Understanding DAI and Stablecoins – TCR

• DAI is an Ethereum based stablecoin pegged by US Dollar
• MakerDAO is decentralised autonomous exchange that manages it.
• DAI can be used to generate passive income too.

Stablecoins, as the name suggests, are those types of cryptocurrencies which offer price stability. They are popular because they provide the merits of both kinds of currencies. Non-volatile nature of the traditional currency and quick payments without the need of an intermediary which is a nature of cryptocurrency. Though Bitcoin, Ethereum, etc., remain to be the most popular cryptocurrency but their high volatility often becomes a matter of concern for some people. Stablecoins were founded in an attempt to bridge the gap between the traditional currency and the virtual currency, and they are mainly of three types based on the working mechanism:

1. Crypto-Collatralized Stablecoins-The stablecoins, which are backed by other cryptocurrencies
2. Fiat-Collateralized Stablecoins-These are the ones that maintain a fiat currency reserve, for instance: the US Dollar. Most of the stablecoins use US dollars as a reserve.
3. Non-Collateralized Stablecoins- These include a working mechanism like that of a centralized bank, and they aren’t backed up by any reserve.

There are different Stablecoins in the world of cryptocurrency, and one of them is:

DAI

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DAI is a stable coin launched in 2017 and developed by the Maker foundation. It is soft-pegged to the US dollar and is collateralized by a mix of cryptocurrencies, and every time a new DAI is minted, they are deposited into the smart contracts. Because it is a stablecoin based on the Ethereum blockchain, all the issuance and burning of the tokens is recorded on the smart contracts powered by Ethereum. 

The main advantage of buying DAI is its non-volatile nature due to its linkage to the US dollar, and it provides the transactional benefits of a cryptocurrency. It is managed and regulated by a decentralized autonomous organization, MakerDAO.

Maker is the protocol that operates DAI, and it allows anyone to use a variety of cryptocurrencies as collateral and produce the DAI stablecoin. MKR tokens of Maker are the ones that act as a kind of voting share for the organization managing DAI.

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How to buy DAI:

It can be bought directly on crypto exchanges or DEXs. You can also borrow DAI by depositing Ethereum based assets as collateral using the Maker protocol. Though to ensure liquidity, DAI requires larger collateral deposits in comparison to the DAI borrowed. DAI, when bought or borrowed, can be used in various decentralized apps, which includes:

• Gaming
• Decentralized finance(De-fi)
• Non- fungible Tokens(NFTs)

Some of the cryptocurrencies that can be used as collateral are Compound(COMP), USD Coin(USDC), Ethereum(ETH), Basic Attention Token(BAT), etc. DAI tokens can be purchased on online platforms like Uniswap, Compound, etc. And also on Traditional Crypto Exchanges like Binance, OKEx, HitBTC, Coinbase pro, etc.  

Features that DAI provides:

1. Secure: DAI Ecosystem is safe and secure. The smart contracts on the blockchain are verified by the MakerDAO community hence ensuring network validity and liquidity.
2. Decentralized Freedom: No intermediaries are required.
3. Income opportunity: A unique-generating program called the DAI Savings rate(DSR) provided by DAI through which the users can put their idle tokens to work, which produces a viable income through a particular lockup period. The MakerDAO smart contracts are also programmed to generate an interest and add it to the account. 

The DAI provides utility and flexibility, and also price stability because it’s dollar-pegged. Buying DAI can also be used in different ways on the Ethereum network. DAI is a good option for people who want minimal volatility for their crypto trading.