DAI Coin operates on the principles of decentralization and stability, making it a unique player in the cryptocurrency market. Unlike traditional cryptocurrencies, which can be highly volatile, DAI is a stablecoin that maintains its value pegged to the US dollar, thus providing a sense of security for users. It achieves this thru a system of smart contracts on the Ethereum blockchain, where DAI is generated by locking assets into collateralized debt positions (CDPs). Once the collateral is deposited, users receive DAI, and an ongoing system of over-collateralization ensures that DAI remains stable even during market fluctuations. This mechanism allows users to engage in various DeFi applications without the fear of sudden value drops.
The key components of DAI’s functionality include the use of Maker Protocol and collateral types, which form the backbone of the system. Users have the option to lock different types of cryptocurrencies as collateral—such as ETH, BAT, and others—providing flexibility in their investment strategies.The stability fee incentivizes users to pay back their loans and reclaim their collateral, further contributing to the system’s robustness. Here’s a brief overview of the primary features:
| Feature | Description |
|---|---|
| Collateralization | DAI requires over-collateralization to maintain value stability. |
| Stability Fee | A fee charged for creating DAI, incentivizing users to repay loans. |
| CDPs | Users lock assets in CDPs to mint DAI, ensuring liquidity and security. |
| Decentralized Governance | Community-driven decisions impacting the protocol and its future. |
