• DAI is a stablecoin whose value is pegged to the US dollar
• MakerDAO created the Dai token by incorporating the MakeDAO protocol and Ethereum blockchain technology
• Fundamentally the deposit of any asset generally involves the transfer of ownership to the smart contract that sells them for you
• Any vault generated Dai has a liquidation price which commonly presents higher rewards.

One of the significant flaws of cryptocurrency is its volatility; the lack of a fixed value has generated many highs among crypto traders and miners. Unfortunately, it has also done a lot of damage in more ways than one. Both big and small cryptocurrencies have gone under because of high volatility and low-value rate.

To fix this dilemma, blockchain developers introduced stablecoins. This value set of digital currencies tries to stabilize cryptocurrencies’ volatility rate. A prime stablecoin that has sparked some level of popularity, Dai has dramatically benefitted the crypto ecosystem. Running on Ethereum blockchain technology and MakerDAO Protocol, the stablecoin has earned its place in crypto.

History of Dai stablecoin

DAI is a stablecoin whose value is pegged to the US dollar. The digital currency theoretically maintains a 1:1 value ratio with the US dollar. One Dai coin is equal to one dollar.

MakerDAO is a decentralized organization with a long-standing history within the crypto ecosystem. The idea of creating a digital currency that had a fixed value was still relatively new, but it would stabilize the volatility of the crypto world. This concept became the driving force that resulted in years of research and engineering that finally led to the creation of Dai in the Ethereum blockchain.

Also, Read The Ethereum Merge: A hit, stale or a miss?

The creation of the decentralized stablecoin significantly boosted the DeFi ecosystem. It showed that digital currencies are usable in more ways than one, bringing about the much-needed evolution within the crypto space. 

Before it was called Dai, its first iteration was known as SAI. SAI rapidly gained fame as one of the few decentralized stablecoins governed and controlled by smart contracts rather than banks.

This acted as a safety net that allowed crypto traders to participate within the crypto ecosystem without worrying about the significant risk of a sudden shift in value.

How does DAI operate?

MakerDAO created the Dai token by incorporating the MakeDAO protocol and Ethereum blockchain technology. The protocol operates through various series of smart contracts that run on the Ethereum blockchain and are responsible for creating, operating and maintaining the Dai token.

It is the main reason the decentralized stablecoin can achieve a 1:1 value concerning the dollar and governs how each stablecoin is issued within the Ethereum blockchain network.

The MakerDAO protocol also serves minor activities such as stabilization rates, penalties, auction systems, governance, voting system, decision-making, and maintaining and establishing interest rates.

The collateral assets are deposited and stored in a system known as the Maker vaults once the deposit has been successful, the Maker vaults the proceeds to calculate the collateralization variables, interest rates, stability and the liquidation relationship of the total amount. 

Dai is stackable through a protocol called the Dai Saving Rate Protocol. This native smart contract runs within the MakerDAO system. the stablecoin is first locked into a DSR contract to earn profit through the current rate. The recent shift to Ethereum 2.0 presented this component as means to maintain the Proof-of-Stake mechanism. 

Pros and Cons of Dai

There are various advantages and disadvantages when dealing with digital currencies, and even though stablecoins are a somewhat safe net, there are still some disadvantages.

The advantages of the Dai token;

• It has a long history of security since it is a stablecoin.
• Unlike USDT(Tether), it does not depend on banks. This means there is no risk of bank closure or seizing of your account and prevents various cumbersome procedures.
• Dai is one of the most acceptable digital currencies in the DeFi world and is highly satisfactory.
• MakerDao has a long line of stability and has generated wide popularity. It is a trusted company, and even in the worst-case scenario, it can maintain its systems.
• It is easily accessible to anyone within the crypto space.
• Digital currency can generate credit, making it a good source of investment.
• It is still among the top used cryptocurrencies used today. It won’t just up and vanish.

Also, Read Yellow card: Nigeria’s leading fintech expands African reach.

Every yin(sound) has its yang(deficient), and here are the demerits of the stablecoin;

• It’s relatively complex on a technical level; hence it is unsuitable for first-time beginners in the DeFi world.
• It has a minimal range of real assets suitable for collateral; therefore, few have the means to acquire the Dai coin.
• Maker Vault has a significant fault. Fundamentally the deposit of any asset generally involves the transfer of ownership to the smart contract that sells them for you. Any vault generated Dai has a liquidation price which commonly presents higher rewards. This also means that the potential loss is just as significant. Most crypto traders opt to maintain a higher collateral ratio to shield themselves from any market loss.
• Although smart contracts are immutable, they can also be hacked. A scenario such as The Dao Hack can occur again.

Wrapping up

Stablecoins are a safer course of action when you’re relatively new to cryptocurrency. It allows you experience what it feels like to be in such an environment. The Ethereum blockchain opted to incorporate DAI to enable users a safer option to trade and acquire decentralized loans. DAI has revolutionized the crypto world with the new upgrade to Ethereum 2.0. There is still room for improvement that we are eager to witness.