What Is MakerDAO (DAI)? Explained

Cryptocurrencies and crypto assets are known to be volatile and using them to borrow money can present a problem. DAI The US dollar (DAI) is one such stablecoin created to facilitate collateralized loans and borrowings. By associating loans with the stablecoin, DAI allows users to borrow and easily estimate the amount to be repaid. Anyone can lend money in the form of Dai (DeFi) through the Ether cryptocurrency and the Metamask wallet. All a user has to do is lock some Ether in a MakerDAO smart contract and create Dai stablecoin. The more Ether they lock up, the more they have the flexibility to borrow. Your Ether can be used to borrow through DAI (DeFi) and MakerDAO investments. Further, you can visit quantum ai

What Is MakerDAO?

MakerDAO is not in reality a decentralized global reserve bank, but rather a convocation protocol that operates on the Ethereum blockchain. MakerDAO is a blockchain-based protocol that facilitates the creation of stablecoins (typically of equivalent value to the dollar) using smart contracts and cryptocurrencies. MakerDAO’s flagship token is “DAI”, a stablecoin that can be deposited by a MKR holder. MKR holders are allowed to deposit Ethereum or other digital assets in the form of binding smart contracts, and a stablecoin such as DAI is generated based on their deposited assets. The MakerDAO protocol aims to provide a stablecoin that frees wallet holders from the volatility that is common in the cryptocurrency market. Maker Protocol is in reality an entrepreneurial platform based on the Ethereum blockchain and built to provide a variety of financial services. Its main purpose is to secure the stable currency Dai (called DAI) as well as to ensure sharing and control in the financial network. Central banks have the ability to control currency, as a result of which they can change the value of a currency. In this process, when a central bank devalues the currency.

How Does MakerDAO Work?

Dai is a stablecoin that operates on the Ethereum blockchain. The token is set up as a smart contract and is independent of fiat currencies, which makes it stable when compared with other types of currencies. To settle Dai, collateral assets (such as Ethereum) are deposited in smart contracts, which help maintain its stability. Also, in the event of collateral falling below a specified margin, the value of the Dai token may collapse and in such cases the underlying asset is liquidated to maintain the stability of Dai. The MakerDAO protocol is the organization used to manage the Dai token. CDP is a financial mechanism in which the user borrows from the asset by placing it on the market and liquidated by collateral custodians to protect it based on a percentage of the current value.

In this system, if for example the value of the Dai token falls below a margin set by MakerDAO, assets held as CDP (such as Ethereum) may be at risk. In this case, custodians pay for Dai tokens by selling their assets so that the MakerDAO protocol can keep the situation under control and continue to support all Dai tokens. Thus, the system ensures that there is sufficient collateral available for the circulating Dai tokens.

Wrapping up

DAI can be called a success as a stablecoin like Dai (DAI). The system has provided crypto wallet holders with a way to protect them from volatility by providing them with a stablecoin. Dai is stored in crypto wallets instead of fiat currencies and helps users to have a stable value. This system has been active for a very long time and helps provide a secure and stable path for other users of the crypto network. If you decide to use DAI, note that there are risks involved as with other stable crypto coins.