DAI is a stablecoin (stable-price cryptocurrency) based on the Ethereum blockchain, with its issuance and development overseen by the Maker Protocol and the MakerDAO decentralized autonomous organization. DAI's price is soft-pegged to the U.S. dollar, backed by a mixture of other cryptocurrencies that are deposited into smart-contract vaults whenever new DAI is minted. It is crucial to distinguish between Multi-Collateral DAI and Single-Collateral DAI (SAI), which is an earlier version of the token that could only be collateralized by a single cryptocurrency. Additionally, SAI does not support the DAI Savings Rate, which enables users to earn savings by holding DAI tokens. Multi-Collateral DAI was launched in November 2019.

One of the defining characteristics of Dai is that it was not created by a single individual or a small group of co-founders. Instead, the development of the software that powers Dai and the issuance of new tokens are governed by MakerDAO and the Maker Protocol. MakerDAO is a decentralized autonomous organization, which is a type of entity that operates in a decentralized manner through the use of smart contracts—self-executing agreements encoded in software and deployed on the Ethereum blockchain. This organization is democratically managed by the holders of its Maker (MKR) governance tokens, which function similarly to the shares of a traditional company. MKR holders can vote on crucial decisions relating to the development of MakerDAO, the Maker Protocol, and Dai, with their voting power being proportional to the number of Maker tokens they possess. MakerDAO was originally founded by the Danish entrepreneur Rune Christensen in 2015. Prior to initiating the Maker ecosystem, Christensen studied biochemistry and international business in Copenhagen and founded the Try China international recruiting firm.

Dai ranks as the second-largest decentralized stablecoin by market capitalization, having recently been surpassed by Terra's native stablecoin, UST. Both of these stablecoins are backed by cryptocurrencies and pegged to the U.S. Dollar. In contrast, leading stablecoins such as USDT, USDC, and BUSD are supported by traditional assets, including cash, corporate bonds, U.S. treasuries, and commercial papers (with USDT's backing increasingly scrutinized). So, what backs Dai specifically? Dai is a collateral-based cryptocurrency that is soft-pegged to the U.S. dollar. Users generate Dai by depositing crypto-assets into Maker Vaults on the Maker Protocol. Access to the Maker Protocol and the creation of Vaults can be achieved through Oasis Borrow or other community-developed interfaces. On Oasis Borrow, users have the ability to lock in collateral, including ETH, WBTC, LINK, UNI, YFI, MANA, MATIC, among others. Dai can then be borrowed against this collateral, provided it meets the collateral ratio requirements, which vary from 101% to 175% based on the asset's risk level.

DAI’s primary advantage is its soft peg to the U.S. dollar. The cryptocurrency market is well-known for its volatility, with even the largest, highly liquid cryptocurrencies, such as Bitcoin, occasionally experiencing price fluctuations of 10% or more in a single day. In such an environment, traders and investors are naturally inclined to incorporate safe-haven assets into their portfolios to help mitigate significant market fluctuations. Stablecoins, such as DAI, exemplify this type of asset. These are cryptocurrencies that are pegged to assets with relatively stable value—most commonly traditional fiat currencies like USD or EUR. Another significant advantage of DAI is that it is managed by a decentralized autonomous organization through a software protocol rather than a private company. Consequently, all instances of token issuance and burning are handled and publicly recorded by Ethereum-powered, self-enforcing smart contracts, which enhances system transparency and reduces susceptibility to corruption. Furthermore, the development of DAI software is conducted more democratically through direct voting by the regular participants of the token's ecosystem.

New DAI tokens are not created through mining like Bitcoin (BTC) and Ethereum (ETH), nor are they issued by a private company according to specific issuance policies like Tether (USDT). Instead, any user can mint new DAI using the Maker Protocol. The Maker Protocol, operating on the Ethereum blockchain, is the software responsible for governing the issuance of DAI. To maintain its soft peg to the U.S. dollar, the Maker Protocol ensures that every DAI token is backed by an appropriate amount of other cryptocurrencies. As part of this mechanism, the protocol allows any user to deposit their cryptocurrency into a "vault"—a smart contract on the Ethereum blockchain—as collateral, and subsequently mint a corresponding amount of new DAI tokens. There is no fixed upper limit on the total supply of DAI—the supply is dynamic and varies based on the amount of collateral held in the vaults at any given moment. As of November 2020, there are approximately 940 million DAI in circulation.

DAI tokens can be purchased on a variety of online platforms. These encompass Decentralized Finance (DeFi) token swap protocols: * Uniswap * Compound Additionally, DAI is available on traditional cryptocurrency exchanges: * Coinbase Pro * Binance * OKEx * HitBTC

Although DAI was the pioneering stablecoin of its type, it began losing market share to emerging alternatives during the last bull market, with a notable competitor being Terra's UST—now referred to as TerraClassicUSD. UST differs from DAI as it is an undercollateralized and algorithmic stablecoin pegged to the U.S. dollar. However, lacking sufficient collateral and due to its algorithmic structure, the stablecoin and its underlying Terra token, now TerraClassic, were unable to withstand an aggressive sell-off. Ultimately, the entire Terra ecosystem collapsed, erasing over $18 billion from UST's $18.6 billion market cap following the crash. For a comprehensive analysis of the Terra crash, please refer to our resources. Predictably, the downfall of UST significantly impacted other stablecoins, including DAI. While DAI succeeded in maintaining its peg to the USD, its market capitalization dropped drastically from $8 billion to $6.33 billion. Nevertheless, once the token reached its lowest point, demand for DAI surged, causing it to trade at a premium (slightly above $1). The UST crash placed the credibility of algorithmic stablecoins under scrutiny, but DAI's performance during this period may indicate that there remains potential for decentralized stablecoins. It also underscores the critical importance of over-collateralization for stablecoins.