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Could Dai Become the #1 Stablecoin? Comprehensive Review
Dai is one half of the fascinating Maker DAO project that attempts to combine a stablecoin (Dai) and a proprietary token (Maker) to create a superior cryptocurrency system.
Maker/DAI is an intelligently crafted, self sustaining, well tested system
DAI holds its value over time, which is a good way to hedge risk
High technical barrier to entry if you want to use DAI
Short period of existence
Our Favorite Cryptocurrency Exchange for DAI
- Great customer service
- Low services fees
- Diverse and consistently updated choice of coins
- High: $1.11 (March 13, 2020)
- Low: $.95 (Jan. 16, 2020)
- Circulating Supply: 80,845,748
- Total Supply: 81,105,241
- Rating: Medium
- Transactions Per Second: 30 tx/s
- Rating: High
- Reason: DAI is obtained on the basis of how much you are collateralizing. So the supply can fluctuate freely, and the price is not subject to fluctuate heavily with the supply. MKR on the other hand has a fairly centralized supply.
- Rating: High
- Reason: The MKR/DAI ecosystem has one of the most comprehensive and engaging developer experiences. They get the added benefit of being built in conjunction with the Ethereum blockchain.
- Rating: High
- Reason: Many individuals choose to trade with DAI because it is stable in nature. DAI is a coin that has some of the highest amounts of volume on a day to day basis, because of its pervasiveness within the cryptocurrency ecosystem.
Introduction to Maker DAO
The Maker project is multifaceted, and one of the most interesting decentralized finance projects in the world. The purpose of the entire project is to create a sustainable, and decentralized stablecoin.
The system consists of two cryptocurrencies, Maker and DAI. These coins are a bit like Yin and Yang. One cannot exist without the other. They depend on each other, and are linked through the smart contract they both belong to. The word DAI comes from the Mandarin word for “loan”, which is a foundational component of the Maker/DAI system. Both Maker and DAI are cryptocurrencies on the Ethereum blockchain.
Maker (MKR) falls into the category of being a governance token, which means that the holders of the token are able to vote on how the entire system works. The holders of the MKR token form what is known as a Decentralized Autonomous Organization (DAO). The idea behind a DAO is that it is censorship resistant. It’s an organization of people, that collaborate towards a common goal, without the worry that external actors will be able to alter the course or function of the organization.
DAI falls into the category of being a stable coin, which means that the tokens value remains stable across a span of time. This is a useful construct for the cryptocurrency ecosystem, as most cryptocurrencies are extremely volatile, and rise and fall in value quite violently on a day to day basis.
Where Can I Actually Buy DAI?
Both MKR and DAI can be purchased on Coinbase. Most exchanges offer these pairs, but due to the simple and streamlined buying process that is offered by Coinbase, we recommend purchasing from Coinbase. Coinbase also offers a lesson and tutorial on what DAI is. You can even earn a bit of DAI by taking these courses / lessons offered by Coinbase.
Here are some of the other exchanges where you can buy DAI:
History of DAI
Maker and DAI was established and launched on December 27, 2017 in the midst of the crypto bubble crash. Since its establishment, DAI has held its value at $1 USD within a reasonable margin of error (5% on either side). In the event that DAI loses its peg to the USD, it has never lasted longer than a couple of days.
The creators of the Maker/DAI system were influenced by other stablecoin projects on other networks such as the bitUSD from bitShares. After the bitUSD displayed that it could not hold its peg to the USD, MakerDAO founder Rune Christensen set out to create a stablecoin system that would hold up against attacks, instability, and market uncertainty.
It could be argued that a stablecoin is what cryptocurrency should have been all along. All of the transparency, and censorship resistance that Bitcoin has, without the volatility and discomfort that comes along with that.
How does MKR/DAI work?
Maker (MKR) is a cryptocurrency existing as an ERC20 token on the Ethereum network. Holders of the MKR token make up the Maker Decentralized Autonomous Organization. Their job is to vote on changes in parameters that govern key parameters, and fees that run the system.
DAI is a cryptocurrency that is born out of the process of collateralized assets with the MKR system. It works like this.
- A user wants to have access to a stable asset
- The user locks up $150 worth of Ethereum inside the Maker contract
- The Maker system mints $100 worth of DAI and gives it to the user, as a loan
- The user is free to use the DAI as they choose with the following conditions:
- The user must pay back the DAI at a later date
- The user must pay a small fee (interest) when they repay the DAI
- If the underlying asset (ETH) falls in value below the value of the DAI, the contract will automatically sell the ETH to cover value of the DAI
The whole purpose of the system, is to make available, a cryptocurrency that doesn’t rise and fall in value, but instead remains pegged to the value of a real-world stable asset, like the USD. We just scratched the surface on how Maker/DAI works, it is an intensely complex system, but one that is worth having around. More than $100 million dollars worth of DAI exist, meaning that $150 million dollars worth of cryptocurrency is locked within the Maker contract. This is really exciting, because it means that those cryptocurrencies, which weren’t performing any function just sitting in users wallets, can now be locked inside a contract, that creates a stablecoin, that can be used to bring much needed stability into the world of cryptocurrency.