Understanding DAI and Stablecoins – The Coin Republic: Cryptocurrency, Bitcoin, Ethereum and Blockchain News
- DAI is an Ethereum-based stablecoin pegged to the US dollar
- MakerDAO is a decentralized, autonomous exchange that manages it.
- DAI can also be used to generate passive income.
stablecoins, as the name suggests, are those types of cryptocurrencies that offer price stability. They are popular because they offer the best of both worlds. Non-volatile nature of traditional currency and quick payments without the need for an intermediary, which is a nature of cryptocurrency. Although Bitcoin, Ethereum, etc. remain the most popular cryptocurrencies, their high volatility often becomes a concern for some people. Stablecoins were created to bridge the gap between traditional currency and virtual currency, and there are mainly three types based on the working mechanism:
- Crypto-collatralized stablecoins-The stablecoins backed by other cryptocurrencies
- Fiat Collateralized Stablecoins – These are those that maintain a fiat currency reserve, for example: the US dollar. Most stablecoins use US dollars as a reserve.
- Uncollateralized stablecoins – These involve a working mechanism like that of a centralized bank and they are not backed by reserves.
There are different stablecoins in the cryptocurrency world and one of them is:
DAI
DAI is a stablecoin launched in 2017 and developed by the Maker Foundation. It is soft-pegged to the US dollar and backed by a mix of cryptocurrencies, and each time a new DAI is minted, they are deposited into the smart contracts. Since it is a stablecoin based on the Ethereum blockchain, all issuance and token burning is recorded on the Ethereum-powered smart contracts.
The main benefit of buying DAI is its non-volatile nature due to its peg to the US Dollar and it offers the transaction benefits of a cryptocurrency. It is managed and regulated by a decentralized autonomous organization, MakerDAO.
Maker is the protocol that runs DAI and it allows anyone to use a variety of cryptocurrencies as collateral and produce the DAI stablecoin. Maker’s MKR tokens are the ones that act as a sort of voting stake for the organization that manages DAI.
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How to buy DAI:
It can be bought directly on crypto exchanges or DEXs. You can also borrow DAI by pledging Ethereum-based assets as collateral via the Maker protocol. However, to ensure liquidity, DAI requires larger collateral deposits compared to borrowed DAI. DAI, when purchased or rented, can be used in various decentralized apps including:
- To play
- Decentralized Finance (De-Fi)
- Non-Fungible Tokens (NFTs)
Some of the cryptocurrencies that can be used as collateral are Compound (COMP), USD Coin (USDC), Ethereum (ETH), Basic Attention Token (BAT), etc. DAI tokens can be traded on online platforms like Uniswap, Compound, etc. And also on traditional crypto exchanges like Binance, OKEx, HitBTC, Coinbase pro etc.
Features DAI offers:
- Safe: The DAI ecosystem is safe and secure. The smart contracts on the blockchain are verified by the MakerDAO community, ensuring the validity and liquidity of the network.
- Decentralized Freedom: No intermediaries are required.
- Income Opportunity: A unique program provided by DAI called DAI Savings Rate (DSR), through which users can stake their idle tokens, which will generate a viable income during a certain lock-up period. The MakerDAO smart contracts are also programmed to generate and add interest to the account.
The DAI offers utility and flexibility as well as price stability as it is pegged to the dollar. Buying DAI can also be used in different ways on the Ethereum network. DAI is a good option for people who want minimal volatility in their crypto trading.
Steve Anderson is an Australian crypto enthusiast. He has been a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralization and understanding the true potential of blockchain.
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