We have already talked about stablecoins in our guides, and you probably know that they are cryptocurrencies pegged to USD to make transacting with crypto easier. We have also mentioned that there are two types of stablecoins. There are centralized that are pegged to USD and controlled by the company that issues them, and there are decentralized that are soft pegged to USD or other cryptocurrencies controlled by an algorithm or a Smart Contract. One of the decentralized ones is DAI.
DAI is the world’s first decentralized algorithmic stablecoin created by MakerDAO. When users want to create some DAI tokens, they deposit some of their crypto against locked collateral and get DAI in return. The DAI tokens are destroyed when they repay the loan, and the collateral is recovered.
DAI was the first stablecoin to be issued and controlled by Smart Contracts. It is also the first stablecoin backed by a crypto collateral deposit.
DAI became extremely popular in decentralized finance, making it one of the de facto assets to use when transacting in DeFi.
You can use your DAI tokens in the following ways:
At the time of writing (May 16th, 2022), DAI’s price is $1. The current Market Cap ranking is #16, with a market cap of $6.4B.
It is worth noting that the price of DAI can always go a few cents up or down due to the peg with USD and the value of crypto collateral in reserves. This mainly happens when there are significant market fluctuations.
Any user can mint new DAI via Maker Protocol.
The program that oversees DAI issuance is Maker Protocol, which runs on the Ethereum blockchain. Maker Protocol assures that numerous other cryptocurrencies collateralize every DAI unit to keep the soft price peg to the US dollar. Users can put their cryptocurrency as collateral in a vault – a smart contract on the Ethereum blockchain — and get a comparable quantity of new DAI tokens.
The overall supply of DAI has no upper limit; it is dynamic and determined by the amount of collateral held in vaults at any time. There are around 6.7 billion DAI in circulation as of May 2022.
DAI is the second most popular algorithmic stablecoin with an unlimited supply cap since new tokens are created at the user’s request. Many people are starting to explore algorithmic stablecoins, and the demand for DAI has increased.
The primary way people buy their DAI is through centralized exchanges because they offer the ability to purchase them with credit\debit cards, which most people prefer.
Although significantly more complicated, the second way is through decentralized exchanges such as Uniswap. Decentralized exchanges usually require users to already have some cryptocurrencies in their wallets to buy other cryptos.
Finally, it can be purchased easily through a broker app such as our Veli App, where you can get your hands on some DAI in just a few taps on the screen.
DAI is notable for the fact that it was not founded by a single individual or a small group of co-founders. Instead, the software development that powers it and the issuance of new tokens is governed by the MakerDAO and Maker Protocol.
MakerDAO is a decentralized autonomous organization that runs itself with the power of Ethereum Smart Contracts.
Democratic votes govern the organization and its future upgrades and rules by the people who hold MKR tokens. Their number of MKR tokens represents the voting power someone has.
DAI is available on the Ethereum blockchain as an ERC-20 token.
DAI did not face any legal issues so far.
DAI’s main competitors are USDT and UST.
USDT is the world’s first and biggest crypto stablecoin. Tether created it. The main difference between DAI and USDT is that USDT is a centralized stablecoin issued by its parent company, and DAI is an algorithmic stablecoin controlled by Smart Contracts. USDT is much more adopted, but it had some legal issues with proving the backing of its tokens.
UST is the world’s biggest algorithmic stablecoin that overtook DAI due to its simpler use. Terraform Labs created it. UST is backed by Terra’s LUNA tokens, while DAI is backed by crypto collateral. UST is also much more adopted than DAI.
Here is some additional information to illustrate this competition better.
DAI | Terra UST | USDT | |
Market Cap | $8.65b | $18.65b | $83.15b |
24h volume | $257.7m | $508.6m | $58.83b |
Total number of wallet addresses | 1.69m | \ | 22.32m |
Total number of daily active users | 3,526 | 32K | 50.6k |
Total number of new addresses created daily | 840 | \ | 14.1k |
Type | Algorithmic | Algorithmic | Fiat pegged |
Launch date | 2019 | 2020 | 2014 |
Issued by | Maker Protocol and the MakerDAO decentralized autonomous organization. | Terraform Labs in collaboration with Bittrex Global | Tether |
As with any other asset class, there are risks involved when it comes to investing. Since there are many kinds of cryptocurrencies, risks can be grouped into two categories – general risks that apply when investing in cryptocurrencies and risks that only apply to specific assets.
We have prepared a guide that addresses general cryptocurrency investing risks and offers tips on how to mitigate them, while risks that only apply to specific assets are addressed directly in the coin guides such as this one.
Website: https://makerdao.com/en/
DAI is a censorship-resistant, stable, and decentralized cryptocurrency. Any individual or organization may realize the benefit of digital money as a decentralized stablecoin. DAI is widely used in the DeFi world and is the 2nd largest decentralized stablecoin on the crypto market by market cap.
Stablecoins based on algorithms is a relatively new method of tying cryptocurrencies to any fiat money. We haven’t seen how they operate amid big market stress or shocks, so they haven’t stood the test of time yet. So far, DAI has demonstrated that it can endure pressure and remain stable in the face of minor market swings.
