Dai (DAI) Crypto Exchange

DAI is a stablecoin on the Ethereum blockchain, designed to maintain a value as close as possible to one U.S. dollar through a system of smart contracts that manage its supply. The stablecoin is governed by MakerDAO, a decentralized autonomous organization (DAO) where holders of its governance token, MKR, participate in proposing and voting on modifications to key parameters in these smart contracts.

In a 2020 article by Bloomberg, MakerDAO was highlighted as the first decentralized application to achieve substantial adoption.

Overview

DAI operates through a decentralized lending system managed by MakerDAO’s smart contracts. To generate new DAI, users deposit one of the accepted collateral assets—such as Ether—into a smart contract, creating a loan backed by that collateral. The loan’s "collateralization ratio" is determined by the current USD value of the collateral divided by the borrowed DAI amount. This ratio is calculated based on the USD price of the collateral provided by a set of decentralized oracles. Each type of loan has a required minimum collateralization ratio, typically ranging from 110% to 200%. Suppose the collateralization ratio falls below the minimum threshold. In that case, anyone can trigger the liquidation of part of the collateral to repay the debt by selling it for DAI on a decentralized exchange, with a reward given to the account initiating the process. Setting the minimum ratio above 100% provides enough buffer to handle sudden price drops in the collateral asset. In general, lower minimum ratios come with higher interest rates to compensate for increased risk.

When the loan and accrued interest are repaid, the corresponding DAI is destroyed, and the collateral is unlocked for withdrawal. This mechanism ensures that the value of DAI remains backed by the value of the collateral held in MakerDAO’s contracts. Through control over collateral types, collateralization ratios, and interest rates, MakerDAO can influence the supply of DAI, helping to maintain its value.

Holders of MKR tokens have the ability to propose and vote on changes to these variables. The voting power is proportional to the amount of MKR held. Additionally, the MKR token serves as an investment in the system, as a portion of the interest paid on loans is used to buy back MKR from the market and "burn" it, reducing its total supply. This mechanism is designed to make MKR deflationary, tied to the revenue generated from DAI lending.

MakerDAO was founded in 2014 by Danish entrepreneur Rune Christensen, who derived the name from the Chinese character 貸, which he interpreted as “to lend or to provide capital for a loan.”

DAI was officially launched on the Ethereum mainnet on December 18, 2017. During its first year, DAI successfully maintained its target value close to one U.S. dollar, even as the price of Ether—its only collateral at the time—plummeted by more than 80%.

In September 2018, venture capital firm Andreessen Horowitz made a $15 million investment in MakerDAO, acquiring 6% of all MKR tokens.

The Maker Foundation was established in 2018 in Copenhagen to support the ecosystem, funding projects like developing essential code for the platform’s functionality and evolution.

In 2019, MakerDAO faced an internal conflict regarding increased integration with traditional finance. Christensen advocated for stricter regulatory compliance to allow assets beyond cryptocurrencies to be used as collateral for DAI, leading to a significant departure, including the exit of MakerDAO’s CTO.

History

MakerDAO was established in 2014 by Rune Christensen, who took inspiration from the Chinese character 貸, translating it as “to lend or to provide capital for a loan.”

The DAI stablecoin launched on December 18, 2017, on the Ethereum network. During its first year, despite Ether’s significant price drop, DAI consistently held its value near one U.S. dollar.

In September 2018, venture capital firm Andreessen Horowitz invested $15 million in MakerDAO, securing a 6% stake in MKR tokens.

In 2018, the Maker Foundation was created in Copenhagen to support various projects within the MakerDAO system, such as developing and maintaining the platform’s code.

In 2019, a debate within MakerDAO arose over how closely the project should align with traditional financial systems. Christensen pushed for more regulatory compliance to expand collateral options beyond cryptocurrency, which led to internal disagreements and the resignation of the CTO.