DAI

DAI is a decentralised stablecoin soft-pegged to the U.S. dollar, created by the MakerDAO protocol on Ethereum in late 2017 and originally designed by Rune Christensen. Unlike USDT and USDC, which are issued by centralised companies backed by bank-held reserves, DAI is generated by users who lock crypto assets as collateral into smart contracts called 'Vaults' on the Maker protocol. This makes DAI the most prominent and longest-running example of a decentralised, permissionless stablecoin that has held its peg through multiple market cycles — including Black Thursday in March 2020, the May 2022 Terra collapse, and the March 2023 Silicon Valley Bank crisis.

When a user wants to create DAI, they lock crypto collateral (such as ETH, wrapped BTC, or other approved tokens) into a Maker Vault and mint DAI against it up to a chain-specific collateralisation ratio. The protocol requires overcollateralisation — a typical ETH Vault requires roughly 150-170% collateralisation, so depositing $150 worth of ETH can generate up to $100 of DAI. If the collateral value drops below the required ratio, the position is automatically liquidated at auction to ensure DAI remains fully backed. This overcollateralised design is DAI's core stability mechanism, and is fundamentally different from algorithmic stablecoins that failed catastrophically (Terra UST, Iron Finance) or fiat-backed stablecoins whose stability depends on off-chain bank relationships.

DAI originally launched as Single-Collateral DAI (SAI) with ETH-only collateral. In November 2019 the protocol upgraded to Multi-Collateral DAI (MCD), enabling a variety of ERC-20 tokens as collateral. Over time, the protocol added real-world assets (RWAs) — U.S. Treasury bills, institutional loans via Monetalis and BlockTower, and structured credit exposures — which now make up a significant portion of DAI's backing and generate substantial protocol revenue. This has been controversial in the decentralised-finance community because RWA collateral introduces off-chain counterparty risk into a system originally designed to eliminate it.

In 2024 MakerDAO began the 'Endgame' plan authored by Rune Christensen — a multi-year restructuring that rebrands portions of the ecosystem under the name Sky, migrates DAI to USDS (a rebranded token with the same peg mechanism), and introduces SubDAOs that focus on specific collateral verticals or applications. The old DAI token remains fully redeemable and continues to circulate widely across DeFi, and users can choose whether to migrate to USDS or stay on DAI. This transition reflects both the maturity of the protocol (billions in TVL, real revenue) and its evolving relationship with regulation and traditional finance.