DAI is the first decentralized, collateral-backed stablecoin.
It is a cryptocurrency that attempts to maintain a 1:1 stable value with the U.S. dollar by locking other crypto assets in smart contracts.
Unlike other asset-backed cryptocurrencies typically issued by actual companies, DAI is a product of open-source software called Maker Protocol, a decentralized application running on the Ethereum blockchain.
How does DAI work?
DAI is created or borrowed when a user deposits collateral to the protocol and burned when a user repays the DAI back to the protocol for their collateral.
If a borrower is unable to pay the loan back, the Maker Protocol will take the collateralized assets like ETH and sell them using an internal market-based auction mechanism.
The supply of DAI is maintained through a system of smart contracts designed to respond to changes in the market price of the crypto assets locked up.
One of the key uses of DAI is to provide liquidity for various DeFi apps such as decentralized exchanges and borrowing/lending protocols.
Holders of DAI are incentivized to lock up their tokens in liquidity pools with a portion of the trading fees earned when traders use the pool to swap tokens.
Another key use case is that just like almost any other stablecoin, traders would often swap other assets to DAI to avoid extreme volatility environments without leaving the crypto asset space.
And finally, like other stablecoins, DAI transactions settle quickly relative to the traditional financial system, and many times with lower transaction costs.
Unlike other stablecoins such as USDT and USDC, whose issuance and regulation are controlled by governing companies, DAI is governed by smart contracts and the MakerDAO.
No one person or legal authority has the ability to interfere with DAI coins or addresses, making it a truly decentralized stable asset.
Team Background
The Maker Protocol was created by the Maker Foundation, which was founded in 2014 by Rune Christensen.
He studied International Business at the Copenhagen Business School and co-founded Try China, a company providing international recruiting.
The goal of the open-source project was to run a credit system that allows users to secure loans collateralized by crypto assets.
In 2017, DAI was officially launched on the Maker Protocol as a means of providing a non-volatile (read: stable) lending asset for businesses and individuals.
The Maker Foundation eventually turned over the control of the protocol to MakerDAO, which is the decentralized autonomous organization made up of members who hold the governance token, MKR.
Token Metrics:
- Holder Addresses: 482k on Ethereum, 686K on Polygon, 112K on Binance Smart Chain, 40K on Fantom, 60K on Optimism, 47K on Arbitrum, 24K on Avalanche
- Circulating supply: 6.00B DAI (variable based on market demand)