What Is Dai (DAI)? How It Works & Where To Buy It?

DAI is the world’s first decentralized stablecoin created by Maker DAO. It uses innovative and weighted collateralization of crypto assets to maintain price stability.

Dai tokens are created when users deposit Ethereum and other crypto-assets as collateral. DAI is soft-pegged to the U.S dollar, allowing risk-free arbitrage incentivization, ensuring the 1:1 ratio is achieved.

DAI is unique because it is not issued in the same manner as centralized stablecoins. Instead, smart contracts and a unique collateralization mechanism are used to strategically and transparently generate DAI tokens.

 

How DAI Stablecoin Works

DAI has positioned itself as a unique stablecoin because it isn’t backed by fiat currencies or fiat assets like Tether USDT and other centralized stablecoins.

It achieves its stable value in a much different manner through an innovative collateralization ratio. This allows anyone to borrow DAI if they deposit Ethereum or other accepted crypto assets by opening a Maker collateral vault.

Essentially, Maker collateral vaults are smart contracts that ensure collateral is held in escrow until borrowed DAI (issued DAI tokens) is returned.

The amount of collateral versus how much DAI can be borrowed is typically weighted at least 1.5: 1 or between 150% and 300% more collateral than can be borrowed. This is important because providing more collateral is important to avoiding liquidation when crypto market conditions are volatile. If your assets are liquidated, you lose a percentage of your assets as a ‘liquidation penalty.’

A liquidation penalty is only incurred when the total value of your collateral assets falls below the value of the DAI tokens that were issued to you.

Another factor that maintains DAI’s peg is arbitrage trading – users can quickly make a risk-free profit when DAI trades above or below $1. In basic economics terms, when the price of DAI is above $1, and more DAI is created, the supply growth dilutes the price of DAI and brings it back to its $1 peg.

 

What Is DAI Used For?

DAI tokens play an integral part in the Maker protocol and are used to pay for transactions, interact and engage in DeFi and as a secure and stable value exchange.

DAI holders can purchase their tokens on centralized or decentralized exchanges and generate revenue by utilizing decentralized finance applications. The native Maker platform has some core applications – Oasis Decentralized Exchanged (buy/sell DAI) and Oasis Borrow, where users can borrow DAI (collateralized loans).

DAI users particularly acquire DAI to participate in DeFi, where they can earn an APY (Annual Percentage Yield) on their DAI tokens. The DAI savings rate is quite generous when compared to traditional banks.

Additionally, much like other stablecoins, traders use DAI to avoid volatility in the market. It can shield against the decline in value of volatile crypto assets; traders trade their crypto assets for a stable asset like DAI.

Keeping DAI tokens is also an easy and stable means to purchase other crypto assets without using fiat to fund your account every time you want to make a purchase. Multiple companies already disregard trade in fiat and choose to trade DAI instead.

Merchants and their customers can choose to receive DAI, which is optimal because the DAI price maintains stability – the price of DAI equals $1.

 

Where To Buy DAI Stablecoin

DAI has the 18th largest overall market cap ($9.44 billion) and the 5th largest stablecoin market cap.

DAI tokens can be purchased on several centralized and decentralized crypto exchanges. But, before you’re able to purchase DAI, you’ll need to deposit fiat money onto an exchange, and sequentially DAI tokens will be credited to your DAI digital wallet on the exchange.

The crypto exchanges below are the safest place where you can buy, sell and store the DAI.

Five of the most popular crypto exchanges are:

1. Binance
2. Coinbase
3. KuCoin
4. HTX
5. Crypto.com

 

All of the above exchanges allow users to buy, sell, transfer and store DAI in a digital wallet on the exchange. You can use your debit or credit card to purchase DAI on centralized exchanges.

If you intend on transferring your DAI tokens to a wallet off of the exchange – you can choose to send them to a wallet such as Metamask or other compatible wallets.

Individuals are required to transfer their DAI tokens to an off-exchange wallet to participate in DeFi.

How long has DAI existed?

The vision to create DAI, a stable crypto asset pegged to the U.S dollar, started with the launch of MakerDAO in 2015. However, the launch of DAI took place in 2017 after advancements in the Maker protocol infrastructure.

DAI was the first decentralized stablecoin and rapidly became a popular and trusted stablecoin that was frequently traded.

What’s controversial about DAI?

There’s always quite a large amount of controversy surrounding stablecoins. Although DAI is unique in that it’s a decentralized stablecoin – it has had its share of controversy.

Let’s take a look at the top two controversies surrounding DAI.

• It Has Previously De-Pegged – DAI has experienced volatility in the past, raising concerns among DAI users, citing that the core requirement for stablecoins is stability. It did manage to recover and reclaim its peg, but the de-pegging sparked controversy.
• USDC Was Added As A Collateral Asset – DAI is a decentralized stablecoin that positions itself uniquely in the crypto space. It was seen as controversial and counter-intuitive when USDC (2nd largest stablecoin) was added to the list of crypto assets accepted as collateral.

 

How many DAI tokens are there?

At the time of writing, it has a circulating supply of 9.44 billion tokens.

The total supply of DAI is 9,440,988,738.

Can DAI be mined?

DAI can’t be mined. It is only generated when collateral is in place – you can’t mine or create DAI as a user. The principle of stablecoins is to prioritize balance and transparency. Therefore it would be contradictory if they could be mined like other cryptocurrencies. It would simply dilute the market and de-peg the asset.

However, many individuals participate in DeFi with their DAI stablecoins. They engage in applications where they can generate revenue and receive generous APY on their staked DAI.

Some centralized exchanges also have various options available for DAI holders to earn passive rewards.

What is the market cap of DAI?

The market cap of DAI is:

DAI market cap = total amount of coins in circulation x current market price of DAI

DAI Market Cap = 9,440,988,738 x $1 = $9.44 billion (20th largest market cap & 5th largest stablecoin)

The market cap fluctuates according to circulating supply and market price.

 

Biggest Competitors Of DAI

DAI has multiple competitors in the stablecoin sector. The top competitor of DAI is Tether (USDT), which is the largest stablecoin.

UST was another competitor which was also a decentralized stablecoin that incorporated innovative algorithms and burning and minting procedures to achieve its peg. However, once it lost its peg its value moved towards zero.

DAI is currently the 4th largest stablecoin with a market cap of $9.44 billion.

Its competitor’s market caps are as follows:

• Tether USDT (centralized stablecoin) – $82,564,090,931 market cap
• USD coin (USDC) (centralized stablecoin) – $50,973,958,851 market cap
• Binance USD (BUSD) (centralized stablecoin) – $17,906,565,401 market cap

What are the future plans for DAI

MakerDAO’s DAI stablecoin utilizes smart contracts and a lucrative collateral mechanism to maintain its peg. However, the innovative methods used still haven’t propelled DAI to the top of the stablecoins list. Currently ranked the 5th largest stablecoin, there is some much-needed growth required.

The main focus of MakerDAO is to increase DAI user adoption, DAI utility, and versatility. As the Maker protocol expands and its user base increases, DAI will likely play an integral role, and its prominence as a stablecoin will rise significantly.

Pros and Cons of DAI

Pros:

• It’s A Decentralized Stablecoin – The principle ideology in crypto is based on decentralization. The biggest stablecoins, such as USDT and USDC, are centralized stablecoins with centralized issuers for their tokens – this is seen as contradictory by many. However, the Maker protocol ensured DAI remained decentralized and didn’t have a centralized issuer for its DAI tokens.
• Backed By Other Cryptocurrencies – DAI is backed by the collateral of crypto assets such as Ethereum – unlike centralized stablecoins, which are supported by fiat assets.
• You Can Use DAI in DeFi – The Maker protocol designed DAI to be used in DeFi applications, incentivizing DAI holders to participate in applications where they can earn passive rewards and generate revenue for helping secure the DAI stablecoin.
• Suitable For Money Transfers – Its price stability means that it can be conveniently used for transferring money quickly, securely, and at very low fees. DAI is commonly used for money transfers because it carries minimal risk in comparison to volatile cryptocurrencies.

 

Cons:

• Its Experienced Minimal Growth – When compared to its some competitors, DAI has underperformed. It hasn’t attracted the same amount of user adoption and trading For many people, this showcases the stablecoins inability to compete with the top stablecoins on the market.

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