Dai is a product of the MakerDAO project. MakerDAO is a decentralized organization, meaning governance is accessible and distributed, and its purpose is to manage its crypto products. MakerDao is one of the oldest companies in the space and is even backed by Vitalik Buterin, one of the inventors and founders of Ethereum.
Maker is an Ethereum-based smart contract platform that uses Dai as a native currency. Dai is designed as a stablecoin that solves for the extreme volatility of crypto, while also maintaining the essential features of accessibility, censorship resistance, and equal governance. Dai is an ERC-20 token.
Dai Cryptocurrency Lending Rates
Dai has become a popular crypto asset for decentralized finance (Defi). Dai can be acquired by going through the CDP process (we will explain more in the how Dai works section). You can also acquire Dai from exchanges like Coinbase. Once you have Dai you can use it to lend and borrow via Defi. We list the top sites to lend and borrow Dai along with their current rates.
Dai Defi Lending Sites
Compound Finance is a marketplace that connects borrowers and lenders of cryptocurrencies. Borrowers request a loan and post collateral in a smart-contract that escrows the money. Lenders can choose which loan to fill based on the best interest rates and terms offered. If borrowers miss a payment the smart contract automatically pays part or all of the collateral to the lender.
dYdX is a decentralized crypto exchange that also offers several of DeFi services, including margin trading, lending, and portfolio management. Users can borrow Dai and other cryptocurrencies directly into their Ethereum wallet and use it on or off the platform, as long as the wallet is properly collateralized.
Dharma Protocol is a decentralized crypto lending platform that allows for the creation and trading of digital lending products by tokenizing debt. The platform allows for borrowers and creditors to connect and for third-party underwriters to help structure and assess risk.
Exchanges with Largest Dai Volumes:
- Kyber Network
Dai is currently averaging about 20 million in volume at exchanges (per 24 hours).
So, Dai works a lot differently than other stablecoins. Tether, the long-dominant stablecoin is fairly simple. The company Tether holds $1USD in the bank for every ERC-20 Tether coin (aka USDT) that it creates. Users can redeem USDT for actually USD at certain exchanges, such as Kraken. (At least, this is how it is supposed to work, but recently Tether has run into some legal issues. See here.) Because of this model, Tether is a straight-forward, asset-backed stablecoin.
Now, Dai also claims to be an “asset-backed” stablecoin, but works completely differently. Dai is not controlled or created by a centralized company. Rather, any users can create their own Dai through the Maker smart contract platform. To do this, users must put up any of their Ethereum-based ERC-20 assets as collateral in a smart contract. After doing so, the Maker platform will automatically generate an amount of Dai equivalent to the required ratio, which varies depending on the asset.
Maker calls these smart contracts holding on the Ethereum-based collateral, Collateralized Debt Positions, or CDPs. All CDPs must over-collateralized, meaning users must put up more than what they expect to get back in Dai. Users are then free to use and trade Dai however they please, such as purchasing goods or services, trading against other cryptoassets, or simply holding. Then, whenever they wish to redeem their Dai for the original Ethereum-based asset used as collateral, users must pay back the equivalent amount of Dai borrowed originally plus an interest fee that accrues over time, which is called a Stability Fee.
Redeem Ethereum for Dai via Maker
At first, this can seem like a quite complex and obscure process. Let’s take a look at an example:
You own 10 Ethereum. You create a smart contract on the Maker Platform and send your 10 ETH to it. You now have a CDP created.
You send another small transaction to the smart contract, which then locks up the CDP, making the 10 ETH temporarily inaccessible, and generates Dai. The CDP must be 150% overcollateralized, so depending on the price of Ether, the amount of Dai received will change. If ETH = $300, then 10 ETH = $3000. Then, the CDP would generate 2,000 Dai.
You could then do whatever you wanted with the Dai. Many people use it to trade other crypto, while still being able to hold on their ETH. So, say you then use Dai to purchase another cryptocurrency, such as Bitcoin. After a period of time, which could be days or even years, you sell you your Bitcoin for a profit back into Dai. You now have 3000 Dai after BTC goes up 50%.
You then now send the original 2000 Dai plus the 18% Stability fee (360 Dai) and unlock the CDP, receiving back your ETH. Now, you have $640 in profit and the original 10 ETH.
Why is Dai great for DeFi?
To some this may seem like a burdensome, circuitous process, just to trade more crypto. However, it represents a seminal shift in the financial industry.
Essentially, this process represents how you are able to borrow crypto assets and leverage your current holdings without ever having to go to a centralized institution. You never have to go to a bank or a creditor. It can be done completely anonymously, which is a critical step towards true financial privacy. There is no gatekeeper that can deny your loan. There is no loan shark hounding you to repay you debts. There is no credit score involved. There are no countries excluded from participating.
It is the first platform to allow for globally accessible financial services, completely outside the existing system.
While it is true that the scope of services and goods able to be purchased with Dai is small, it is important to note we are still very early. Additionally, in the previous example, you could have redeemed the 2000 Dai for $2000 USD and purchased anything in the world. While there is an extra step involved, it represents truly permissionless access to credit, something that has not been possible in the whole history of lending and borrowing.
What are Dai’s use cases?
There are several reasons to use Dai. It can be used as a stable store of value that is pseudonymous. It can used for permissionless lending. It can be used for leverage during crypto trading. Some merchants accept Dai as payments for goods and services. Dai is used as a trading pair on many exchanges as a better alternative to Tether and other stablecoins. It is also a good fit for decentralized gambling and prediction markets. As the DeFi space becomes more popular and robust, new uses of Dai could emerge.
Is Dai pegged to the dollar?
Dai is not pegged in the sense that there is dollar in a bank somewhere for every 1 Dai generated by the Maker platform. Instead, Dai is backed by the excess amount of Ether needed in the CDP. So, if the price of Ether goes up, then the system is very well capitalized and Dai is able to maintain its peg. However, if the price of Ether goes down, the platform automatically auctions off Ether in the smart contracts until it has a value that is worth more than $1 USD. In this way, there is a smart contract based mechanism that ensures the value of 1 Dai is always backed up. Of course, the open-market on the crypto exchanges actually determines the price of Dai but historically 1 Dai has always traded very closely to $1USD.
Does anyone else have a claim on my Dai?
No, unlike most loans, there is no counterparty that can forcibly repossess your Dai. The counterparty is simply a smart contract. Users are not forced to pay back loans but are incentivized to do so in order to receive their collateral back. In fact, Dai is loaned into a non-custodial wallet and can be transferred freely to any other wallet. In this way, getting loaned Dai is a lot like using cash – whoever is in possession of it owns it.
Overall, Dai is setting itself to become a dominant stablecoin as the landscape of decentralized finance develops rapidly. While cryptocurrencies like Bitcoin, Ethereum, and others serve slightly different purposes in the crypto ecosystem, Dai is a stable store of value that attempts to capture all the best quality of both the traditional fiat system and the early crypto system.