What is DAI?

MiTSoftware.com
6 min readNov 4, 2022

If we talk about stable coins, it is important to name one of the ones that is becoming more relevant in the crypto market: DAI, the cryptocurrency whose value is anchored 1:1.

In this article we tell you everything you need to know about this token and how it works in Blockchain.

What is a stable coin?

Thanks to the growing popularity of cryptocurrencies and the features and functions of cryptocurrency technology, BlockchainInvestors have been increasingly interested in supporting their financial resources and operations through the blockchain.

To this end, the use of cryptocurrencies has become popular through the implementation of stable currencies, which are anchored at a specific price, which allowsmitand reduce market volatility.

In this sense, a stable currency is a digital asset whose purpose is to guarantee the stability of the exchange rate within the cryptocurrency market, for this, the value of the token is normally linked to a fiduciary currency, which can be the euro. or the dollar. These currencies are implemented thanks to the technology of Blockchain, sharing the same characteristics as a cryptocurrency How Bitcoin o Ethereum, but without the extreme volatility of the currency’s value.

Why are stable coins becoming popular?

Since the implementation of Bitcoin in 2009, cryptocurrencies have evolved, transforming the forms of marketing due to its wide growth and its security features and ease of financial transactions.

To this end, its operation has only fueled the creation of new projects based on the blockchain and cryptocurrency technology. However, stablecoins are not the same as traditional currencies. Stablecoins represent a form of independence from centralized financial institutions and organizations, making it possible to develop, buy and sell stablecoin assets thanks to Blockchain technology.

That is why these cryptocurrencies have become so popular and their acceptance within the international market is greater every day.

Types of stable coins

Thanks to the popularization of Blockchain technology, today different ways of maintaining the value of a currency and controlling its supply and demand have been developed. When it comes to stablecoins, it is possible to anchor their value to prevent price fluctuations.

Here are some types of stablecoins within the Blockchain:

– Stablecoins backed by fiat money

We can say that this is the most popular type of stablecoin, whose value is backed by either the US dollar, the euro or the British pound. Usually its value is equal to 1:1, that is, a token of the stable coin has the same value as 1 euro or dollar.

– Stablecoins backed by physical assets

This is another type of stablecoin that has been becoming popular in the last few months of 2022. These are coins whose value is backed by a physical asset, this can be a mineral such as gold. For example, the value of a token can be equal to one ounce of gold.

– Stablecoins backed by other cryptocurrencies

This type of cryptocurrency seeks to reduce market volatility through the use of another cryptocurrency as a form of reserve. In general, this currency is backed by other famous cryptocurrencies such as Bitcoin or Ethereum.

DAI: The Most Popular Stable Cryptocurrency

Yes, we are going to talk about the creation of a project as outstanding as DAI, It is important to highlight that this cryptocurrency was created from a loan over guarantee through a reimbursement by smart contracts created by MakerDAO.

DAI was released in 2017, developed by the Maker Foundation using the protocol MakerDAO.

DAI aims to be a decentralized application where users can deposit Ether other cryptocurrencies to take a loan in relation to the value of their deposits and receive DAI.

Rune Christenson was the creator of this technology, however, on December 18, 2017 DAI was released in partnership with Maker smart contracts on the Ethereum mainnet.

What is DAI?

Today there are a large number of cryptocurrencies available on the market, however, DAI has kept the upper hand in this competition, designed to function as a stable coin whose value is pegged to the dollar.

In this sense, DAI is a stablecoin with a value equal to 1:1 with the US dollar. With a protocol backed by the technology of MakerDAO, DAI is one of the most promising projects today, which ensures the transparency and quality of the cryptocurrency.

Developed based on an ERC-20 token, DAI is developed based on a decentralized finance ecosystem, through the use of smart contracts and not by Fiat, where all decisions within the network are implemented by a DAO, ensuring the participation of the cryptocurrency investment community.

DAI is one of the most striking projects today within the Blockchain networks, and its implementation has served as a template for new and future projects within the Ethereum blockchain.

How does IAD work?

We have already talked about how stablecoins work before, but… what makes DAI so special? To know the answer we must analyze the protocol of MakerDAO, its developer and responsible for its implementation.

MakerDAO is a project to promote the development of decentralized ecosystems and DApps, with the aim of generating stable currencies. MakerDAO works as a platform that permite buy and sell cryptocurrencies pegged to the real dollar value.

En este sentido, MakerDAO implements a series of smart contracts that ensure the functioning of the cryptocurrency and controls its features and functions.

Maker ensures the stability of the cryptocurrency, with a value equivalent to the dollar, so that it can control the issuance and burning of it.

Likewise, to ensure the operation of DAI, it is important to highlight the importance of the Maker Vaults, a series of vaults thatmite that users have interaction with the Maker protocol so that when depositing they can generate DAI. Maker Vaults handles the lateralization procedure and interest rates, as well as the DAI sending and receiving functions.

Future of DAI in the world of cryptocurrencies

There is no doubt that DAI is a promising project, which aims to create a new secure way of storing assets, minimizing market fluctuations.

DAI seeks to generate profits by taking advantage of fluctuations, thanks to its guarantee systems, DAI promises to offer a value equal to 1:1 in relation to the US dollar. This only means a great boost for the project, since it generates the possibility of carrying out financial transactions, payments of operations, loans, among others.

DAI is a novel idea that seeks to take full advantage of Blockchain functionalities, thus creating a new horizon of possibilities for those who seek to carry out commercial operations with stable values ​​through decentralized platforms.

A promising future is expected for a platform like DAI, with its security features and performance rewards. There is no doubt that DAI will continue to be one of the leading stablecoins in the market.

--

--

MiTSoftware.com

We are your best strategic allies for the digitalization of your brand.