What is the Dai Savings Rate?
The Dai Savings Rate (DSR) is a sort of “savings account” for Dai holders, which enables them to earn interest on stationary funds.
The issue with the DSR is that these funds cannot be used for any other purposes while accumulating interest, which leaves users with a tough choice – earn interest on Dai but leave the coins idle, or use the Dai but earn no interest.
In an effort to mobilize these DSR funds, but still give users exposure to DSR interest rates, Chai comes to the rescue.
Chai is an ERC20 token, and can be referred to as a “wrapped” version of Dai in the DSR contract. Each CHAI token represents a stake in the DSR pool, and is redeemable for Dai plus interest from the contract.
Chai tokens are then free to be utilized within dApps and the rest of the DeFi ecosystem, while still appreciating in value at the DSC rate.
You are able to redeem your Chai tokens for Dai at any moment, along with any interest earned (in the form of additional Dai tokens).
Where can I use my Chai tokens?
The Chai project is in an extremely early stage, and was only released to the public on December 1st!
Currently, there is not much you can do with your Chai, however, this is likely to change in the near future. The incentives for users to pick up and start using Dai are significant, as it provides the additional mobility and functionality that many people wish the DSR provided.
New smart contract, new risk!
As with any DeFi integration or layer, it should be noted that there is an added risk associated with the additional smart contract used.
Chai adds one more layer of risk onto the Dai protocol, and its contract is still yet to undergo a formal audit.
Until the contract has been audited, you should exercise caution with the funds you convert to Chai.