Dai Explained:
A Comprehensive Guide
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How Dai (DAI) Works
Dai (DAI) is a stablecoin built on the Ethereum blockchain that offers a decentralized alternative to traditional stablecoins. As you know, a stablecoin most often means a cryptocurrency, the rate of which is being stabilized by pegging it to fiat money (for example, USDT which is pegged to the US dollar). Dai, on the other hand, is not pegged to a “real” currency but operates based on collateralization using assets on the Ethereum blockchain.
DAI stability is created through the mechanism of the MakerDAO DeFi platform, where users can deposit digital assets such as Ethereum into a smart contract and receive an equivalent amount of DAI in return. This makes Dai a fully autonomous stablecoin, free from centralization. If the price of Dai starts to decrease, the system will automatically issue new Dai tokens to stabilize the price. Conversely, if the price of DAI rises, users can buy back DAI to reduce its supply and maintain stability.
Now, Dai is widely used in the DeFi ecosystem. It can be used to trade on decentralized exchanges, to give and receive loans, and to participate in various DeFi financial products.
Despite the risk of a collateral asset that can suffer significant losses in the event of a sharp drop in market prices, DAI, due to its decentralization and stability, has become one of the most popular stablecoins in the world of cryptocurrencies.
Popular Crypto Assets
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Whether you are a seasoned investor or a beginner taking your first steps into the crypto space, the Notum platform offers the perfect environment to explore, learn, buy, and stake crypto. Join our platform today and start investing in any of the 250+ assets available on the platform!
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FAQ
What Makes DAI Unique?
DAI is unique among cryptocurrencies because it is a stablecoin that is algorithmically pegged to the value of the US dollar. Unlike traditional stablecoins that rely on centralized reserves, DAI maintains its stability through a decentralized network of collateralized assets and smart contracts on the Ethereum blockchain, offering users a reliable and decentralized store of value within the cryptocurrency space.
What DAI Is Used For?
DAI serves as a stable medium of exchange and a store of value within the crypto ecosystem. Users commonly use DAI for various purposes, including trading, lending, borrowing, and as a stable unit of account for dApps, particularly in the DeFi space, where it provides stability and predictability in an otherwise volatile market.
On What Blockchain Is DAI Built?
DAI is built on the Ethereum blockchain as an ERC-20 token. It relies on Ethereum's smart contracts and decentralized infrastructure to maintain its stability and functionality, using collateral and algorithms to ensure its value remains pegged to the US dollar.