DAI is a decentralized stablecoin that aims to provide price stability in the volatile world of cryptocurrencies. Unlike customary stablecoins that are usually backed by fiat currencies,DAI is backed by collateralized assets. This design principle allows DAI to maintain its peg of 1:1 with the US dollar while operating in a trustless and decentralized manner. The mechanism behind DAI involves utilizing smart contracts on the Ethereum blockchain,where users can lock up cryptocurrencies such as ETH or BAT in MakerDAO’s vaults to generate DAI. This bootstrap process empowers users to retain exposure to their collateral while obtaining liquidity in the form of DAI.
The stability of DAI is further reinforced through a system of incentives and governance mechanisms. MakerDAO operates on a system where holders of the MKR token can vote on various aspects within the ecosystem, including risk parameters and collateral types. This decentralized governance helps ensure that DAI remains stable and resilient against market fluctuations. Some key features of DAI include:
- Decentralization: Governed by its community through MKR token holders.
- Collateralization: Backed by a variety of digital assets, securing its value over time.
- Clarity: Transactions are recorded on the blockchain for public view.
