Dai (DAI) is a project hosted on the Ethereum ecosystem and an ERC-20 token pegged to the value of the US dollar. This means that the DAI token is designed to have a stable price that matches the value of $1. Dai is also an integral part of the MakerDAO lending ecosystem. The value of Dai is maintained through an automated system supported by Ethereum smart contracts and it is collateralized by a mix of other cryptocurrencies. Dai is classified as a stablecoin since its price is pegged to a fiat currency.

MakerDAO, which was founded in 2014 by Rune Christensen, is a decentralized autonomous organization (DAO) made up of MKR token holders. Dai is maintained and regulated by this organization as MKR holders can propose and vote on changes to the system for certain parameters. MakerDAO ensures that Dai’s value is stable and always close to one US dollar. Dai and MakerDAO are a part of the DeFi (decentralized finance) sector and are some of the first examples of DeFi to receive adoption.  

As a stablecoin, Dai is not as susceptible to frequent price changes as the rest of the crypto market, although its value may stray slightly from one US dollar exactly. This makes DAI a safe and convenient way to store fiat value in the form of cryptocurrency.

But what are some of the factors that can push the price of DAI away from $1 and how does Dai react? If you’ve ever wondered this, then you are in the right place. We’ve gathered all the information you need to find out how Dai price is regulated and maintained.

DAI Price History

The price history of [guidelink dai] (DAI) is rather straightforward when it comes to changes in value, volatility, and fluctuations, as these characteristics are almost non-existent. Dai joined the cryptocurrency market in 2017, showing little to no fluctuation and mostly holding a stable value pegged to the US dollar. MakerDAO participants maintained the price of DAI at $1, even though prior to November 2019 its only collateral was Ethereum (ETH) – which lost 80% of its value in the year after Dai joined the market. In November 2019, when the majority of cryptocurrencies experienced a dip, Dai fell below the value of $1 and reached an all-time low (ATL) of $0.90.

Dai was subdued to several lows during 2019. After hitting its ATL it rose to $0.97 in December, still trading below the value of $1. Dai price then peaked at an all-time high (ATH) in March 2020, when the stablecoin overtook the US dollar to reach a value of $1.22. After that, Dai value dipped by 17%. Throughout 2020, DAI price mostly maintained a value above $1 – between $1.02 and $1.04 – but never retesting its ATH of $1.22.

From January to March 2021, Dai experienced some weak fluctuations between $1 and $0.99 but mostly traded at the stable value of $1 to $1.01.

Analyzing Dai Price History

Analyzing the price history of Dai is relatively simple as its value rarely changes. Because of this, investors and traders don’t use Dai for making a profit based on price differences when buying and selling. However, it is important to understand that Dai’s value can still fluctuate at times, and the reason why this happens. 

Dai’s price is pegged to the value of the US dollar in a 1:1 ratio, and this value is maintained through overcollateralization by Ethereum (ETH) and other approved coins. This means that users receive the equivalent of $1 in DAI by depositing more than $1 in ETH or other supported crypto collaterals. Overcollateralization defines a case when an asset used as collateral exceeds the value of the loan taken out in DAI. Through this process, borrowers get a form of insurance that reduces the credit risk.

So, how is the price of Dai kept in line with the value of the US dollar? When users take out a loan by depositing crypto collateral, they need to return their Dai plus a “stability fee” in order to retrieve their collateral. The fee is paid in MKR, the governance token of the Maker Protocol, and the system maintains the price of Dai at a stable $1 level by charging this fee. At a time when it seemed to be difficult to maintain the price level at $1, MakerDAO participants proposed that the “stability fee” should be increased to keep the value of DAI in line with the US dollar. MKR holders made an official proposition and voted that the fee should be increased by 11.5% every year.

Since then, although DAI price briefly reached $1.22 in March 2020, it has mostly been maintained at $1.   

Factors Influencing the Price of Dai (DAI)

DAI value entirely depends on the balance of economic incentives facilitated through the MakerDAO system of smart contracts in the form of a decentralized application (Dapp) on the Ethereum blockchain. Dai price is based on the process of collateralized loans and repayments. Since Dai is pegged to the value of the US dollar, its price is almost always close to $1.

Dai utility enables users to deposit supported cryptocurrencies, such as Ethereum (ETH), and take out a loan that matches the value of their cryptocurrency collateral. The loan is given in the form of newly minted DAI stablecoins. What makes Dai price different when compared with the rest of the assets in the cryptocurrency market is its level of stability. The MakerDAO system pegs DAI price to the value of $1, so traders can’t make a profit by buying or selling it. However, Dai can be used in combination with other supported cryptocurrencies within the Ethereum ecosystem to generate revenue based on the price fluctuation of other cryptos. Dai acts as fiat money as its price is maintained through an automated system, so users can exchange dollars for DAI, and use crypto instead of fiat to trade other cryptocurrencies. Through the autonomous MakerDAO system, the value of Dai is kept stable. Whenever the Dai price goes below the value of $1, the system works to balance it and maintain the value of the US dollar.

The DeFi market is growing in popularity and recording a surge in demand throughout 2020 and 2021. During this time it seems that Dai price reached favorable stability levels with near-zero fluctuations. The rising popularity of DeFi is probably one of the factors influencing the price stability of Dai.

Another factor is likely the “stability fee” paid in MKR and the collaterals deposited within the decentralized loan system. These features are closely related as the stability fee helps keep DAI at the $1 price level. Because of this stability, Dai is not subject to frequent price changes and high levels of volatility.

It’s also worth noting that as Dai is pegged to the US dollar, its price in other currencies will fluctuate in line with the US dollar. Thus, factors such as inflation, economic growth, and monetary policy in the US will affect the value of Dai in other currencies.

Live Dai Value and Market Cap

The live value of Dai is almost always equal to the US dollar and so its market cap in USD is close to the number of Dai stablecoins in circulation. The market cap ranks cryptocurrencies by their market value and is calculated by multiplying the price of Dai with the number of Dai coins in the circulating supply. 

What makes Dai different from traditional cryptocurrencies is that its total supply is not limited. The system generates new Dai stablecoins with every deposited collateral.

Dai Price FAQ

Can You Trade DAI?

Traders can’t make a profit by buying and selling Dai as its price is almost always equal to $1. Instead, Dai is used in the MakerDAO loan system or can be exchanged for other cryptocurrencies and fiat currencies like the US dollar.

Can Dai Price Go Above $1?

DAI price went above the value of $1 on several occasions, recording an ATH of $1.22 in March 2020. However, Dai usually trades in a 1:1 ratio with the US dollar.

Conclusion

Dai price is pegged to the US dollar, and as a stablecoin it rarely fluctuates – although occasionally Dai may trade at slightly above or below the price of $1.

This was the case in March 2020 when DAI reached an all-time high of $1.22. However, for the most part, Dai’s price is kept stable by the collateralized loan system of the Maker ecosystem.

If you want to get started with the most user-friendly trading experience on the market, register with Kriptomat today to begin your journey into the world of Dai and cryptocurrencies!