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- 1 DAI crypto replaces third-party interference with smart contracts when taking out loans.
- 2 The transactional benefits are one of the major advantages of using DAI.
Stablecoins are cryptocurrencies that maintain a stable value, often pegged to fiat currency. DAI is a decentralized stablecoin pegged to the US dollar at a 1:1 ratio.
It was created to decrease volatility and restore trust in cryptocurrency. Smart contracts play a crucial role in maintaining its value on the Ethereum blockchain. This keeps traders’ faith in cryptocurrency trading intact. On the other hand, central authorities manage the US Dollar to prevent fluctuations in price, ensuring stability for its users.
What is DAI?
DAI is inherently decentralized and collateral-backed, making it more secure and transparent between transactions. The currency is quickly gaining the trust of users because it does not carry credit risk like centralized currencies.
It is an open-source currency, and MKR tokens and DAI are distinct tokens used for transactions. Its main aim is to solve the problem of cryptocurrency volatility. A central authority monitors it to ensure price stability.
Why would someone use DAI to take out a loan when they could simply go to a bank? This is where DAI crypto comes into play. It replaces third-party interference with smart contracts when taking out loans. Furthermore, the interest rates are lower for borrowers. On the lender’s side, there are no third parties to take a cut from the interest amount.
Thus, it is clear that using DAI for loans benefits everyone involved. The repayment rate for the loan can be mutually agreed upon.
Pros and Cons of DAI
DAI cryptocurrency has its advantages and disadvantages. One of the main issues is that it may stop working 4-5 years down the line. It is destroyed once the loan is fully repaid to the lender. DAI is primarily used for loans.
However, DAI has become quite popular, especially in the crypto sphere, because it maintains currency stability and value.
One of the major advantages of using DAI is the transactional benefits it provides. There is minimal or no volatility due to its soft association with the US Dollar, which keeps the currency’s value at $1. Currently, DAI’s price is 80.6494, and it is expected to provide a one-day return of 0.03%, while the seven-day return is expected to be 1.22%.
DAI tokens are destroyed after every full repayment of the loan granted to the borrower, providing relief to lenders that no third parties were involved, and they did not incur any charges. Borrowers and lenders on the platform can mutually agree on the interest rate to be paid upon repayment of the original amount.
Summary
DAI is a stablecoin cryptocurrency that maintains a value of $1 due to its soft peg to the US Dollar. It replaces third-party interference with smart contracts when taking out loans, which also provides transactional benefits.
Disclaimer
The views and opinions stated by the author, or any people named in this article, are for informational purposes only. They do not establish financial, investment, or other advice. Investing in or trading in stocks, cryptos or related indexes comes with a risk of financial loss.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
