DAI is a stablecoin which is useful for crypto enthusiasts looking to leverage their trades. Unlike traditional cryptocurrencies, DAI is not as vulnerable to market volatility which results in the significant price changes of a crypto coin.
Why Was Dai created?
DAI was created to be reliable collateral for loans and to transfer crypto funds free of price swings. Its value is pegged to the stable currency of the US dollar, meaning it maintains a value of $1 regardless of market conditions. Cryptocurrencies like Ethereum and Bitcoin are known for their high volatility, making them unreliable as a form of payment or store of value.
What is Dai Crypto?
Dai (DAI) is a stablecoin collateralized by multiple stablecoins and cryptocurrencies. A stablecoin is a type of cryptocurrency designed to maintain a stable price over time. It is pegged to the value of fiat currencies like dollars or pounds.
Stablecoins like DAI are backed by the specific assets that they are pegged to. An organisation that issues out stablecoins usually sets up a reserve at a financial institution that holds the underlying asset, or fiat currency, that it is pegged to. For example, a stablecoin could issue 100 million coins with a fixed value of $1 and, therefore, have a reserve of $100 million.
Use cases of Dai stablecoin
Similarly to other stablecoins such as GUSD or USDC, the DAI stablecoin is used in trading to minimize price volatility on crypto exchanges. It allows traders and crypto investors to hold their money on an exchange without its value fluctuating.
Payment: DAI can be used to complete everyday transactions. We can expect to see the use of stablecoins implemented in stores where payments are used by scanning a QR code. Businesses can benefit from this as they are able to avoid the high processing fees of traditional institutions.
Exchanges: DAI is used to move money between cryptocurrency exchanges to assist with arbitrage.
Payroll: The use of DAI stablecoin for payrolls could be extremely effective in times when remote work beyond borders is increasing. It will cost less time and money to process payrolls for businesses and employees won’t have to worry about experiencing problems with their banks.
Safe Haven Asset: Other cryptocurrencies, such as Bitcoin, are not stable stores of value as their prices are highly volatile. This can be highly unsettling for people who need to access their crypto assets regularly. As a safe haven asset, users don’t have to worry about their money fluctuating.
Lending: Due to its high yield, DAI is a great way for debt investors to collateralize their investments. This makes investing much more appealing.
Escrow: The process of escrow can be entirely automated using a stablecoin such as DAI. Without the intermediation of institutions, USDD is able to automatically handle the process using smart contract technology.
Alternative to banking: Not everyone around the world has access to a bank account. With cryptocurrency, all users need is access to the internet to create their own account that they can then store DAI in. This will help unbanked people participate in the economy.
History of Dai
DAI was founded under MakerDAO and the Maker Foundation by founder Rune Christensen in 2017. MakerDAO is a lending protocol which runs on Ethereum smart contracts to conduct finance similar to traditional finance but without intermediaries such as banks. It was launched in 2014 and during this time it was discovered that the protocol was missing a key component – a digital currency that is not volatile like cryptocurrencies. This would be the beginning of DAI. In 2022, 5 years after its launch, DAI became the fourth largest stablecoin by market cap at $7 billion.
Pros and Cons of Dai (DAI)
Pros
Faster transaction speed: Transacting funds through banks can be tedious due to the lengthy processing times. This is especially true when transacting across borders. DAI cuts down majorly on these times, with transactions processing in as little as 5 minutes.
Stable value: People from countries whose currency is prone to extreme fluctuations benefit by holding their funds in a store of stable value.
Lower fees: The price to transfer funds across borders tends to be highly expensive. Because DAI mitigates middlemen, it is able to offer low-fee transactions.
Borderless: The ability to be an anonymous and borderless store of value makes an algorithmic stablecoin a necessity for the real world in places experiencing extreme inflation with their fiat currency or sanctions such as Venezuela as they cannot use their own currency to emigrate or transact across borders.
Transparent: Transparency means that transactions can be viewed by anyone on the internet. This is useful as it dispels any confusion as to where funds are going.
Cons
Security: Trading platforms and crypto wallets are highly exposed to hacker threats. Although there are safety measures that can be taken to convolute the threats, the risk is still big because unlike traditional banking, crypto transactions cannot be reversed.
Counterparty risk: As a result of being “decentralized”, multiple parties are involved in the management of a stablecoin. For the coin to maintain its value, all the parties involved need to be properly performing their tasks (security, reserving properly, etc).
Reserve risk: Without reserves being secure, the coin issuer cannot guarantee the value of a stablecoin with full confidence. Reserves are vital as they are the final backer of a stablecoin’s value.
Lack of confidence: The price of a stablecoin can fall if traders lose confidence in its ability to maintain the peg. This usually happens when a stablecoin is not sufficiently backed by hard assets or cash, as it could suffer a run and lose its peg against its target currency.
List of Popular Stablecoins
USD-pegged
Tether (USDT)
USD Coin (USDC)
True USD (TUSD)
Binance USD (BUSD)
Paxos Standard (PAX)
Gemini Dollar (GUSD)
Origin Dollar (OUSD)
sUSD
Reserve (RSV)
GBP-pegged
Binance GBP Stable Coin (BGBP)
EUR-pegged
Stasis Euro (EURS)
Turkish Lira (TRY)-pegged
BiLira (TRYB)
Korean Won (KRW)-pegged
Binance KRW (BKRW)
Gold-backed
Tether Gold (XAUt)
Paxos Gold (PAXG)
CACHE Gold (CACHE)
Other
Petro (PTR) (oil-backed)
Where To Buy Dai stablecoin
You can trade Dai on major crypto exchange platforms. You are able to buy, sell or use the DAI stablecoin for trading on both centralized and decentralized exchanges.
Centralized exchanges:
1. Binance
2. Coinbase
3. Huobi Global
Decentralized exchanges:
1. Uniswap
2. Crypto.com
3. Pancakeswap
Before buying cryptocurrency, it is important for users to know the risks involved. Because centralized exchanges hold your private keys, you are at risk of losing access to your assets if there is a hack. Holding your cryptocurrency in your own hardware crypto wallet is recommended, but you put yourself at risk of losing your assets forever if you lose your private key or are targeted by hackers unknowingly. In any case, it’s important to do your research before investing in any crypto project; this article is for guidance only and should not be seen as investment advice.
