What Dai Stablecoin has in its possession which others miss out on?

It’s an all-over accepted fact that cryptocurrencies are volatile, like really unstable. If we follow a usual definition of currency, it stands for something traded in exchange for goods or services. 

Talking about crypto, is it possible to trade it as you do with traditional currency? It’s possible. Still, you may not want to do so by looking at the volatility rate of cryptocurrencies like bitcoin, which can show a downfall of more than 10% just in a day. 

Here comes Stablecoins to reduce the flaws of cryptocurrency by keeping its usability relevant. In layman’s terms, stablecoins are those cryptocurrencies backed by any fiat assets like fiat currency, gold, price indexes or any stable assets. However, they are mostly pegged with currencies like the US dollar, Euro or Pound, etc. 

Unlike traditional cryptocurrencies, stablecoins have little volatility. There are over 30 stablecoins to date, and most of them are backed by the US dollar. For instance, stablecoin DAI is pegged to $1. Its price will not move very far than the dollar value as it is designed and developed in such a way. 

So as mentioned earlier, there are now more than 30 stablecoins in the market. They include Terra (USDT), USD coins (USDC), Binance USD (BUSD), Dai (DAI) and a lot more. But here, we will dive deep into DAI stablecoin. It’s working, and use cases are popular among the stablecoins; why’s that and how is it getting this much popularity, is it worth it, will it continue the trend, and how far can it go with it?

Let’s find out —

Creation and launch of DAI 

The Maker team members launched dai in 2017. MakerDAO is, as the name suggests, a decentralized autonomous organization that was built on the Ethereum Blockchain network. To develop decentralized stablecoins whose value will be tied to an asset. For this regard, they have Maker (MKR) and Dai (SDAI), with both the tokens being ERC-20 tokens. 

And it might be more than clear by now that Dai is a decentralized stablecoin as it is run by a DAO, unlike any centralized stablecoin like Tether (USDT). 

Every time someone takes a loan on MakerDAO, then DAI gets generated, and when loans are paid back, the DAI token gets destroyed following its Smart Contract. 

To get a DAI token, the straightforward measure is to take a loan on the Oasis platform of MakerDAO. After that, the generated DAI can be traded on the same platform and any other exchanges like Coinbase, etc. 

What makes DAI stablecoin unique

Till now, it’s clear that the stablecoins maintain their value to stay close or be at $1. For that matter, other stablecoins use a mechanism in which any central authority maintains an equal amount of dollars in Tether’s account against each USDT to back the stablecoin. But here, DAI made the difference. 

It uses the mechanism of Smart Contracts designed so that they execute automatically and keep the value of DAI equal to a dollar. For instance, if the DAI price fluctuates and goes far from one Dollar, a smart contract initiates automatically. It starts burning or creating Maker (MKR) tokens until the DAI price stabilizes. 

Where Tether or other stablecoins needed some intermediaries to keep adding the currency to keep the currency stable, MakerDAO does not need to do so. Its algorithm manages the price of DAI by itself, so there is no need to trust anyone in this regard. 

The system goes both ways, as intended to work, and if DAI equals its value to the US dollar, then MKR token holders are in profit. If the price gets below the Dollar, more tokens get generated. 

On the other hand, MKR will start burning when the token price goes over one Dollar, making it more scarce and ultimately valuable. The DAI has maintained its value pegged to one Dollar consistently for over three years following the smart contract. 

DAI has these other specifications

So, we have been through the working of DAI stablecoin. Since it’s simply a token based on the open network of Ethereum blockchain, that means it’s available for anyone to use or build with DAI without seeking permission. 

DAI is an ERC20 token, so it functions as a major factor being used to incorporate into any decentralized application (Dapp) that needs a payment system or a stable asset.

Being available on open source, the token can also be wrapped in different smart contracts by developers and modified according to the uses. For instance, Chai and rDAI use traditional DAI and put it in an interest-generating pool. Then it lets users control the accumulating interest.

Use Cases of DAI

As the currency is meant to value in terms of its buying or purchasing power, so does it follow by cryptocurrency. However, digital assets have become more of an investment opportunity than using them as currency. So, following the tradition, where does the use case of Stablecoin like DAI stand?

One of the primary uses of DAI stablecoin is to keep it as a stable hedge or counterbalance against the volatility of other more popular and valuable crypto assets like Bitcoin or Ethereum. The stability of DAI tokens mostly turns out good for traders or investors having bearish approaches who wait and believe for the market to go down.  

FOR TRADING

From a trading point of view, DAI is meant to be one of the ideal crypto assets to spend as many exchanges allow the users to convert their fiat currency into crypto-like DAI and vice versa. It can be considered a savings account where your money could be put safely. 

FOR INVESTING

Yes, stablecoins may not give the crypto users huge profits as other cryptocurrencies like Bitcoin, Ethereum, etc., do as they move up to 10% up or down just in a day. But stablecoins can be a safe and minimum risk investment. 

For instance, it’s designed to peg itself with the Dollar’s value, and it barely shows huge fluctuations. So, DAI drops down from $1 to $0.95 or 95 cents, so a crypto user can buy and put the stablecoin in his wallet. Since it runs on smart contracts and algorithms, it starts working to bring its value back to $1. When it happens, you are in a sweet profit of 5%. 

Further holding of a token till its price goes up to $1.5 can put the user in more profit if he chooses to. Otherwise, he would be in profit anyway because it has to come at $1. 

What does DAI possess, and where can it go? 

MakerDAO aims to make the token the most prominent unbiased currency about the developers behind DAI. The goal they started showcasing with the beginning, which reflects on their logo as well, which symbolizes Dollar ($), euro (€) and pound (£). 

The price prediction regarding a stablecoin is pointless as it won’t go any far by $1. However, its adoption and holding will be beneficial as its adoption and daily use cases increase and are used by millions of people in future. As things are going, it’s more than obvious that if cryptocurrencies are meant for practical uses for exchange means, stablecoins would be priority. Possibilities are DAI would be preferred among them all.