What is Dai? How does Dai currency work?

Dai coin: a stable currency based on Ethereum

Introduction

Dai coin is a stable currency organized by MakerDAO on Ethereum. Issued on the blockchain. It is designed to maintain a 1:1 value relationship with the U.S. dollar and provide a reliable store of value for the cryptocurrency market.

Working Principle

The operation of Dai coin is based on the mortgage lending mechanism. Users borrow Dai coins by pledging Ethereum or other crypto assets to MakerDAO’s smart contracts. To secure the loan, the value of the collateral must be higher than the amount of Dai borrowed.

The smart contract will periodically check the value of the collateral. If the value of collateral falls, users need to increase collateral or pay off part of the loan to maintain the loan's collateral ratio. If the collateralization ratio drops to a minimum level, the smart contract will initiate a liquidation process to repay the Dai debt.

Stability Mechanism

In order to maintain its peg to the U.S. dollar, MakerDAO uses a mechanism called a stabilization rate. When the market price of Dai is above $1, the stability fee will gradually increase. The move is intended to incentivize users to sell Dai coins, thereby increasing supply and causing prices to drop. This self-regulating mechanism helps maintain the stability of the Dai coin and ensures that its value remains consistent with the U.S. dollar. In this way, MakerDAO is able to maintain the stability of the Dai coin, making it a reliable cryptocurrency option, while providing a way to pass the stability fee when the market price of Dai coins falls below $1. rate will decrease. This encourages users to purchase Dai coins, thereby reducing supply and increasing the price.

Advantages

Stability: Dai is pegged to the U.S. dollar, providing a stable store of value in the cryptocurrency market.

• Transparency: All Dai trading and staking activities are recorded on the Ethereum blockchain, ensuring transparency and auditability.
• Decentralization: MakerDAO is a decentralized organization, which means that Dai coins are not controlled by any single entity.
• Applications

Dai Coin can be used in a variety of applications, including:

Store of Value: Acts as a stable store of value to protect crypto assets Insulated from market fluctuations.

• Medium of Exchange: Used as a payment method on cryptocurrency exchanges and merchants.
• Lending: Used as a collateral asset to borrow other crypto assets or fiat currencies.

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