What is cryptocurrency Dai (DAI) and how does it work?

What is Dai (DAI)?

Dai is the first decentralized, collateral-backed stable cryptocurrency. 

DAI is an ERC-20 token that attempts to maintain a stable 1:1 value with the U.S. dollar by locking other crypto assets in smart contracts.

Unlike other stablecoins, which are issued and controlled by a central authority, DAI is the native token of the Maker Protocol – a decentralized autonomous ecosystem of smart contracts running on the Ethereum blockchain.

Collateralized loans provide a way for a lender to secure a loan by locking away the assets they own.

Traditionally, these loans have lower interest rates than unsecured loans due to the fact that the locked assets can be liquidated in order to fulfill part of the loan.

How Does Dai Work?

DAI exists as a key component in the concept of Collateralized Debt Positions, or CDPs.

CDPs are the smart contracts of the Maker Protocol that users are able to lock their collateral assets in (ETH, BAT, etc) and generate DAI.

A good way to think of CDPs is as secure vaults used for locking collateral while having the ability to get liquid, stable crypto-cash.

Due to the volatile nature of the assets being collateralized, DAI is often over-collateralized to prevent liquidation.

As an example, users must deposit $200 worth of ETH in order to unlock $100 DAI, offering a sort of volatility buffer. This way, if the price of ETH drops by 25%, that $100 DAI loan would still be safely covered by $150 worth of ETH.

To reclaim their collateralized assets, the user must return the DAI that was loaned along with an additional fee.

Who Are The Founders of Dai?

The Maker Foundation, and subsequently DAI, was founded in 2014 by developer Rune Christensen.

The Maker Protocol is an open-source project created as a decentralized answer to controversial centralized stablecoin protocols of the time.

In 2017, DAI officially launched on the Maker Protocol. Designed as a means to provide a non-volatile, stable, secure lending asset for businesses and individuals alike, DAI is able to do all of that without sacrificing decentralization.

Since getting the Maker Protocol up and running, the Maker Foundation has relinquished all authority on the platform to MakerDAO, a decentralized autonomous organization that now governs the entire Maker Protocol.  

What Makes Dai Unique?

DAI is one of a new breed of cryptocurrency – the stablecoin. 

The power of stablecoins, as you may have guessed from their name, lies in their ability to offer a stable store of value in an otherwise volatile market. 

Maintaining price stability is most commonly tackled through the use of large, centralized entities – however, the Maker Protocol operates DAI in a completely decentralized manner, even leaving governance of the protocol up to a distributed network of users making up the MakerDAO.

In order for its autonomous processes to work properly, The Maker Protocol requires real-time information to be fed into the system at all times, ensuring proper collateralization in the automated CDPs at all times.

What Gives Dai Value?

The supply of DAI is based entirely on demand. When a user deposits ETH or any other supported ERC20 token into the Market platform to use as collateral, DAI is created and eventually loaned to the user at a collateral-to-loan ratio of 66%, which increases the overall supply of DAI. This is where DAI’s value is primarily derived from.

How Many Dai (DAI) Tokens Are in Circulation?

The current circulating supply of DAI is .

Unlike centralized stablecoins – which are minted by a private company according to their own issuance policy – new DAI tokens can be minted by any user by utilizing the CDP function of the Maker Protocol.

Maker runs on the Ethereum blockchain, and is the software in control of DAI’s supply. In order to maintain its stable price peg to the U.S. dollar, the Maker Protocol is hard-coded to ensure every DAI token in existence is collateralized by the proper amount of other cryptocurrencies.

There is no cap on the total supply of DAI – the supply is in constant flux, changing based on how much collateral is stored in every CDP on the network at any given moment.

Other Technical Data

In order to help keep the system as secure as possible – and help mitigate the risks of potentially catastrophic events – the Maker developers included a feature known as the Emergency Shutdown Process.

The Emergency Shutdown Process may be triggered by a select group of trusted individuals who hold the global settlement keys. Each of these signatories must approve the action to initiate the process.

If this process is ever triggered, the entire Maker Protocol freezes. Holders of DAI are able to exchange it for their original collateralized assets before the entire protocol begins winding down.

How Is the Dai Network Secured?

DAI is an Ethereum-based ERC-20 token, which means that the Ethereum Ethash Algorithm secures it.

DAI follows the rules laid out by MakerDAO. MakerDAO is a decentralized autonomous organization of international participants who are completely responsible for the governance of the entire Maker Protocol (and subsequently DAI).

How To Use Dai

In addition to being a secure, stable method of payment, DAI offers crypto traders a powerful tool for minimizing their risk. During the periods of extreme volatility that have become somewhat synonymous with the greater cryptocurrency market, users may park some or all of their funds in DAI to mitigate losses.

DAI also offers users the ability to access collateralized loans in a way that offers many advantages over existing options. Without needing any sort of approval from creditors, DAI users can simply lock up their digital assets as collateral and receive DAI, which they can use to purchase anything (even more cryptocurrency).

How To Choose a Dai Wallet

The type of Dai (DAI) wallet you choose will likely depend on what you want to use it for and how much you need to store.

Hardware wallets or cold wallets provide the most secure option with offline storage and backup. Both Ledger and Trezor hardware wallets offer storage solutions for DAI. Hardware wallets can involve a bit more of a learning curve and are a more expensive option, however. As such, they may be better suited to storing larger amounts of DAI for more experienced users.

Software wallets provide another option and are free and easy to use. They are available to download as smartphone or desktop apps and can be custodial or non-custodial. With custodial wallets, the private keys are managed and backed up on your behalf by the service provider. Non-custodial wallets make use of secure elements on your device to store the private keys. While convenient, they are seen as less secure than hardware wallets and may be better suited to smaller amounts of DAI or more novice users.

Online wallets or web wallets are also free and easy to use, accessible from multiple devices using a web browser. They are considered hot wallets and can be less secure than hardware or software alternatives, however. As you are likely trusting the platform to manage your DAI, you should select a reputable service with a track record in security and custody. As such, they are most suited for holding smaller amounts or for more experienced frequent traders.

Kriptomat offers a secure storage solution, allowing you to both store and trade your Dai (DAI) tokens without hassle. Storing your DAI with Kriptomat provides you with enterprise-grade security and user-friendly functionality.

Selling and buying DAI, or exchanging them for any other cryptocurrency, is done in mere moments when you choose our secure platform as your storage solution.

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Dai (DAI) Governance

DAI, as the native stabletoken of the Maker Protocol, is governed by holders of Maker (MKR).

Through its MakerDAO system, Dai/Maker governance takes place both on-chain and off-chain. MKR token holders vote on proposals using the Maker Protocol’s on-chain governance system. 

This system features two different types of voting: Governance Polls and Executive Votes. Any MKR token holder can participate in these votes in order to help shape the future of the protocol.

MKR stakeholders are also capable of performing off-chain votes by engaging with the community in places like forums and public governance webcalls.

Dai Token FAQ

Is 1 DAI always worth exactly 1 USD?

Not at all times. DAI is not a hard-pegged stablecoin, so its value may vary slightly. DAI actually maintains a free-floating peg that is able to fluidly match the low volatility of USD.

What happens to MakerDAO after an emergency shutdown?

After an Emergency Shutdown is triggered, the collateral redemption process takes place where users may exchange their DAI for collateralized assets at a $1 USD rate. Since DAI and the Maker Protocol is decentralized and completely open-source, anyone could potentially redeploy the system once the wind-down process has finished.

How To Buy Dai

Buying Dai (DAI) is as easy as visiting Kriptomat’s How to buy DAI page and choosing your preferred method of payment.

How To Sell Dai

If you already own DAI and hold it on a Kriptomat exchange wallet, you can easily sell DAI tokens by navigating the interface and choosing your desired payment option.

Dai Price

As a stablecoin, DAI is intended to stay as close to $1 USD as possible. It may vary from time to time as the collateral-to-debt ratio of the protocol is always in flux.

The current DAI price is EUR.

The 24-hour trading volume of DAI is EUR. DAI is currently ranked of all cryptocurrencies by total market capitalization, with a market cap of EUR. DAI has a circulating supply of .

Register now to begin your journey into the world of DAI and cryptocurrencies with Kriptomat!

If you’re experiencing any issues or have any questions at all, please don’t hesitate to reach our Customer Support Team. We’re always here to help!