The crypto world is constantly growing along with better technologies than before. As the investors learn the concept of crypto, another new technology appears. Due to the better investment opportunities and convenient methods of making dollars, more and more people are sinking their feet in the crypto sea. Since the surge of Bitcoin back in 2017, people have shown greater interest in the crypto market by learning about it and joining it later. A lot of people among these investors speculate or predict that, in near future, several digital currencies would be used to make day-to-day transactions, improving the entire financial ecosystem.
Undoubtedly, crypto investment and trading are the most demanding ways of accumulating wealth. But the things will not always go in your favor, and you need to comprehend the risk associated with crypto trading. In this regard, you need to take necessary measures to prevent fraud and scams while trading on the platform of crypto. Dai aims to provide the solution for the most common issue of the cryptocurrencies when we wish to utilize them for making a payment: volatility. Click here if you want more information regarding the benefits of decentralized currency.
What Is Dai?
Dai is a member of the Stablecoins family and uses the US dollar as a determinant of its value. An autonomous firm, MakerDAO, which is decentralized in nature, developed Dai Stablecoin. It uses Smart Contract to maintain its decentralization. Although it was created in 2014, the Dai token and Smart Contracts appeared on the Ethereum blockchain in 2017. DAI Stablecoins are minted utilizing the Maker Protocol Platform, which keeps multiple digital currencies as collateral. You can also buy these coins by spending fiat currency like the US dollar or British Pound on most reputed crypto exchanges like Kraken and Coinbase. Dai is the first cryptocurrency of its kind that is collateralized and decentralized simultaneously.
- Dai is an autonomous cryptocurrency supported by the collateral mechanism and belongs to the Stablecoins category.
- It uses the blockchain of Ethereum, which is the second-best cryptocurrency after Bitcoin, with the top position.
- It makes the transactions more secure and transparent.
- This Stablecoin is quickly attracting the attention of the people.
- Unlike fiat currency, Dai does not contain the factor of credit risk.
- DAI is an open-source cryptocurrency.
- MKR tokens and DAI coins are different and used in separate trading.
- The primary objective of Dai is to eliminate the issues related to price fluctuations by providing stable prices.
- A central or regulatory authority governs it to maintain stability in prices.
How Does It Work?
Dai is a Stablecoin, and the native currency of the Ethereum blockchain (Ether) collateralizes it. The holders of Ether have been enabled to mint the cryptocurrency utilizing the MakerDAO decentralized application. For this purpose, you are required to transfer Ether to a CDP (Collateralized Debt Position). In return, you will receive a part of it. A Collateralized Debt Position is a Smart Contract backed by blockchain technology that controls the issuance and redemption of Dai Stablecoin.
If you wish to regain your Ether after receiving Dai for Ether, you have to repay the borrowed one first. In the given scenario, Dai seems to be a loan secured by the Ethereum network. The MakerDAO enables the Ether users to gain Dai loans. To initiate, the users must get their Ether holdings converted into Wrapped Ethereum (WETH). Consequently, Wrapped Ethereum indulges in the ETH pool, which acts as collateral for the developed tokens.
Mostly, Dai is over-collateralized to prevent liquidation resulting from the fluctuating nature of the assets that are going to be collateralized. Users have to deposit 200 dollars in Ether to unfold 100 dollars DAI, for instance, offering a form of oscillatory cushion. Now even if the prices of Ether declined by 25 percent, the 100 dollars DAI loan would still be repaid by 150 dollars in Ether. The user needs to reimburse the Dai that was lent together with an additional charge to retrieve their collateralized riches.
DAI provides a great deal of elasticity and effectiveness along with the stable prices of the US dollar. After acquiring it, you can use Dai for buying various cryptocurrencies, investing it in safe havens, and purchasing in-game items.