Dai Cryptocurrency Lending Rates
Dai is the world’s first decentralized stablecoin, meaning 1 DAI will always equal 1 US Dollar.
Dai was founded by MakerDAO, an Ethereum-based lending protocol.
Maker is designed as a decentralized autonomous organization (DAO), meaning governance is community-ran with the intent to handle upgrades in a distributed fashion. Maker’s smart contracts are responsible for the issuance and supply management of all Dai in existence.
Maker was founded in 2015, making it one of the very first DeFi projects. The company is backed by prominent entities such as Andreessen Horowitz Polychain Capital and Vitalik Buterin, one of the inventors and founders of Ethereum.
As a stablecoin, Dai aides in the volatility of cryptocurrencies while maintaining the essential features of accessibility, censorship resistance, and distributed governance. Unlike other stablecoins, Dai is backed by popular cryptocurrencies such as Ether ($ETH) rather than by an equivalent amount of fiat dollars.
Due to the trustless nature of its collateral, Dai is the defacto stablecoin within DeFi. In order for any asset to be trustless, there can not be a reliance on a third party to custody collateral like how US Dollar Coin (USDC) relies on Circle to custody the US Dollars backing the supply.
With Dai, all cryptocurrencies backing the supply are stored through audited smart contracts rather than by a third party like Circle.
Similarly, Dai can be loaned or borrowed via on different DeFi products like Oasis, Compound or dYdX to earn passive income. We list the top sites to lend and borrow Dai along with their current rates.
Dai Defi Lending Sites
Here’s a look at the DSR since inception:
|Date Changed||New DSR||Change (+/-)|
|February 5th, 2020||8.75%||+1%|
|January 27th, 2020||7.75%||+1.75%|
|January 8th, 2020||6%||+2%|
|December 7, 2019||4%||(0)|
Compound Finance is a DeFi protocol used to lend and borrow Ethereum-based cryptocurrencies. Users supply Compound with assets in exchange for an annualized return. Users can also borrow assets from Compound, but are required to post collateral to increase their maximum Borrowing Power. Each asset has different lending and borrowing rates, all of which are listed as annualized percentages.
dYdX is a decentralized exchange offering margin trading, lending, and portfolio management. Users can lend or borrow Dai using a web3 wallet like MetaMask which can be traded on or off the platform, as long as the wallet is properly collateralized. dYdX is unique in the sense that users can short Ether.
Dharma is a lending protocol focused on stablecoins like Dai and US Dollar Coin. The platform leverages Compound Finance smart contract to allow users to borrow and lend supported assets (like Dai) in a permissionless fashion using we3 wallets like MetaMask.
Dai is created using smart contracts. Users post collateral (in the form of Ethereum-based assets) to open a loan through Vaults.
All Vaults require a minimum of 150% collateralization, as to ensure that there is always more value backing Dai than the token itself at any given time.
When opening a new loan, borrowers incur a debt called a Stability Fee. This fee must be paid to close a loan and is ultimately used to compensate various parties – such as Maker Oracle providers – who are responsible for providing the protocol with crucial information to maintain its peg.
When Vaults are closed (meaning outstanding balance is repaid), Dai is burned – removing it from the circulating supply. The circulating supply of Dai is a direct representation of how much Dai is currently in existence, all of which is backed by an overcollateralizaed amount of supported assets locked in smart contracts.
Let’s take a look at how to acquire Dai. It’s important to note that Maker is non-custodial, meaning all funds are spent and stored using popular Ethereum wallets like MetaMask.
Head on over to Oasis Borrow and make sure you have a bit of Ether (ETH) in your wallet. Connect to your wallet of choice.
Open a new Vault and select the amount of collateral (in this case ETH) that will be locked inside the Vault. Here are some important terms to consider:
- Collateralization Ratio – The ratio of collateral to the amount of a Dai being borrowed. Maker requires a minimum 150% collateralization ratio on all Vaults.
- Stability Fee – A debt which accrues on all outstanding loans.
- Liquidation Fees – A fee which is charged if a Vault is liquidated due to the Collateralization Ratio falling below 150%
Approve the transaction in your web 3 wallet (in this case MetaMask) allowing Maker to withdraw the collateral and open a new position.
Once the transaction is approved, collateral is transferred to a smart contract and escrow in exchange for the amount of Dai being borrowed. Newly issued Dai can be found by clicking on “Other Tokens”.
What Makes Dai Unique?
Dai provides a permissionless process for taking out a loan of any size. While collateral is required to create a loan and issue new Dai, contracts are processed instantly, without approval by a third party. So long as someone has capital, anyone in the world can efficiently borrow capital using smart contract.
Dai enables a passive income opportunity using Oasis Save, home to the Dai Savings Rate. The DSR is a smart contract which provides users an annualized return for locking their Dai in the protocol. Secondary exchanges also leverage the Dai Savings Rate to offer their users access to an annualized return without having to go through Oasis Save.
The creation of Dai through Maker Vaults can be seen as a form of risk-averse lending. Rather than taking out a 10 or 100x leverage position, users may choose to lock Ether in exchange for Dai, using newly issued Dai to purchase more Ether. In the event that Ether price appreciates relative to when the loan was opened, profits can be used to pay down the loan, effectively allowing the trader to have earned more ETH when claiming their collateral paired with the profits from their initial trade.
In the future, Maker has vocalized interest to support trusted real-world assets such as treasury bonds, tokenized stock and real-estate. This allows Dai to be created using a suite of collateral options, ultimately allowing permissionless lending to expand to much wider audiences than crypto enthusiasts.
What are Dai’s use cases?
Dai favors any use where volatility may be unfavorable. Within DeFi, Dai is commonly used in protocols like Compound for permissionless lending, and in protocols like dYdX for derivatives trading. In Augur V2, Dai will be used to settle all bets on the permissionless prediction market.
Is Dai pegged to the dollar?
Unlike other stablecoins, Dai is not backed by fiat currencies. Dai is pegged to the equivalent of 1 US Dollar, meaning 1 Dai will always be worth 1 US Dollar.
Who Owns Dai?
Dai is permissionless and non-custodial. This means that no-one (not even Maker) has the ability to create or claim Dai without following vetted protocol procedures.