Tether’s USDT and MakerDAO’s DAI are both stablecoins, crypto assets that are always worth 1 USD, thanks to external backing, but they function a little differently.
In this Tether vs DAI review, we’ll discuss their similarities and differences and explain the risks and benefits associated with each coin.
The History of Tether (USDT) and DAI Coin (DAI)
Both Tether and MakerDAO have a few controversies that heavily impact the present and future of these assets. Tether continues to face a backlash regarding the state of its reserves, whereas MakerDAO’s governance (which also controls its reserves) receives criticism due to its centralized nature.
MakerDAO, the organization behind DAI stablecoin, was launched in 2014 by Rune Christensen. The organization developed the Maker Protocol on the Ethereum blockchain and launched the stablecoin DAI in 2017.
DAI made a name for itself in the market as a decentralized coin with decentralized governance since MakerDAO’s token holders have voting rights to decisions that impact the project’s future.
However, the organization is quite centralized, with Christensen and the founding team holding enough MKR to influence the project’s direction.
In 2022, MakerDAO announced several plans to diversify DAI reserves by investing in real world-assets and partnering with crypto businesses. This represents a huge change, as DAI is primarily a crypto-collateralized stablecoin.
Christensen has suggested DAI might become de-pegged in the future.
USDT was launched in 2014 by Tether Holdings Ltd. and is the biggest stablecoin in the market by market cap. USDT started trading on Tether’s sister company, the Bitfinex exchange.
Although USDT became a popular asset for trading BTC and other cryptocurrencies, many suspected Tether of foul play and accused the company of printing monopoly money and using it to increase crypto prices.
In 2021, Tether and Bitfinex were ordered to pay around 60 million in fines to the CFTC and New York State when it came out that the company had lied about its reserves, and USDT hasn’t always been backed one-to-one with USD.
You can learn more about the histories of MakerDAO and Bitfinex in our reviews.
How Do Tether and DAI Work?
If you understand how stablecoins work, you should have a general understanding of how Tether and MakerDAO operate. These organizations issue USDT and DAI to the market in exchange for collateral loans.
Tether is a private, for-profit company that issues the USDT stablecoin. The company creates USDT in exchange for USD loans and issues the minted USDT to the buyer. Buyers can sell their USDT to Tether and reclaim their loans. Of course, this is on the institutional side of things, and you can also buy USDT on various exchanges, as most retail users do.
Tether claims the loans are kept in reserve to back USDT and ensure it remains pegged 1:1 with US Dollar.
DAI works a little differently. It’s a stablecoin built on the Ethereum blockchain and issued by MakerDAO, another private for-profit company also advertised as a decentralized autonomous organization. The DAI minting process is controlled by MakerDAO and MakerDAO algorithms.
When investors want to purchase DAI, they must provide a loan of cryptocurrency worth at least 150% more than the DAI they want to purchase. For example, to purchase 100 USD worth of DAI, it’s necessary to provide an Ether loan worth 150 USD.
This is known as over-collateralizing and is necessary as cryptocurrency prices are volatile. This ensures that DAI remains stable even if Ether prices fall.
The loaned crypto assets are locked in smart contracts known as Collateralized Debt Positions (CDPs) on the Maker Protocol. The algorithms keep track of the collateral loans and liquidate locked assets if DAI’s price stability is threatened. Traders can recover their locked assets by returning borrowed DAI and paying a stability fee.
What Are the Main Use Cases of USDT and DAI?
Stablecoins make crypto transactions easier and faster. You can trade most cryptocurrencies against USDT, and many DAI/Crypto pairings are available on crypto exchanges.
Merchants can accept crypto payments denominated in USDT without worrying about insane price swings that came to characterize assets like Bitcoin.
DAI and USDT are very popular in DeFi. Most DeFi protocols allow you to loan DAI and USDT to earn interest on your coins.
DAI also offers a DAI Savings rate of 1% when you deposit DAI to Maker’s DSR smart contract.
Tether vs DAI Price History
USDT Price History
As you can see from the chart above, 1 USDT is worth $1, though the price can sometimes fluctuate. Price fluctuations usually occur when the demand for USDT rises or falls sharply in a short amount of time, but the price quickly recovers to $1.
DAI Price History
1 DAI should always be worth $1, though price fluctuations may occur when the demand for the asset rises or falls in a short period. The price quickly recovers to its $1 fixed price.
Tether vs DAI Market Cap
USDT Market Cap
USDT is the largest stablecoin and the third-largest cryptocurrency by market capitalization after Bitcoin and Ethereum.
As of January 2023, there are over 60 billion USDT tokens in circulation. The asset lost some ground in market cap following FTX’s bankruptcy.
There is no set total supply for USDT, as Tether can issue more tokens based on the demand for the asset. When the demand increases, more tokens are created. People and institutions can sell or convert USDT to other coins, in which case the company burns the surplus tokens.
Tether promises to have reserves for every USDT in circulation to protect the assets’ one-to-one peg to US Dollar. If the company issues more tokens than its reserves, the price will crash when the demand falls.
USDT is available on most major exchanges and is supported by many blockchain networks, including Ethereum, Algorand, Hedera, Tron, Solana, and more.
DAI Market Cap
DAI is the fourth-largest stablecoin and the sixteenth-largest cryptocurrency by market capitalization. As of January 2023, there’s a circulating supply of 5.8 billion DAI.
DAI doesn’t have a total supply, and MakerDAO can issue new DAI tokens based on the demand for the asset. The process is automatic and controlled by the Maker protocol smart contracts. The total supply varies depending on the market demand.
MakerDAO employs a combination of smart contracts and governance to control the amount of DAI tokens in circulation. The governance is marketed as decentralized and autonomous, but the founding team has a controlling stake in the decision pool.
DAI runs on the Ethereum blockchain and is available on most crypto exchanges and many DeFi protocols.
Main Similarities Between Tether and DAI
USDT and DAI are both pegged to USD on a one-to-one ratio. There are no set total supplies for either stablecoin, as more tokens can be created if the demand for these assets increase.
You can find either asset on crypto exchanges and DeFi protocols. The assets are useful for trading crypto and partaking in DeFi. You can borrow and loan USDT and DAI to make trades or earn interest on your savings.
Governance
It might surprise you to know that Tether and MakerDAO aren’t that different when it comes to governance. After all, Tether is a private, centralized company famous for its opaque USDT minting procedures and company leaders’ decision-making processes.
MakerDAO, on the other hand, is marketed as an “autonomous decentralized organization” run by a community of investors who all hold stakes in the organization’s decisions regarding DAI.
It’s certainly true that MKR token (the governance token for Maker protocol for the Multi-Collateral Dai system) holders govern the organization’s decisions regarding the future of Multi-Collateral Dai.
However, the system is not at all decentralized in practice. As in most decentralized organizations, the decision-making power belongs to those holding the largest amount of tokens.
At MakerDAO, that usually means Maker founder Christensen and other founding team members. Combined, they have more voting power than all the other stakeholders that have invested in the platform, which has become increasingly apparent in the last years as MakerDAO approved several controversial decisions regarding the project’s finances and future.
Main Differences Between Tether and DAI
USDT and DAI are both stablecoins but are different kinds of stablecoins due to their different collateralization mechanics.
Pegging Mechanism
As you already know by now, stablecoins pegged to USD are always worth 1 USD as they are collateralized by other assets. But these assets can be very different from each other.
While USDT is backed by traditional financial assets like cash and bonds, DAI is backed by other cryptocurrencies like Ether (ETH), USD Coin, Pax Dollar, Wrapped Bitcoin, Gemini Dollar (GUSD), Uniswap (UNI), and a few other cryptocurrencies.
That is a huge difference in many ways because it affects how new stablecoins can be issued and how surplus coins are cashed out.
We don’t know much about how Tether issues new coins since the company doesn’t divulge a lot of information regarding the process. MakerDAO, on the other hand, uses smart contracts to mint new DAI, so the process is much more transparent.
State of Reserves
The state of Tether’s reserves has been questioned since 2015 since the company doesn’t release audits to prove it has reserves to back USDT one-to-one.
Tether has a bad track record when it comes to the transparency of its reserves. It has been revealed that the company misled both regulators and customers on how Tether was being backed.
On the other hand, DAI is backed by crypto collaterals, and the backing system is managed by smart contracts, making the process more transparent (though no less confusing).
However, MakerDAO, the organization in charge of governing the token and ensuring it protects its 1:1 peg, has made controversial decisions regarding which assets can be used as collateral for DAI.
For example, in January 2023, MakerDAO voted to keep its Gemini USD (GUSD) reserves with 51% approval, a narrow win that comes thanks to ParaFi, an investor in Gemini.
While the votes saved Gemini and GUSD from disaster, the move puts DAI in a tough spot, as Gemini is in financial trouble due to the bankruptcy of crypto firm Genesis. If Gemini collapses, GUSD holders like MakerDAO can be in serious trouble.
Market Capitalization
The other most prominent difference between USDT and DAI is in their reach. USDT is the biggest stablecoin by market cap, while DAI is only the fourth.
Overall, that means USDT has a bigger presence in the market, and it’s easier to trade USDT with different coins. Most DeFi loans can be denominated in USDT, though there are quite a few opportunities for DAI as well.
Risks Associated With Tether and DAI
Risk of Losing Their Peg
Stablecoins can lose their peg if the reserves are less than the number of coins in circulation. The ensuing price crash can wipe off billions of dollars from the market and cause a snowball effect that takes down other companies and institutions. This is especially the case for Tether, which has the biggest market presence among all stablecoins, but it also holds true for DAI.
Tether’s missing audits continue to be a source of controversy; a lack of reserves could crash USDT and the entire crypto market if there is a strong bank run on the asset.
On the one hand, since DAI reserves are held in cryptocurrencies, price stability is a concern. Although DAI relies on over-collateralization and algorithms to ensure a 1:1 peg to USD, crypto volatility triggered by market conditions or regulations could bring down the asset’s value.
DeFi and crypto markets are highly interdependent. Almost all crypto businesses depend on other crypto businesses to make new investments and come up with derivative products. MakerDAO and Tether are big players in the game, and a price crash can have significant effects on the whole market.
Legal and Financial Risks
When it comes to legal and financial risks, Tether has a worse track record compared to DAI, but both companies have taken controversial steps.
Tether first promised an official audit in 2015, a promise the company repeated over the years but hasn’t fulfilled despite investors’ and regulators’ concerns.
MakerDAO, on the other hand, is also very centralized, with founder Christensen passing a series of controversial plans for the future of DAI, including possibly de-pegging the asset from its USD peg, despite some loud objections from investors.
Another concern regarding DAI stems from regulators’ ability to restrict access to crypto wallets that are operating out of AML protocols. In 2022, the Office of Foreign Assets Control ordered a sanction against Tornado Cash, a crypto mixer for anonymous crypto transactions.
Consequently, several crypto businesses, including Coinbase, Aave, and Uniswap, blacklisted wallets linked to Tornado Cash. The USDC issuer Centre froze 38 wallet addresses storing 75,000 USDC.
The move spells serious consequences for stablecoins. If authorities can blacklist wallets, both USDC and USDC-dependent assets like DAI can be in serious trouble when it comes to protecting their reserves.
On the other hand, DAI founder Christensen suggested de-pegging DAI from USD by reducing its dependence on USDC as the answer to the problem. De-pegging DAI from USD means the end of the stablecoin as it would be a free-floating currency.
Where Can You Buy USDT and DAI?
You can purchase USDT and DAI on most crypto exchanges, including centralized crypto exchanges like Coinbase and Binance or decentralized exchanges like Changelly or Oasis. Crypto.com delisted USDT for Canadian customers due to regulatory issues.
You can purchase both DAI and USDT with other cryptocurrencies or fiat currency through wire transfers, credit and debit cards, Apple Pay, Google Pay, or other third-party payment providers.
You can also generate DAI through the Oasis Vault Portal or through third-party vault portals like
DeBank and DeFi Saver.
How Can You Exchange USDT for DAI?
You can exchange USDT for DAI on most crypto exchanges, including Binance, Coinbase, Kucoin, and Bitfinex. Just check whether the crypto exchange you choose lists USDT/DAI paring.
Future Plans for Tether and DAI
It’s hard to guess what is in the future for Tether. USDT remains the biggest stablecoin in the market but has lost some ground due to its controversial situation with its reserves and lack of audits.
The US government announced plans to take steps to regulate stablecoins with more scrutiny, which could sink Tether’s ship or possibly, help it become more transparent regarding its business practices.
DAI made a lot of waves in 2022 when MakerDAO passed a series of controversial plans backed by the organization’s founder Christensen.
Dubbed the “Endgame,” the plan details the restructuring of the MakerDAO organization and the future of DAI. The plan is very complex, with several moving parts, and will take years to implement.
Christensen announced he wants to end DAI’s dependence on USDC in the long term, as USDC wallets can be blacklisted by regulators if suspected of foul play, which could tank DAI prices. DAI is 40% backed by USDC.
Diversifying DAI Collaterals
MakerDAO has taken steps to diversify its collaterals and reduce its dependence on Circle’s USDC.
The plans include investing in US government and corporate bonds, real-world assets like real estate, and partnering with crypto companies like Coinbase and Paxos. MakerDAO already approved plans to transfer $1.6 billion USDC to Coinbase Prime to earn an annual yield of 1.5%.
Depegging DAI
Christensen also announced his plans to de-peg from the US dollar over time, but what that spells for the future of DAI remains a question mark.
The announcement came after the US government ordered sanctions against Tornado Cash-associated wallets, one of which contained 75000 USDC.
Christensen plans to move DAI’s collateral to other cryptocurrencies (without price stability) like Ether, but the implications of a move like that are very serious. Without the price stability of USDC and other stablecoin collaterals, DAI would be at the mercy of free-floating crypto prices.
Christensen’s endgame plan was approved with 80% backing, though critics were quick to point out that Christensen influenced 63% of the votes through his MKR holdings.