About DAI token (DAI)

DAI token Frequently Asked Questions (FAQ)

What is the role of the Maker Protocol in the management of DAI?


The Maker Protocol is a decentralized smart contract platform on Ethereum that manages and stabilizes the value of DAI through a system of collateralized debt positions (CDPs), autonomous feedback mechanisms, and appropriately incentivized external actors. It allows users to generate DAI by locking collateral assets into CDPs, now referred to as Vaults. The protocol maintains the peg of DAI to the US dollar through a dynamic system of collateralized debt, autonomous feedback mechanisms, and stability fees, ensuring that DAI remains a stable and decentralized cryptocurrency.




What cryptocurrencies can be used as collateral for minting Multi-Collateral DAI?


The cryptocurrencies that can be used as collateral for minting Multi-Collateral DAI vary and are decided by MakerDAO governance. Some examples include Ethereum (ETH), Basic Attention Token (BAT), and USD Coin (USDC). It's important to check the latest list as new collateral types can be added, and existing ones can be removed through the governance process.




How is the stability of DAI's price maintained against the U.S. dollar?


The stability of DAI's price against the U.S. dollar is maintained through an autonomous system of smart contracts within the MakerDAO platform, which manage collateral assets and incentivize external actors to maintain a soft peg to the dollar. When DAI's value deviates, users are encouraged to arbitrage and interact with the system, such as by locking in collateral to generate DAI or buying/selling DAI, to restore the price to around 1 USD. Stability fees, liquidations, and governance tokens also contribute to maintaining DAI's stability.




What are the differences between Multi-Collateral DAI (MCD) and Single-Collateral DAI (SAI)?


Multi-Collateral DAI (MCD) differs from Single-Collateral DAI (SAI) primarily in the assets accepted as collateral. MCD allows multiple types of assets to back DAI, providing greater diversity and resilience, while SAI accepts only one. Additionally, MCD introduced new features like the DAI Savings Rate (DSR) for earning interest on DAI holdings and included a more efficient liquidation system.




How is the DAI Savings Rate beneficial to DAI token holders?


The DAI Savings Rate (DSR) benefits DAI token holders by offering them an opportunity to earn additional DAI as interest on their holdings. This incentivizes users to hold onto their DAI and helps to stabilize its value. By locking DAI in the DSR smart contract, holders receive a passive income, which can be an attractive feature for those looking to preserve value or earn from their cryptocurrency assets.




Who governs the decisions made about DAI and the Maker Protocol?


Governance decisions regarding DAI and the Maker Protocol are made by MakerDAO's decentralized community, comprising MKR token holders. These stakeholders vote on various proposals and executive decisions, influencing the direction and policies of the ecosystem.




What is the voting system in MakerDAO for decision-making processes?


The voting system in MakerDAO uses a governance framework where MKR token holders vote on various proposals that affect the system, such as adding new collateral types, changing risk parameters, or modifying the Dai Savings Rate. Votes are cast on-chain, with the weight of each vote proportional to the amount of MKR tokens locked by the voter. This decentralized mechanism ensures that those who have a financial stake in the system are responsible for its maintenance and upgrades.




How can a user generate or mint new DAI tokens?


A user can generate or mint new DAI tokens by locking collateral assets into a MakerDAO Vault and creating a collateralized debt position (CDP). Once the assets are deposited and the CDP is created, the user can draw out DAI up to a certain percentage of the collateral's value. This process is subject to the stability fee and collateralization ratio requirements.




What makes DAI unique compared to other stablecoins in the market?


DAI is unique because it's a decentralized, crypto-collateralized stablecoin governed by the MakerDAO. Unlike most stablecoins backed by fiat currencies in bank accounts, DAI maintains its peg to the USD through a system of smart contracts on the Ethereum blockchain, where collateral in the form of various other cryptocurrencies is locked up to issue DAI. This multi-collateral system ensures stability, transparency, and reduced counterparty risk, as it is not reliant on any single centralized entity for its value maintenance.




Is there a cap on the total supply of DAI tokens?


No, there is no hard cap on the total supply of DAI tokens. The supply is dynamically managed and is determined by the amount of collateral that is locked up in the Maker Protocol and the demand for DAI in the market.




How is the DAI network secured on the Ethereum blockchain?


The DAI network is secured on the Ethereum blockchain through the use of smart contracts and the consensus mechanism inherent to Ethereum. Smart contracts enforce the rules of the Maker protocol, which governs the creation and maintenance of DAI. These contracts operate in a trustless and decentralized manner, ensuring that DAI remains collateralized and stable. The Ethereum blockchain's security, provided by its network of nodes and the Proof of Stake consensus algorithm, underpins the Maker system, protecting it against fraudulent activities and ensuring the integrity of the DAI cryptocurrency.




What impact did the crash of algorithmic stablecoins have on DAI's market position?


The crash of algorithmic stablecoins highlighted the robustness of DAI's multi-collateral system, increasing market confidence in DAI's stability and possibly improving its market position as a reliable stablecoin.