What Is Dai (DAI)?

Dai is a stablecoin that is stabilized against the value of the US dollar. A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin. Running on Ethereum blockchain, MakerDAOProtocol created the Dai token. The token is a decentralized collateral-backed stablecoin that intends to keep its value near or equal to $1.

One major roadblock in the mainstream adoption of cryptocurrencies for transactions is high volatility. Nobody wants to pay with a currency that has the potential of doubling its value in a short time or wants to be paid in a currency that can lose value significantly. This problem has led to the birth of many stablecoins like Dai. The whitepaper suggests that MakerDAO aims to solve these problems and bring stability to the cryptocurrency economy and believes a stablecoin is essential for any business to realize the advantages of digital currency. 

Stablecoins aim to provide many inherent benefits to the cryptocurrency ecosystem, like secured transactions, lower fees, quick settlements, and instant transfer. They can offer a stable value during times of volatility in the markets. Furthermore, they can be used as a stable and reliable cryptocurrency for global payments and sent in large amounts to anyone with a wallet.

For Dai to maintain a stable value of $1, the Maker protocol implements game theory. The protocol smartly maintains and balances the economic incentives to constantly keep the value of Dai near $1. Whenever the value of Dai goes below $1, the protocol incentivizes users to increase the price. On the contrary, if and when the value of Dai goes above $1, the incentives work the other way around.

Talking about the token, Dai is an ERC-20 token that aims to be easy to generate, access, and use. The token is backed by collateral assets that are deposited into the Maker vault of the protocol. As illustrated in the whitepaper, the Dai token, like traditional currencies, has certain benefits: since the token aims to have a stable value, for example, 1 Dai = $1, it can be used for exchange and can be used to settle debts and deferred payments. Therefore, it can be said that Dai has functionality similar to a traditional currency.

History of Dai

MakerDAO launched Dai stablecoin in December 2017. MakerDAO was created in 2015 by Rune Christensen. 

Rune Christensen is an entrepreneur from Sealand, Denmark. Before MakerDAO, Christensen studied international business and biochemistry in Copenhagen. He was also the cofounder of the Try-China International recruiting company.

The Maker protocol only considered ETH as collateral for Dai during its inception. However, the technology got upgraded to include BAT and USDC in November 2019. Subsequently, the Dai system became multicollateral, using different cryptocurrencies as collateral.

How Are New Dai Tokens Created? 

The MakerDAO protocol easily creates new Dai tokens. As already discussed, Dai is a collateral-backed asset where the collateral is stored in Maker vaults. Once users deposit the collateral assets into Maker vaults, the protocol issues new Dai tokens. The user can easily gain access to the liquidity, and new Dai tokens are entered into circulation.

Further, the whitepaper suggests that Dai tokens may be staked through the Dai Saving Rate (DSR) protocol. The DSR is a native smart contract that runs on the MakerDAO system. Dai tokens can be locked into a DSR contract, enabling the users to earn yield at the current rate. The additional benefits that DSR provides for Dai staking are the ability to withdraw Dai tokens at any point in time and no minimum staking requirement.

How Many Dai Tokens Are There?

The maximum number of Dai tokens is not fixed and is volatile. However, as of the writing of this article (January 19, 2022), there are a total of 9.7 billion Dai tokens issued.

How to Buy Dai

Coinbase Exchange is currently one of the active exchanges for Dai trading. Coinbase is a user-friendly platform that offers a secure way to trade Dai.