Sai (SAI)
Dai is a stablecoin, a type of cryptocurrency designed to maintain a stable value relative to a specific asset or basket of assets. As an Ethereum ERC20 token, Dai is pegged to the value of 1 USD. Its unique structure ensures that each Dai remains equivalent to $1, independent of the total supply of Dai in existence. Unlike some stablecoins that rely on a centralized authority or traditional financial institutions to back their value, Dai operates entirely within the Ethereum blockchain, utilizing smart contracts to maintain its stability and autonomy.
| Ticker | SAI |
| Category | Decentralized Finance (DeFi) |
| Website | https://makerdao.com/ |
| https://www.reddit.com/r/MakerDAO | |
| Contract Addresses | |
|---|---|
| ethereum | 0x89...59 Copied! |
Features of Dai
Dai presents several notable features that distinguish it in the cryptocurrency landscape:
Stable value: Dai maintains a consistent value of $1 USD per token, utilizing mechanisms that adjust its price towards this target.
ERC20 token compatibility: As an ERC20 token, Dai can be freely traded on the Ethereum network, interacting seamlessly with other tokens and decentralized applications (dApps).
Accessibility: Anyone with an Ethereum wallet can own, accept, and transfer Dai, offering ease of use and accessibility.
Decentralization: Dai can be exchanged without any intermediaries, allowing for peer-to-peer transactions without the need for a centralized authority.
Autonomy: No individual or company controls Dai, and it remains immune to shutdowns by governments or other authorities.
How Dai works
Dai's stability is achieved through a sophisticated system of economic incentives and smart contracts, designed to keep its value close to $1 USD. The system employs mechanisms that adjust the supply of Dai based on its market price. When Dai's market value exceeds $1, the mechanisms work to decrease the price, and when it falls below $1, they work to increase it. This dynamic ensures that Dai is always oscillating around the $1 mark, driven by rational actors who participate in these mechanisms to earn profits whenever Dai deviates from its target value.
How Dai is created
The creation of Dai is facilitated through a process involving Ethereum and the MakerDAO decentralized application (dApp). Here’s how it works:
Collateralization: Users first convert their Ethereum (ETH) into "wrapped ETH" (WETH), an ERC20 token that represents ETH. This allows ETH to be used like any other ERC20 token. WETH is then converted into "pooled ETH" (PETH), which forms a pool of collateral for all Dai created.
Collateralized debt position (CDP): Users can create a CDP by locking up their PETH. This CDP allows them to draw Dai against their collateral. The amount of Dai that can be drawn is governed by a debt limit, ensuring the system remains collateralized.
Loan and trading opportunities: Dai can be created as a loan against ETH, providing liquidity without selling one's ETH holdings. Additionally, users can engage in margin trading by using Dai to purchase more ETH, expanding their CDP and potential profits if ETH appreciates in value.
Market stabilization: When the demand for Dai drives its price above $1, users are incentivized to create more Dai and sell it for a profit, thereby increasing the supply and helping stabilize the price.
This decentralized and autonomous system ensures Dai's continuous creation and stability, allowing it to function effectively as a stablecoin on the Ethereum network.