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You may have heard of stablecoins, or also called stable coins. One of these cryptocurrencies is DAI that maintains its value 1:1 against the US dollar. This means that 1 DAI is worth 1 dollar.
This stablecoin differs from others such as Tether (USDT) since there is no financial entity that issues it. It is a decentralized stablecoin that maintains a stable value in addition to offering great transparency. Thanks to this, it represents one of the most important projects of Decentralized Finance.
History of DAI
The currency and its operation were designed by MakerDAO, a project known for its decentralization, transparency and efficiency. For these reasons it is a stablecoin without the need for fiat backing.
The origin dates back to 2014 with the creation of the MakerDAO project. The goal was to create a stable DAO (Decentralized Autonomous Organization) within the Ethereum network. As a similar project had never been built before, it took time and it was not until 2017 that the first version of DAI known as SAI was made public. At first, the control of SAI was governed by smart contracts.
In November 2019, the UPS update came out changing the way we generate ICDs within the system, as previously we could only issue it by depositing Ether in a collateralised debt (CDP) position contract.
Thanks to the creation of DAI, decentralized finance received a great boost. Since then this stablecoin maintains the reputation of something large and transparent, as it has been one of the most reliable projects of the cryptocurrency world.
How Does it Work?
The operation of this token is part of the Maker Vaults. When you deposit collateral in a vault, Maker issues the corresponding ICDs. Otherwise, when you sell them, you get back the saved collateral and Maker burns that DAI. This system is controlled by smart contracts.
The price is based on its performance. This token maintains a parity of 1:1 in US dollars.
To obtain this stablecoin we must first deposit collateral assets within them. Once the deposit is made, the Maker Vault calculates the variants of our position according to the token that we have deposited. By accepting we will have blocked our tokens and we will receive DAI, however we can carry out the reverse process by sending DAI and receiving back the collateral asset saved.
To save this token you need a wallet enabled to that token. This is an ERC-20 token based on ethereum blockchain technology, so you will need an Ethereum wallet.
Among the best wallets online you will find MyEtherWallet in which you can store any token ERC-20.
DAI vs Tether
Both cryptocurrencies are stablecoins, but they’re not quite the same. Let’s look at some differences.
- While Tether is backed by FIAT money, DAI does not need to provide a FIAT collateral to ensure its operation.
- DAI is a chain-collateralized stablecoin while Tether is collateralized outside the chain.
- DAI can be obtained through Proof of Stake (POS), USDT can only be obtained by purchasing.
USDT is centralized and not anonymous, however DAI is decentralized with greater anonymity.
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