What is DAI?
Dai (or DAI) is a stable coin cryptocurrency that, in an automated framework of smart contracts on the Ethereum blockchain, strives to maintain its value as similar to one United States dollar (USD) as possible.
MakerDAO, a decentralized autonomous association (DAO) consisting of the owners of its governance token, MKR, which may vote on adjustments to some criteria in its smart contracts to guarantee the integrity of Dai, manages and governs Dai.
Together, the first manifestations of decentralized finance with substantial acceptance are known to be Dai and MakerDAO .
How does DAI work?
In the context of a decentralized program, Dai is developed from an overcollateralized loan and repayment mechanism enabled by MakerDAO’s smart contracts. Users depositing Ether (or other cryptocurrencies approved as collateral) are able to borrow and obtain freshly created Dai against the amount of their deposits.
The collateralization ratio for Ether is currently set at 150% or, in other terms, it enables one to invest up to 100 Dai (approximately equal to $100) by depositing $150 worth of Ether. If the valuation of the collateral falls below this ratio, smart contracts will immediately liquidate the debt. On the other side, extra Dai may be lent if its worth increases.
Consequently, the returned Dai is immediately destroyed by the redemption of a loan and the unpaid interest and the equity is made eligible for withdrawal. In this manner, the USD value of Dai can be said to be backed by the USD value of the underlying collateral retained by the smart contracts of MakerDAO.
MakerDAO can control the sum of Dai in circulation, and therefore its value, by regulating the types of collateral approved, collateralization percentages, and interest rates for borrowing or storing Dai.
The power to suggest and enforce adjustments to certain variables is given to holders of the MKR token by code. Governance token owners will vote on proposed amendments in fair proportion to the quantity of tokens they possess.
In the MakerDAO scheme, the MKR token often acts as an investment. Added interest charged back by creditors on top of the balance of their debt is used to purchase MKR tokens from the market and burn them (i.e. destroy, permanently take out of circulation). In comparison to the revenues from Dai loans, this process seeks to make MKR deflationary.
What is the History of DAI?
In 2014, Danish entrepreneur Rune Christensen founded MakerDAO.
Dai and its related smart contracts were formally released on the main Ethereum network on December 18, 2017.Dai’s price was effectively held near to one US dollar throughout its first year of operation, even though Ether’s price, the only collateral accessible at the time, decreased by more than 80% during the same timeframe.
Via buying 6% of all MKR tokens, venture capital company Andreessen Horowitz invested $15 million in MakerDAO in September 2018.In 2018, MakerDAO founded the Copenhagen-based Maker Foundation to help bootstrap the ecosystem by, for example, writing code required for the platform to work and adjust.
MakerDAO had internal challenges in 2019 about whether it could align further into the conventional financial sector. In addition to cryptocurrencies, Christenson needed greater regulatory enforcement to allow assets to act as leverage for Dai.
Dai encountered a deflationary deleveraging spiral in March 2020 as a consequence of unprecedented market uncertainty at the start of the COVID-19 pandemic, which led it to sell for up to USD $1.11 at its height before returning to its intended $1.00 price.
How do I hold DAI?
DAI can be held on any ERC-20 wallet. Metamask is one of the most common wallets among Ethereum users.