DAI

DAI is a decentralized stablecoin that maintains a soft peg to the US Dollar through an algorithmic system of collateralized debt positions (CDPs) managed by the MakerDAO protocol. Unlike centralized stablecoins, DAI is generated by users locking crypto assets as collateral.

How It Works

Users deposit cryptocurrency (like ETH, WBTC, or other approved assets) into MakerDAO smart contracts to generate DAI. The collateral must be over-collateralized (typically 150% or higher) to maintain the peg and protect against volatility.

Key Features

• Decentralized: No single entity controls DAI; it's governed by MKR token holders through DAO voting
• Crypto-Backed: Collateralized by a basket of cryptocurrencies rather than fiat reserves
• Transparency: All collateral and transactions are visible on-chain
• DeFi Native: Widely used across DeFi protocols for lending, borrowing, and yield farming

Why It Matters

DAI represents a more decentralized approach to stablecoins, offering censorship resistance and transparency. However, it's more complex than fiat-backed stablecoins and relies on crypto collateral, which introduces different risk factors.