DAI
A decentralized, crypto-collateralized stablecoin governed by its community.
Overview
DAI is a decentralized stablecoin soft-pegged to the U.S. dollar, created by the MakerDAO protocol on Ethereum. Unlike USDT and USDC, which are issued by centralized companies backed by bank-held reserves, DAI is generated by users who deposit crypto assets as collateral into smart contracts called 'Vaults' on the Maker protocol. This makes DAI the most prominent example of a decentralized, permissionless stablecoin.
When a user wants to create DAI, they lock crypto collateral (such as ETH, WBTC, or other approved tokens) into a Maker Vault. The protocol requires overcollateralization — for example, depositing $150 worth of ETH to generate $100 of DAI. If the collateral value drops below the required ratio, the position is automatically liquidated to ensure DAI remains fully backed. This system has maintained DAI's peg through multiple market crashes.
MakerDAO has evolved significantly, rebranding portions of its ecosystem under the name 'Sky' and introducing SubDAOs for more focused governance. The protocol has also diversified its collateral to include real-world assets (RWAs) like U.S. Treasury bills and institutional loans, creating a hybrid model that blends DeFi innovation with traditional finance stability.
DAI proves that a stable, dollar-pegged currency can exist without any centralized issuer or bank. It cannot be frozen, censored, or shut down by any company or government — it is governed entirely by smart contracts and MKR token holders. This makes DAI a crucial building block for truly decentralized finance and a censorship-resistant store of value.
How It Works
The Basics
Users generate DAI by depositing collateral into Maker Vaults via the Maker protocol. The protocol enforces collateralization ratios — for example, ETH Vaults require 150% overcollateralization.
Pros & Cons
- Truly decentralized — no company can freeze, censor, or confiscate your DAI
- Battle-tested through multiple crypto market crashes while maintaining its peg
- Transparent and auditable — all collateral is visible on-chain in real time
- Generates revenue through stability fees that support the MakerDAO ecosystem
- Can be minted permissionlessly by anyone with supported collateral
- Overcollateralization is capital-inefficient (must lock up more value than you borrow)
- Liquidation risk — collateral can be sold if crypto prices drop sharply
- Increasingly relies on centralized collateral (USDC, real-world assets) for stability
- More complex to understand and use than simply buying USDT or USDC
- Governance through MKR tokens concentrates power among large token holders
Use Cases
- Censorship-resistant savings in a stable, dollar-denominated asset
- DeFi building block — DAI is used as collateral and liquidity across hundreds of protocols
- Leveraged crypto exposure — deposit ETH, borrow DAI, buy more ETH
- Generating yield through the DAI Savings Rate (DSR) offered by the Maker protocol
- Decentralized lending and borrowing without intermediaries
Technical Details
- Consensus
- N/A (Smart contract-based, governed by MKR token holders on Ethereum)
- Launch Year
- 2017
- Founder
- Rune Christensen (MakerDAO)
- Max Supply
- No hard cap
- Blockchain
- Ethereum (also bridged to other chains)
- Website
- makerdao.com