What is Dai?
Dai (DAI) is a stablecoin whose value is maintained at approximately one US dollar without a centralized issuer. The token is created by smart contracts of a decentralized protocol governed by holders of a governance token.
How it works
A user locks collateral in the protocol — for example, ether or other assets — and mints DAI against it. The collateral always exceeds the amount of DAI issued; if its value falls below a threshold, the position is automatically liquidated. Exchange rate stability is further supported by interest rates and reserves, which include tokenized traditional assets.
Pros and cons
- Pros: resistance to blocking by a single issuer, transparency of blockchain operations, deep integration into DeFi.
- Cons: dependence on collateral value and smart contract correctness, complexity for newcomers, risk of peg deviation during market stress.