a feature implemented in the Maker Protocol that allows Dai holders to accumulate non-monetary benefits automatically by allocating their Dai into the DSR contract. This feature strives to provide a stable store of value and stimulate the growth of uncommitted assets. The DSR is funded from the Stability Fees paid by Maker Vault owners, acting as a mechanism to help balance the entire system to maintain Dai's peg to the US Dollar. There are no liquidity impediments, no minimum allocation is required to benefit from the DSR, and users can withdraw any or all of their Dai at any time. Dai holders manage their allocated Dai independently, and only a Dai holder may remove their Dai from the DSR. The DSR is accessible to any Dai holder without additional charges. The DSR seeks to contribute to individual financial participation and management, and is a key component of the Maker Protocol. Users may utilize Dai accumulated within the DSR to mitigate the impact of inflation.

The Target Rate Feedback Mechanism (TRFM) is designed to contribute to the stability of Dai, a decentralized, collateral-backed cryptocurrency. The TRFM adjusts the target rate to equalize the target price and the market price of Dai. This mechanism is activated during periods of severe market instability, breaking the fixed peg of Dai but maintaining the same denomination. When the market price of Dai is below the target price, the TRFM increases the target rate, adjusting the conditions for Dai creation and holding. Conversely, when the market price of Dai is above the target price, the TRFM decreases the target rate, again adjusting the conditions for Dai creation and holding. This dynamic adjustment aims to balance the supply and demand of Dai, pushing the market price towards the variable target price, and seeks to dampen its volatility.

Yes, individuals or projects can generate Dai without directly using the MakerDAO system. Dai is a decentralized, open-source cryptocurrency that aims to be integrated into a wide range of decentralized applications (dApps). It's generated and controlled by users, not a central party. Users may engage with the Maker Vault or interact with Dai on various platforms. The Dai code is open-source, meaning it's accessible to all. This allows developers to integrate Dai into their dApps without needing permission or assistance from MakerDAO. The Maker Protocol, which underpins Dai, is designed for composability, allowing developers to connect various components of the system to achieve desired outcomes. While the MakerDAO system is one method to engage with Dai, it is not the only method available.

Holding or using Dai in decentralized finance (DeFi) applications is not without its risks. One of the primary risks is the volatility of the cryptocurrency market. While Dai aims to maintain a stable value, it is still subject to the fluctuations of the crypto market. Moreover, DeFi applications themselves can be risky due to their relatively new and unregulated nature. They can be prone to hacks, bugs, and other technical issues that could potentially result in the loss of your holdings. Also, the use of Dai in DeFi lending and borrowing platforms could lead to losses if the collateral's value falls dramatically. Lastly, while Dai seeks to maintain a decentralized nature, it is still governed by the MakerDAO system, which could potentially be influenced by a small group of holders. Therefore, it's crucial to understand these risks before engaging with Dai in DeFi applications.

Dai is incorporated into various platforms and projects for a multitude of purposes. It is primarily utilized in the decentralized finance (DeFi) space due to its stability and transparency. Individuals generate and acquire Dai to pay for goods and services in a stable currency without having to relinquish their underlying collateral asset. It is also used to interact with a wide variety of DeFi applications. Users may engage with the Maker Protocol’s Dai Rate (DR) to potentially receive non-monetary rewards on the Dai they hold. In regions experiencing hyperinflation, Dai aims to offer stability, providing users with a stable crypto value. Developers incorporate Dai into their projects, creating decentralized exchanges (DEXes), DeFi protocols, and other products and services. Game developers incorporate Dai to establish a virtual economy within their video games. Enterprises are also increasingly exploring Dai in various ways, from facilitating transactions within their communities to utilizing Dai for routine transactions.

Users can participate in the governance of the MakerDAO ecosystem by holding and utilizing Maker (MKR) tokens. These tokens grant voting rights within the MakerDAO system, allowing holders to influence key decisions related to the platform's operations. This includes changes to the DAI interest rate, the onboarding of new collateral types for DAI, and the offboarding of existing ones. MKR token holders have the ability to vote on community proposals. This decentralized governance model ensures that the community contributes to the platform's operations. MKR token holders can participate in the platform's liquidation auctions, where they can bid on collateral assets.