What Is DAI Coin and Why Is It Special?
In the past few years, cryptocurrencies have transformed from a common numerical unit of money used to exchange products and offers to special exchange resources.
Creators and companies issuing cryptocurrencies, regularly acquire without exception the latest methods of introducing the blockchain to conclude in the exchange of the latest scientific and technological goods.
Stablecoins are a recent variation of cryptocurrency that was invented (pun intended) to fulfill the importance of a token for value exchange.
Just as necessary with the term, their task – is to keep a stable price according to the relationship to the fiat money unit, making it easier to present this interchange in other cryptocurrencies.
Almost all stablecoins are tied to this kind of monetary unit, as well as the United States dollar, usually in a balance 1:1. A sample can be a coin DAI, which I will narrate in this post.
Resilient coins act productively as a numeric version of fiat currency and allow users to hold a numeric asset with a stable price while trading other cryptocurrencies, such as BTC and ETH, in their wallets.
Due to the volatility of cryptocurrencies trading activity to stand out can be dangerous, and in the presence of unsuccessful formation of incidents, cryptocurrency assets have all chances to lose their price in a flash.
Stablecoins guarantee a solid method of exchange liquidity in the absence of the need to use physical money blocked in simple bank accounts. Believe that these crypto coins, function like real money (for example, the United States dollar). Our explanation will be common, so as well as behind the scenes a lot of things are done in general for stablecoins to benefit their name.
DAI is an algorithmic stablecoin controlled by MakerDAO. MakerDAO is a Distributed Autonomous Organization (DAO), a firm that operates as a blockchain-based economic institution but operates as a computer project managed by token holders, representing a monetary unit owned by the blockchain.
The computer project that manages the DAO includes all principles without exception for its smart contracts.
For the original DAI firm – DAO – its cryptocurrency is MKR.
This cryptocurrency is significant in maintaining the sustainability of DAI, which I will discuss next.
Cryptocurrency DAI was launched on December 18, 2017, in the Ethereumblockchain to save its approach to the United States dollar.
DAI is named reputation of a strange literal, which MakerDAO creator Rune Christensen moved equal to “to lend or provide principal for borrowing.”
The DAI maker act is composed in the style of Solidity, extensively used by developers for projects based on Ethereum. Together with the support of this protocol, DAI applies the concept of smart contracts to strengthen parity along with the United States dollar.
Since the cryptocurrency is ruled by DAO, to exchange coins DAI does not need a representative, and on its own, it works in a colorless, all-tight and does not call for permission for blockchain bonds. It is possible to look at the statistics of the bond on the website daistats.com.
How Does the DAI Coin Work?
DAI is an ERC-20 token that can be purchased in concentrated and dispersed cryptocurrency exchanges. DAI is, in essence, a loan about the guarantee of cryptocurrency assets in addition to the purpose of economic lending Oasis firm MakerDAO.
It is important to emphasize that the connection of DAI to the United States dollar is considered tender, in this case, there is a price at a particular level that fluctuates, but the presence of this price of DAI remains similar to the bazaar price of the United States dollar.
DAO applies methods in the DAI blockchain, which are provided for mechanical correction of the price of assets together to save a 1:1 peg to the United States dollar. This isachievedbecauseoftheresult:
- Controlling the prescription of DAI coins in trading,
- Control of the profitable rate in smart contracts DAO.
- Regulation of assets used in the property of deposit to generate DAI.
There are several elements, together with the support of which DAO can control these characteristics. See certain from the main ones, concerning which will be discussed then.
Vault and Keeper Accounts
Users have a chance to disclose in this add-on the result of the maker vault and produce DAI coins near the Ether (ETH) guarantee or other cryptocurrencies. These DAI coins act as option contracts in the placement of duty and will return through a specific period.
The price of used ETH will always be higher than the price of DAI made for you (this is also called overcollaterization).
If the price of your depot ETH goes down further than the price of issued DAIs, your ETH contribution will be liquidated.
In the Maker base are eliminated together with the correspondence of 1.5 deposit because of 1 DAI.
For the purpose that in the accounts together with unsatisfactory provision there is enough cryptocurrency money for liquidation, the firm Maker gives keepers.
Keepers – this special user’s immensities, in which cryptocurrencies are stored to provide liquidity together to close the deposit in the accounts in the base, which with the period lose their price.
Similarly, keepers keep a continuous recommendation of DAI in a spin, appropriate to the price of the United States dollar.
In case the subscriber, who collected DAI near the guarantee, gives it together with the added interest, in this case DAI coins are killed, and the mortgage deposit in the account is made easily accessible for withdrawal.
DAI Savings Rate
Users who have DAIs have a chance to lend them to other users and earn a share by investing them in DSR smart contracts, which are dependent on recognized measures of DAI accumulation (successful profitable bet).
If the need for DAI is elevated, then the amount of DAI accumulation can be increased to interest users of DSR contracts to hold their own DAI deposits. A decrease in DAI prescription can be a reason for a decrease in generally recognized measures of DAI accumulation.
The stability fee is another way to control the price of DAI. It is charged when DAI coins are generated. A lower stability fee can incentivize maker account holders to create more DAIs and increase their supply, and vice versa.
MKR token holders
Participants with a stake in MakerDAO own MKR tokens. MKR token holders can use their tokens to manage the DAI blockchain. They can use MKR to make policy decisions that help stabilize the value of DAI. For example, MKR holders can vote on policy issues such as:
- Changing the value of the DAI accumulation rate
- Adding newcryptocurrenciesascollateral
- Approving new members to join the organization
MKR holders are also required to pledge to the DAI blockchain. In addition, auctioning off excess DAI from the supply could destroy MKR tokens.
This encourages MakerDAO participants to properly manage the organization’s policies and ensures that the value of DAI remains as stable as possible.
Advantages of DAI
Users in countries where they need to store U.S. dollars but cannot safely deposit them can use DAI to store currency equivalent to the U.S. dollar. Residents of countries with unstable currencies benefit greatly from storing DAI.
DAI also has the advantage of using secure cryptocurrency wallets to fund your account, which ensures that your funds are safe from theft. However, we advise you to take the necessary precautions to secure your cryptocurrency wallet and related accounts from unauthorized access.
Low barriers to entry
DAI is available in many countries and cryptocurrency exchanges. It does not require a minimum account balance. For this reason, DAI is an attractive option for those with a small amount of funds or users who want to start with small cryptocurrency investments.
By passing with drawal limits
Governments in many low-income countries have set daily withdrawal limits for regular bank accounts. Citizens of these countries can only withdraw a limited amount of currency. With DAI, users can withdraw additional funds over and above the limits.
Passive in come
Funds stored in DAIs can generate additional income for account holders in the form of interest payments. This is determined by the annual savings rate and is a bonus for those who have additional funds to invest in maker accounts.
Reliability of transactions
Bank transfers and clearing processes can be time-consuming at some banks. DAIs blockchain technology is always available online through a decentralized network of servers. It also features fast payment processing speeds. As a result, customers can receive instant payments at any time.
DAI is expanding its reach by partnering with many application developers and service providers. DAI owners can access new regional markets and technical services for personal or business purposes. Learn more about DAI applications here.
What makes DAI special?
There are many stablecoins on the market, some of which have exceptional support, but there are three things that make DAI special.
Unlike other stablecoins, which are usually backed by a fiat currency reserve managed by an investment company, DAI is managed by a DAO. Thus, it is not dependent on the central government or private intermediaries. Its governance can be said to be democratic, with many independent participants working to maintain stability.
The majority of stablecoins are backed by fiat currency. DAI, on the other hand, is backed by multiple cryptocurrencies (e.g., ETH, BAT, WBTC) based on the assets of MKR participants. This minimizes risk for token holders while increasing the stability of the DAI.
DAI holders can earn interest on their cryptocurrency through smart contracts. This is a good incentive for users buying DAI and MakerDAO backers. Both types of users get to earn passive income from their DAI shares, and the original backers act as guarantors for the loan contracts.
Finale: Stablecoin for everyone
DAI was created as a stable cryptocurrency that could be used interchangeably with the U.S. dollar by anyone, anywhere, anytime. From what we can see, DAI may have already achieved that goal.
We hope this guide will give you a good introduction to the DAI coin. If you want to learn how you can use DAI for your business, visit OriginStamp.com for a free consultation on productive blockchain-integrated solutions.