About Dai (DAI)
Dai is a crypto-backed stablecoin that seeks to maintain a soft peg with the U.S. dollar.
Dai was first described in a white paper published in December, 2017. Dai is a decentralized, crypto-collateralized stablecoin that aims to maintain a stable value relative to the U.S. dollar. It was developed by MakerDAO, a Decentralized Autonomous Organization or DAO, and runs on the Maker Protocol, a system of smart contracts that algorithmically maintains Dai’s soft peg. MakerDao built Dai to be used as a global medium of exchange and to promote economic freedom and opportunity in the world.
Decentralized finance (DeFi) or Open Finance is one of the most promising areas of cryptocurrency and financial innovation. As a decentralized stablecoin, Dai is an important building block for the DeFi movement. DeFi is trying to reimagine existing financial systems to be more transparent, permissionless, trustless, and interoperable. One of the metrics used to measure the growth of DeFi is the amount of ether (ETH) locked in smart contracts as collateral, a metric called “ETH locked in DeFi.”
Dai (DAI) is built on Ethereum in accordance with the ERC20 standard for tokens. It differs from centralized, fiat-collateralized stablecoins like the Gemini dollar (GUSD) because it is backed by crypto collateral held on the Maker platform as opposed to U.S. dollars held in a bank account at a financial institution. Dai can be bought and sold for fiat currency or other digital currencies.
DAI can be purchased on a cryptocurrency exchange and stored in a crypto wallet and custodian like Gemini.
The supply of Dai is based on demand. When a user deposits ETH or any supported ERC20 token into the Maker platform as collateral, Dai is created and loaned to the user at a collateral-to-loan ratio of 66%, which increases the supply of Dai. Conversely, when a user returns Dai plus accrued interest (referred to as the Stability Fee) to the Maker platform to retrieve her collateral, the supply of Dai decreases.
The Stability Fee is the floating interest rate charged to users who borrow Dai. Holders of the Maker token (MKR), the governance token of the Maker Platform, set the Stability Fee. They can vote to increase or decrease the Stability Fee in an effort to normalize Dai’s value relative to the U.S. dollar. A user must return all of the Dai she borrowed and pay her Stability Fee (in Dai) to the Maker Platform in order to redeem her collateral.
Dai Savings Rate
Dai holders can deposit their Dai into the Dai Savings Rate contract and earn a yield (referred to as the Dai Savings Rate) on their Dai. The Dai Savings Rate is a floating interest rate set by Maker token holders. If the market price of Dai is above $1 U.S. dollar, Maker holders can vote to decrease the Dai Savings Rate in an attempt to reduce demand for Dai and lower its market price towards $1 U.S. dollar. Alternatively, If the market price of Dai is below $1 U.S. dollar, Maker holders can vote to increase the Dai Savings Rate in an attempt to increase demand for Dai and raise its market price towards $1 U.S. dollar.
Initially, the Maker Protocol only supported ETH as collateral for a Dai loan. This system of smart contracts is called single-collateral Dai (SCD). On November 15, 2019, holders of the Maker token voted to upgrade the Maker Protocol to a system of smart contracts called multi-collateral Dai (MCD), which could support multiple assets as collateral for Dai. The MCD system was subsequently launched on November 18, 2019. Dai tokens with respect to the SCD system are now called Sai, whereas Dai tokens with respect to the MCD system are called Dai.
Maker token holders have voted the following new collateral types into the Maker Protocol:
- Basic Attention Token (BAT) (November 28, 2019)
- USD Coin (USDC) (March 17, 2020)
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The pricing data and asset description above are for general informational purposes only and are not investment advice. Buying, selling, and trading cryptocurrency involves risks. You should consult with your own appropriately qualified and licensed advisors before engaging in any transaction on Gemini. Some data is provided by Messari, a third party that is not affiliated with Gemini.