Dai is an Ethereum ERC20 token that is pegged to $1 USD — every Dai is worth $1,
Dai is created by users borrowing against locked collateral and destroyed when loans are repaid. Anyone can create new dai by depositing ether as collateral and drawing an appropriate amount of dai. Locked collateral can be recovered at any time by paying back the borrowed dai (plus a stability fee). Thus, all dai in circulation is at all times backed by at least as much collateral. You can also exchange for Dai at both traditional exchanges and decentralized exchanges.
Dai User Cases
Hedging: During periods of high market instability, Dai offers a safe harbour to store value without having to exit the crypto space.
Lending: High volatility creates an uncertain lending environment as borrowers and lenders cannot comfortably plan for the future. Dai’s low volatility makes them a perfect medium for a stable, predictable loan.
Decentralized Leverage: In creating CDPs, users can get more capital without spending collateral they are bullish on.
Payments / Online Purchases: Users can spend Dai at merchants that accept crypto at point of sale.
Decentralized exchanges: Decentralized exchanges are frequently unable to provide fiat-offramps. Dai allows their users to trade their assets for a low volatility currency that is stable relative to other widely accepted currencies like the US Dollar.
Exchange pairs: Crypto-to-crypto trading can be a complicated proposition. It is difficult to track earnings when the base trading pair is rising and falling in value as users are making trades. Creating low-volatility pairings with Dai allows for greater price predictability.
Supply Chain: As goods and assets exchange hands, middlemen take large fees for ensuring safe transactions, lending stable capital, and brokering cross-border initiatives. Dai and blockchain can reduce the costs of supply chain and international trade.
Prediction Markets: Long term betting becomes infeasible if users also have to gamble on the future price of the asset they are wagering. A cryptocurrency with price stability like Dai can be the natural choice for prediction markets and gambling applications.
Important features of Dai
- Each Dai is worth $1.
- All Dai are backed by real assets, a surplus of collateral that has been escrowed into audited, ownerless, and publicly viewable Ethereum smart contracts.
- It’s solvency doesn’t rely on trusted counterparties.
- It’s a currency that lives entirely on the blockchain.
- It’s stability is unmediated by locality.