DAI is a dollar-backed stablecoin created by MakerDAO. It is one of the most serious stable projects and digital assets based on market capitalization. This ERC-20 token has an unlimited supply because users can get more coins by putting up collateral.
MakerDAO is a smart contracts platform built on the Ethereum cryptocurrency. It maintains and stabilizes its value through a dynamic system of Collateralized Debt Positions (CDP), autonomous feedback mechanisms, and external actors with relevant interests. It also supports pegging to the US dollar with cryptocurrency collateral instead of fiat collateral. It was given out by the MakerDAO platform at the end of 2017. It is the first token on the Ethereum blockchain that has no central authority. On the market, 1 DAI is almost always worth 1 US dollar. This project doesn’t have mining or staking. Instead, new tokens are made by the people who use the MakerDAO platform.
According to the people who worked on the project, the project’s main goals were to control volatility and make it reliable. Smart contracts and game theory are two things that help keep the value of DAI stable. A conversion strategy based on collateral technology and CDPs are used to make users feel more confident.
Things about DAI
The DAI token is not backed by fiat currencies like other stablecoins are. Instead, it is supported by another cryptocurrency. CDPs make sure that tokens can’t be made without backing from ETH.
Since it is decentralized, the people who own it can’t stop it from going to an address.
The token is made available based on the following rule. The user puts ETH coins into the platform account and converts them first into WETH (ETH ERC20 token) and then PETH (platform utility token). After that, the amount of the collateral is paid to the smart contract for the DAI token.
The user must return the tokens in order to get the amount of the collateral. For using the loan, interest is added to the MKR token. This gives them the right to vote on changes to the platform’s main parameters that affect how it works and how safe it is.
Smart contracts control how volatile tokens are. If the price falls below $1, interest rates go up. This makes users more likely to close the CDP and pay off their debt. As tokens are burned, the total number of DAI decreases. If the price goes above $1, interest rates go down. This makes people more likely to open CDPs. Because of this, more DAI tokens are made and the total supply goes up.
Why DAI payments are good for business
DAI gives merchants all of the benefits of blockchain technology without the risk of volatility. For instance, sellers no longer have to worry about the Bitcoin price changing by more than 15% when they get paid and turn it into cash. In the same way, customers no longer have to worry about the costs of assets whose value is always going up. With DAI, merchants can accept cryptocurrency payments through payment gateways as if they were cash. Because blockchain can do everything, there is no need for a third party to handle payments or temporarily hold funds. No one can prevent the seller from getting paid.
Based on the DAI, here is a list of what businesses can get out of using crypto payments. stablecoin:
- There are no limits on geography or people. Anyone can trade their assets
- There are no limits to getting DAI, you only need $1.
- Stable prices. DAI will protect capital from the volatility of crypto assets.
- Decentralization: Blockchain solutions are clear, and the platform is run by a smart contract.
- Return generation: By taking part in Yield Farming, holders can make passive income.
- Getting money from one country to another is easy and cheap.
Disadvantages of DAI
How hard it is to figure out how the Maker exchange works and how the DAI token is made. Before opening their first CDP, the user should learn how to create collateral positions, how to get a token, and what their return will be.
There is a lot of competition in the market for stable coins. There are more than 200 stablecoins right now.
Conclusion
Based on all of this, it’s safe to say that stablecoin technologies could be used in many different ways in the future and drive innovation in a number of growth areas, such as crypto payment gateways, more inclusive financial systems, tokenized financial markets, and simplified microtransactions for technological advances.
Many experts in the crypto industry think that the cryptographic security and ability to be programmed of stablecoins will not only help the traditional financial system grow but will also spur serious innovation in general.
