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March 15, 2019

Coin Profile: MakerDAO’s Dai Stablecoin

makerdao's dai stablecoin

“Transparent and sustainable finance”

The Maker platform offers two tokens, namely Makercoin (MKR) and the Dai (DAI). Dai acts as the project’s stablecoin while Makercoin helps to maintain control over Maker.

The MakerDAO stablecoin

MakerDAO has a focus on producing and maintaining DAI. As DAI is a stablecoin, it needs to retain the 1:1 peg it has to the US Dollar. This allows traders and investors to transact in cryptocurrency through DAI without facing the volatility that cryptocurrency usually sees. Essentially, with the US Dollar peg, the DAI allows for a digital currency to hold the best of both fiat and cryptocurrency: all of the perks of crypto without the volatility.

DAI is similar to Tether in this regard, but it differs as it is not backed – or collateralized – by fiat tender. Tether holds US Dollars in collateral, while DAI uses cryptocurrency (in this case, Ethereum) as a backing. Through the use of smart contracts, MakerDAO collateralizes DAI with Ethereum.

The benefits of MakerDAO

Because DAI is a cryptocurrency-collateralized stablecoin, it boasts benefits that fiat-backed tokens cannot. The DAI tokens are backed by smart contracts and are not governed by a third, which means that an additional layer of trust exists with none of the central interference from a middleman.

It also means that there is higher liquidity compared to fiat-backed tokens and owing to the smart contracts and the non-fiat backing, there is no external auditing required.

How does DAI work?

A common question attached to a crypto-backed stablecoin regards how the token combats volatility if it is backed by a volatile asset.

For this to be answered, we need to look at MakerDAO’s two defence lines.

The first is linked to the smart contracts generated on Ethereum’s blockchain. If the DAI price begins to see deviance from the US Dollar peg, smart contracts immediately are generated which are purposed to restabilize the token’s price. If the market sees a massive spike or dip, then this might not be enough to maintain the peg.

Which means that the second line of defence comes into play. This relies on the nodes of those customers who own DAI tokens. These nodes also utilize smart contracts which are generated to assist maintaining the peg. If nodes are used, the owners of the systems are rewarded for their passive help of regulating the token.

Where to buy Dai?

You can buy Dai with ZAR if you have a South African bank account, you can also buy Dai with Euros if you have a SEPA bank account or you can buy Dai using other cryptocurrencies on Coindirect.com.

You can read more about why MakerDAO’s Dai is one of the hottest coins of 2019 here.