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Introduction: What is DAI?- Blockchain

Blockchain technology has given several attractive solutions for reducing the rising levels of dissatisfaction with random centralized financial systems. It distributes data over numerous computers (networks). It allows for more openness than centralized control. As a result, the blockchain platform has the potential to provide a permissionless, impartial, and high-performance solution for upgrading global economic and financial systems.

The DAI blockchain initiative is a famous cryptocurrency project. It was designed as a stable currency using the Maker protocol to reduce price volatility.

You’re undoubtedly curious to learn more about the DAI stable currency and how it fits into today’s crypto landscape. The article that follows will give a brief of all you need to know about DAI and its applications.

Maker Protocol and MakerDAO:

Without a basic grasp of MakerDAO and the Maker protocol, debates on “What is DAI” would be inadequate. MakerDAO is a DAO (Decentralized Autonomous Organization) built on the Ethereum network. MakerDAO was established in 2014 and uses the MKR governance token to follow the examples of decentralized governance. The MakerDAO platform has a one-of-a-kind governance structure that combines governance polls with executive voting.

For increased efficiency, stability, and transparency, MKR token holders are responsible for managing the Maker protocol as well as the financial risks linked with DAI currency. The voting rights of MKR token holders are proportionate to the number of tokens donated to the voting contract. So, what is MakerDAO’s Maker Protocol? Maker Protocol may be thought of as the MakerDAO platform’s mainstay.

Maker Protocol’s Importance:

The Maker Protocol is a key component in fully comprehending the MakerDAO DAI interaction. Maker Protocol, commonly known as Multi-Collateral DAI or MCD system, assists users in creating DAI by utilizing community-approved collateral assets. Many engineers began working together on the early components of documentation, architecture, and code in the early days of MakerDAO, probably around 2015.

 

DAI Stablecoin: Working 

As you’ve read, Maker Protocol is one of the most popular DeFi programs for generating DAI stablecoins. The DAI token is a decentralized and impartial cryptocurrency. Interoperability with Ethereum and other blockchain systems is another feature of DAI. Users of MakerDAO can simply produce DAI by putting collateral assets in the Maker Protocol’s Maker Vaults. This will ensure DAI circulation, allowing consumers to have more liquidity.

MakerDAO DAI stablecoin is also available through crypto exchanges, brokers, and as a form of payment for products and services. You may use DAI exactly like any other cryptocurrency once you’ve created, acquired, or received it. You may also utilize the Maker Protocol’s DAI Savings Rate or DSR function to use DAI as savings. DAI’s distinctive features rely heavily on the backing of extra collateral, allowing for a larger collateral value compared to the DAI debt value. Let’s take a closer look at how DAI is distinct from other stablecoins.

DAI Stablecoin’s Characteristics:

Since its launch in 2017, the DAI stable coin cryptocurrency has sparked a lot of curiosity. What sets it apart from other prominent cryptocurrencies such as Tether USDT? Here are some of DAI’s unique characteristics that can assist you in finding a good response.

Ensured Decentralization:

The most basic definition of “What is DAI” presents it as just another stable coin on the market. MakerDAO, on the other hand, chooses a different approach for DAI in order to achieve high degrees of decentralization.

MakerDAO, on the other hand, operates on decentralized governance, therefore there is no centralized authority issuing DAI. Users must first fund a smart contract with Ethereum-backed assets to get it. The smart contract uses the assets as collateral to soft-peg DAI against the US dollar. Smart contract developers build smart contracts.

Multi-Collateral Capabilities:

Another noteworthy feature of the DAI currency is its ability to accept numerous collaterals. The collateral for many other stablecoins is usually single fiat money or a single cryptocurrency. DAI, on the other hand, allows for the use of several cryptocurrencies as collateral. DAI, for example, allows ETH, Compound Token (COMP), Brave Attention Token (BAT), and USD Coin (USDC) as payment methods.

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Even though the Maker protocol only enabled ETH collateral deposits in its early days, it has since matured into a useful multi-collateral stablecoin system. DAI can significantly decrease consumer risk while boosting price stability by supporting cryptocurrency as collateral. Furthermore, by voting, the MakerDAO community continues to provide new collateral alternatives.

DAI Savings Rate

The DAI Savings Rate, or DSR, is another hopeful implication of the MakerDAO DAI stable coin system. The DAI Savings Rate is a fantastic tool for DAI token holders who want to earn interest on their investments. MakerDAO’s native token owners, or MKR owners, vote on the DAI Savings Rate, or DSR.

MKR token holders act as guarantors for DAI, implying that MKR tokens will be liquidated in the event of a system failure. MKR token holders are recognized for assuring the seamless operation of the collateralized tokens and the DAI system in general.

Final Thoughts:

The DAI stablecoin cryptocurrency is a more inventive alternative to the market’s existing stablecoins. It introduces the possibility of genuine decentralization for stablecoins by allowing distributed governance in stablecoin networks. DAI stablecoin uses collateral assets to soft-peg its value against the US dollar without requiring any fiat cash or cryptocurrency reserves. 

By depositing Ethereum-backed assets as collateral, users may gain access to the Maker Protocol and earn DAI. Furthermore, you can only get your collateral back after paying back the DAI and a stability charge. DAI, in a larger sense, is a unique take on stablecoins that might be a valuable asset in the crypto world. 

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