AN OVERVIEW OF DAI
Dai is an algorithmic stablecoin that is soft-pegged to the US dollar. Dai is issued by MakerDAO, a decentralized autonomous organization (DAO) made up of holders of the MKR token. In this article, we'll examine DAI and discuss how it can be utilized.
- Formerly known as Sai, Dai is a stablecoin cryptocurrency on the Ethereum blockchain that is pegged to the US dollar.
- Dai is minted and burnt via an overcollateralized loan and repayment procedure made possible by MakerDAO's smart contracts.
- Dai is managed and governed by MakerDAO, a decentralized autonomous organization (DAO) made up of the holders of its governance token, MKR.
WHAT IS DAI?
Dai is an Ethereum-based algorithmic stablecoin that is soft-pegged to the US dollar. Dai was created to serve as a credible collateral for loans, and is managed and governed by MakerDAO, a decentralized autonomous organization (DAO) made up of the holders of its governance token, MKR.
The Maker Protocol and various decentralized apps (dApps) use Dai as a unit of account. Users can acquire Dai by receiving it as payment, buying it on exchanges, or creating it by adding collateral assets to Maker Vaults.
Dai is created, backed, and kept stable through collateral assets that are deposited into Maker Vaults on the Maker Protocol.
OVERVIEW AND HISTORY OF DAI
Dai was created in December 2017 by MakerDAO.
MakerDAO is a decentralized autonomous organization (DAO) that was established in 2014 by Rune Christensen.
Rune is a graduate of Biochemistry from the University of Copenhagen, he also holds a degree in International Business from Copenhagen Business School. Rune served as the co-founder of the international hiring firm, Try China before leaving in 2014 to focus on MakerDAO.
The official launch of Single Collateral Dai (SAI), and its related smart contracts took place in December 2017, on the Ethereum mainnet. Dai's price was effectively maintained at around $1 throughout its first year of existence although ETH – the only available collateral at the time – suffered a price drop of more than 80% at that time.
In September 2018, Andreessen Horowitz invested $15 million in MakerDAO, granting it ownership of 6% of all MKR tokens. In the same year, MakerDAO established the Maker Foundation, which is based in Copenhagen to support the Maker ecosystem.
The Multi-Collateral Dai (DAI), which replaced the Single Collateral Dai (SAI), was launched by the Foundation in 2019. In the same year, the MakerDAO team had internal disagreements on whether MakerDAO should integrate deeper with the conventional banking system. This conflict was born out of Rune's desire to allow assets other than cryptocurrencies to be used as collateral for Dai. Andy Milenius who was the Chief Technical Officer (CTO) at the time eventually departed MakerDAO as a result of the controversy.
Dai faced a deflationary deleveraging spiral in March 2020 as a result of very volatile market conditions during the start of the COVID-19 pandemic. As of the time of writing MakerDAO had a total value locked of about $6.78 billion. MakerDAO's popularity has increased noticeably, as it is one of DeFi's most popular initiatives, and continues to maintain its position as the DeFi protocol with the highest total value locked.
HOW DOES DAI WORK?
Dai is minted and destroyed via a process of overcollateralized loans and repayments made possible by MakerDAO's smart contracts.
Users who deposit any supported Ethereum-based asset as collateral are eligible to borrow funds against the value of their deposits and receive freshly minted Dai. These users may invoke a function on the contract to liquidate the loan and get a portion of the collateral as compensation if the collateralization ratio of a loan falls below the minimum ratio.
The lending mechanism utilized by MarkerDAO was created to enable users to borrow less than the value of the collateral they provide as the lending process imposes a 150% collateral strategy. This suggests that users can mint DAI by locking 150% of the amount they intend to borrow.
However, when users repay their loans, the collateral becomes available for withdrawal and the returned Dai is automatically burnt. Thanks to this mechanism, the USD value of the underlying collateral held by MakerDAO's smart contracts serves as a guarantee for the USD value of Dai, and this is how Dai maintains its peg.
As of the time of writing, DAI had a market capitalization of over $5.865 billion US dollars and was trading at $1.0, representing a drop of roughly 13.22% from it's all-time high in April 2018 when it traded for $1.1526.
MakerDAO can regulate the quantity of Dai in circulation and subsequently its value by regulating the types of approved collateral, minimum collateralization ratios, and interest rates for borrowing or storing Dai. Holders of the MKR token are given the authority to suggest and put into effect modifications to these variables.
WHAT CAN I USE DAI FOR?
Dai may be used the same manner as any other cryptocurrency once it has been made, acquired, or received: it can be distributed to users, used to pay for goods and services, and even saved using a Maker Protocol feature called the Dai Savings Rate (DSR).
You can also use your Dai to interact with applications and services such as:
Oasis.app is the frontend for accessing Maker Protocol and creating Dai. Oasis.app aspires to be the most reliable gateway that makes it possible for end users to maintain their funds in one secure location while deploying it into DeFi cheaply and easily.
BuenBit is an Argentina-Based cryptocurrency exchange that grants users access to decentralized finance. BuenBit is the easiest way for Latin American audiences to buy and sell Dai.
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Dai and MakerDAO are regarded as the first decentralized financial model to experience widespread acceptance. Next-gen solutions like Aptos, are also setting the pace for mass adoption by providing the most secure and scalable layer-one blockchain that is readily accessible to anyone. Aptos incurs near-zero fees and is able to complete up to 160,000 transactions in one second, with sub-second finality.
Pontem is developing the infrastructure and decentralized tools necessary for the adoption of the Aptos blockchain. The Pontem wallet is the doorway to the Aptos ecosystem and it is available as a chrome extension. Users of the Pontem wallet can send and receive tokens, connect to decentralized applications, and explore the Aptos ecosystem.
Pontem is a product development platform that enables global financial inclusion through blockchain technology. As a result of its partnership with Aptos, Pontem can create the foundational dApps, EVMs (such as the Move Playground), AMMs (such as Liquidswap), and other infrastructure (such as ByteBabel) needed to adopt its layer one blockchain.