BigONE: What is DAI? Should Readers buy it?
DAI is a stablecoin pegged to the U.S. dollar that reduces volatility and enables multiple DeFi functions, such as lending and trading. DAI maintains price stability by anchoring to the U.S. dollar, and its value is supervised by its decentralized governance community MakerDAO. Although the actual DAI stablecoin is produced through the Maker protocol platform that accepts various cryptocurrencies as collateral, DAI can also be purchased directly with fiat currencies on most regulated cryptocurrency exchanges.
This article, BigONE will introduce you to the basics of DAI so that you can determine whether it is the right cryptocurrency for you.
DAI basic information and functions
Role: DAI is a decentralized stable currency with a value ratio of 1:1, anchored to $1.
Release Date: December 2017
Market value: USD 5.69 billion (CoinMarketCap, August 2021)
Availability: DAI can be used in some centralized exchanges, as well as in decentralized exchanges, including Uniswap, ByBit, and DAI’s proprietary Maker protocol.
Three fundamental principles are required to comprehend DAI and its operations effectively.
What is a stable currency?
Stablecoins are a unique subset of cryptocurrencies that strive to minimize the volatility normally associated with cryptocurrencies. Stable coins such as DAI can do this because reserve currencies or other underlying assets back them. In addition to controlling volatility, stablecoins can also bring other benefits to investors:
⦁ Secure transaction
⦁ Instant transfers anywhere in the world
⦁ Lower fees
⦁ Fast processing speed
What is the Maker Agreement?
The Maker protocol is a basic system developed by DAI founder Rune Christensen. It allows anyone in the world to use various cryptocurrencies as collateral to produce DAI stablecoins. Some typical cryptocurrencies accepted as collateral include:
⦁ ETH
⦁ COMP
⦁ USDC
⦁ BAT
What is a decentralized exchange?
A decentralized exchange (DEX) is a cryptocurrency exchange, such as UniSwap or ByBit, where users can easily exchange cryptocurrencies and tokens. For clarity, cryptocurrencies will run on their own blockchain, and tokens will run on another blockchain. There is no third-party intermediary transaction for DEX transactions, so it is also called a “permissionless” transaction. DEX runs on a piece of computer programming code (called a smart contract), which runs on the blockchain. The nature of the blockchain and the code execute transactions together without credit checks, bank approvals, and delays.
Should you buy DAI?
DAI is an ERC-20 token built specifically to run on the Ethereum blockchain. ERC stands for “Ethereum Request for Comments”, a standard developed in 2015 to create and enable smart contracts on the Ethereum network. One of DAI’s main advantages is that it provides cryptocurrency trading, with almost no fluctuations due to its link to the US dollar.
DAI can be purchased directly on a centralized cryptocurrency exchange or DEX. Using the Maker protocol, you can also borrow DAI by depositing Ethereum-based assets as collateral to underwrite the amount of DAI borrowed. Users need to use a cryptocurrency larger than DAI borrowed to make mortgage deposits to ensure network liquidity. If the user’s encrypted collateral value is lower than the value of the issued DAI tokens, the collateral may be forfeited. However, if the value of the user’s collateral increases, then your DAI loan limit will increase accordingly. The operation of the Maker agreement is similar to an escrow account that holds collateral until the borrowed DAI and handling fees are returned.
Another unique advantage of DAI is its extensive integration in the Ethereum blockchain. Once purchased or borrowed, it can be used for hundreds of decentralized applications, including DeFi and NFT. Here are some other features of DAI worth considering.
⦁ Passive income
DAI also has a unique interest-earning plan called the DAI Savings Rate (DSR). It allows users to use idle DAI tokens for savings and generate variable interest income through a lock-up period. Another passive income option is for DAI owners to deposit tokens directly into the MakerDAO smart contract. The smart contract will be programmed to add interest to the account automatically, investment and accrued income can be withdrawn at any time, and there is no minimum deposit.
⦁ Decentralized freedom
Due to DAI’s decentralized design, DAI investors can use their funds without restrictions. Because of its permission-free and transparent system, there are no intermediaries, approvals, or credit checks, and its advantages are obvious.
⦁ Safe and reliable
DAI’s daily audits, secure integrated wallets, two-factor authentication, and other security measures can improve the security of the DAI ecosystem. In addition, the developers of the MakerDAO community will verify all smart contracts on the blockchain to ensure liquidity and network feasibility.
DAI is anchored with the U.S. dollar, which can provide investors with great flexibility and practicality. If you buy DAI, you can use it in the Ethereum network in a variety of ways. Of course, DAI also has its shortcomings. If the user borrows an excess of DAI on the Maker agreement, the user’s mortgaged assets may suffer losses. Otherwise, the advantages of this unique asset will make it a viable and stable cryptocurrency worthy of serious consideration.
About BigONE
BigONE is a global cryptocurrency exchange that provides a platform for trading various cryptocurrencies. It was founded in 2017 and registered in the Netherlands. The group operates in Russia, Brazil, Vietnam, Seychelles, Singapore, Japan, and Indonesia, providing marketing, investment, and blockchain technology research & development. As it stands, there are over a thousand users from Latin America registered with BigONE.
