What is DAI , the best digital alternative to Tether ?

 

The DAI Cryptocurrency is a decentralized stable coin, and this feature has made it very popular among traders. DAI Stable coin is currently the best alternative to other coins alike such as Tether. In this article from CoinMarketSIG we will discuss about this important coin.

What is Dai Cryptocurrency?

The Dai Digital Currency (DAI) is an Ethereum blockchain token (ERC20) with a fixed value equivalent to one US dollar. Dai stable coin is also a key element of the MakerDao lending system. A token is generated when a loan is taken on the MakerDao platform. In fact, it is the currency code that users borrow and repay.

Once created, the Dai token works exactly like an Ethereum stable coin. Dai can be used to pay for expenses and can be easily transferred between Ethereum wallets.

What is a MakerDAO?

Maker (MKR) is a decentralized autonomous organization (DAO) built on the Ethereum blockchain. The maker is also a digital currency and a government token. The maker organization is responsible for managing two token and microwave tokens, both of which are issued according to the ERC-20 standard on the Ethereum blockchain.

Maker plans to create a stable set of decentralized digital assets whose value is linked to different currencies, gold and other financial instruments. It is one of the first companies to focus on Ethereum and worked on this technology before Ethereum emerged. The maker development team is well known in the world of digital currencies and is supported by Vitalik Butrin, the founder of Ethereum.

Holders of Maker tokens are responsible for managing the risk of the Maker system, business logic, paying down loans or determining the debt ratio. Each Maker holder can vote on important maker platform and issuance decisions, including risk parameters, target rates, price feed sensitivity, global settlement decisions, and more.

If someone wants to borrow a token, Maker will be used to pay a “stability fee”. Maker coins cannot be extracted and are burned in the clearing process.

 

History of Dai, the first decentralized Stable Coin

Dai started with the creation of MakerDao in 2014. Since then, the project has aimed to create a Dao in order to have a fixed value currency in Ethereum. This was a completely new idea and until then there was no similar one in the world of digital currencies. For this reason, the developers of that time spent enough time designing a clear proposal on how to successfully implement this plan.

The result of all the analysis and efforts was the creation and launch of the first version of Dai (now known as SAI). Thus, Dai became the first structure of a highly decentralized stable coin. Dai is controlled and managed by smart contracts. In addition, a Dao in which token holders could participate determined all variables in this stable coin.

Dai’s coming to life gave a boost to the Defi ecosystem, which was only a few months old, and proved that great things were still to come. Since then, Dai has been one of the most important stable coin projects in the world of digital currency. Transparency, widespread acceptance and a great deal of flexibility have made the Dai project a model of development in the world of cryptocurrencies.

The older version of Dai is now called Sai and is known as a single bail dye because it was only possible to use the Ethereum as bail to create the Dai. The first cryptocurrency asset other than Ethereum to be accepted into the new multi-collateral system was the Basic Attenuation Token (BAT).

Why is Dai always $1?

The same traditional supply and demand law applies to cryptocurrency assets. When the price of Dai falls below its set value of $1, MakerDao raises interest rates on loans. In this way, customers are encouraged to repay their borrower’s tokens so that they do not incur heavy interest rates.

The maker eliminates return Dai tokens, resulting in less supply and higher prices. When the price of a dye exceeds $1, the maker lowers the price of the stable coin by performing a mechanism quite opposite to the previous state.

As the owner of the Dai protocol, Dao Maker can make certain changes to Dai smart contracts and control, for example, the types of collateral accepted, the collateral ratios and the interest rates for lending or storing Dai.

However, how is the maker still decentralized? Any changes to smart contracts are visible to all blockchain participants. In this way, Dai has full blockchain transparency and reliability.

 

Why Dai is a better stable coin?

Tether and USDC are other popular stable coins that you may have heard of. Their governing companies control the issuance and regulation of these tokens, so they can hardly be considered decentralized digital currencies.

For instance, the Tetra currency code is issued by the Tetra company. For every Tether token issued by the company, one real dollar must be deposited in a bank account. This means that for every new token that is generated, there must be an individual or organization that deposits the real dollar as the token backing up into Tether’s bank account.

Tether was accused of issuing unsupported tokens to himself, in 2017 and 2018. In another part of the accusations, it was also announced that Tether used these tokens to buy bitcoin and manipulate its price. In 2019, Tetra accidentally raised $5 billion from stable coin, but quickly destroyed it.

Center, The company that makes the USD Coin (USDC) stable coin, also had its share of notoriety. On June 16, 2020, the company blacklisted an Ethereum network address with 100,000 USBs in court.

Since Center itself created the address in the first place, it had control over it and was able to simply lock its inventory. Doing so in a truly decentralized blockchain like Bitcoin is virtually impossible.

Such problems are inevitable for tokens such as Tether and USDC since physical companies control them and so far, the currency code community either has not performed well in auditing them or has forced them to interfere with the blockchain.

On the other hand, the cryptocurrency is independent. The issuance of this stable coin is controlled by smart contracts, which are programs stored in the blockchain and it is impossible to change them. In short, no person or official has the physical ability to intervene in events involving queens or addresses.

Dai also has a backed currency code, yet uses digital currencies instead of Fiat currency. The mechanism of collateral in Dai is that the total value of the collateral digital assets should be greater than the value of the borrowed (Dai) (usually up to 50%). The reason for receiving more collateral is due to the sharp fluctuations of digital currencies, which can cause the value of collateral to decrease rapidly.

 

Dai creation goals

Considering above, what were the goals that led to Dai? In response, it can be said that the main goal of the developers was to create a secure tool for storing value. Currencies such as Bitcoin and Ethereum have seen significant fluctuations over the period including the emergence of digital currencies.

This fluctuation is not a problem in economic systems that aim to profit from this feature. However, such difficulties in use cases such as lending platforms, savings or money transfer have a negative effect and are not acceptable.

In this situation, Dai suggests a new solution. On the Dai platform, thanks to a collateral guarantee system, it is possible to produce a 1:1 value against the dollar using highly volatile digital currencies.

In this way, by ensuring the existence of the necessary deposit as a guarantee for borrowed coins, the coins produced can be used to perform operations with fixed and permanent value on other platforms. Therefore, regardless of the increase or decrease in the value of digital currencies, the value produced for the die will always be the same, and in the worst case (severe market fluctuations); there are guarantees to prevent the devaluation.

Undoubtedly, Dai is a new idea that allows designers to develop new capabilities that take advantage of blockchain potential. A tool that can be exchanged freely and smoothly at the end of the operation to recover the original warranty.

At this point, Dai meets all of these needs and sets the stage for such improvements. In fact, thanks to the token holders, they can receive a steady return on their assets.

All this is possible thanks to the bail. The collateral system is a set of independent feedback mechanisms and external participants that are sufficiently motivated to maintain the dynamism of the system at the appropriate time.

In short, Dai is one of the key components needed to build a decentralized and functional seamless lending platform in Ethereum Blockchain. In addition, this has certainly been very effective in the current growth of the Defi ecosystem.

Pros and Cons of Dai digital currency

The advantages of Dai currency password include the following:

Dai is a secure and decentralized stable coin with a long security history. It does not depend on the bank because a stable coin is completely different from Tether. In other words, the risk of permanently closing or freezing a bank account that supports the entire protocol does not threaten Dai, or users do not have to worry about whether stable coin support will be deposited with the bank.

Dai facilitates the creation of decentralized exchange and financing instruments. In fact, Dai is one of the most widely accepted currencies in the world of defaults and decentralized exchanges.

Dai’s proven “stability” system ensures users’ confidence in its performance. Even in the worst cases, MakerDao has been able to maintain the stability of the Dai to an acceptable level, and in fact has improved it over time.

Dai is easily accessible and respects the privacy of its users. Anyone can access the system without having to authenticate or share his or her information with third parties.

The possibility of creating credit and interest for the mentioned credit, which makes Dai a very suitable option for investment.

1. Dai is currently one of the largest Defi ecosystems in the world.
2. Stable coin Dai is supported in many exchanges.

However, the negative aspects of Dai can be mentioned as follows:

1. Dai is a bit technically complex, which makes it a bit difficult for newcomers to the Defi world to access.
2. The diversity of low currencies accepted as collateral is one of the problems of the Dai system. In fact, tokens such as compound or Wi-Fi are not yet accepted as collateral while Mana (a lesser-known token) is accepted.
3. There are dangers in using a Maker Vault. Remember that in order to generate a die, you must transfer ownership of your assets to a smart contract so that it can sell your assets if the market records. Each fund that Dai creates has a settlement price that is equivalent to the price of the underlying asset at which the fund is cashed in.

Using the box with leverage is more risky. Although the use of leverage multiplies profits, it can also increase potential losses in proportion to the amount of leverage. Users typically place more collateral on the platform to avoid market risks and liquidation.

Smart contracts are transparent and unchangeable, yet can be hacked. There is no guarantee that smart contracts like Dao will not be hacked.

Dai digital currency applications

Despite all the advantages and disadvantages, Dai has many uses as a currency code, including the following:

Financial independence for all

As mentioned earlier, Dai is a stable coin that users can easily access from anywhere in the world through Dai Decentralized. Dai is not affiliated with any government, commercial bank or central bank. This means that anyone in the world can convert their digital currencies to Dai and access other Defi financial capabilities.

As a result, millions of people can easily access loans, savings systems, investment pools and other financial instruments from their homes that are impossible to use in the traditional way.

Fast and low cost remittances

Another great use of international remittances is to send money from one country to another, which is commonly used by immigrants to send money to relatives. Of course, this in audio would mean that the volume of remittances is high.

Thanks to the widespread acceptance of Dai, anyone can now convert their money to Dai and send it from anywhere in the world. However, the best thing about this mechanism is that all this can be done in minutes and at a low cost for each transaction. The user does not need any intermediary company or bank to perform this transaction except the intermediary from which he has to provide the payday.

Integrate the defi domain

Another interesting application of Dai is its ability to unify the Defi domain. Dai is a decentralized, reliable and secure currency that has been on the market for many years.

In this sense, the best thing to do is to have a truly decentralized currency that is run by the community and that everyone can freely access. This is where Dai works as a bridge between different protocols.

In conclusion

Dai can revolutionize Defi with the ambitious claim that it allows people to transfer dollars instantly, anywhere, safely, anywhere. This could be the first step towards fully implementing the business world on the blockchain network and ending possible shutdowns and problems in non-blockchain finance and business. It is hoped that more and more news and comments will be published about Maker and Dai, because we are still at the beginning of a path that can lead to changes and pave the way for the full potential of blockchain technology.