What is Dai (DAI)?

Deep Dive

1. Purpose & Value Proposition

DAI is designed to provide price stability in volatile crypto markets. Unlike centralized stablecoins (e.g., USDT, USDC), DAI is decentralized, meaning no single entity controls its issuance or reserves. Users generate DAI by depositing crypto assets like ETH into Maker Vaults, which act as collateral. This system aims to reduce reliance on traditional banking infrastructure while offering censorship resistance.

2. Technology & Collateralization

DAI operates on Ethereum as an ERC-20 token. Its stability relies on overcollateralization: borrowers must lock crypto worth more than the DAI they mint (e.g., $150 ETH for $100 DAI). Smart contracts automatically liquidate positions if collateral values drop below thresholds, ensuring the peg. Multi-Collateral DAI (launched 2019) expanded support beyond ETH to include assets like WBTC and USDC.

3. Governance & Evolution

MakerDAO’s MKR token holders vote on critical parameters like collateral types, stability fees, and risk management. Recent upgrades include rebranding to Sky Protocol and introducing USDS, a next-gen stablecoin convertible 1:1 with DAI. This reflects ongoing efforts to streamline governance and adapt to regulatory shifts while preserving decentralization.

Conclusion

DAI is a cornerstone of decentralized finance, combining algorithmic stability with community-driven governance. Its resilience hinges on transparent collateralization and adaptability to market needs. As stablecoin regulations evolve, will DAI’s decentralized model maintain its edge over centralized alternatives?