DAI stablecoin review: history, regulation, development prospects of the coin

Years and many changes have passed since the creation of the first cryptocurrency, while difficulties have remained, leaving it very inconvenient to use as real money. The main obstacle is volatility. But, provided that we analyze coins and tokens as investments, it is possible to replay on price variability, and thus it is quite realistic to raise over several thousand dollars in an hour, and that's fine, but there are situations that require more stable calculations.

For example, we all remember the history of bitcoin in 2017 - the price rose, and there was an unhealthy hype among investors, which was associated with the fear of losing potential profits, but the market rose significantly. And so, in the first months of 2018, the market collapsed rapidly. Exchange traders who buy crypto, precisely because of its basic qualities, were unable to resist those who invested their own finances only due to the hype. It was this moment that became a turning point and many got excited about the idea - is it possible to make the cryptocurrency more stable and minimize price volatility? What can turn the entire financial sphere? One promising idea was secured debt positions (CDPs).

Back in 2013, there was the first attempt to introduce the concept of CDP. The bottom line was to back up the coins to any more stable currency, and nothing less than this allowed the formation of the initial stablecoins - dai cryptocurrency.

What is DAI?

There are many mechanisms that keep the price of dai stablecoin stable compared to the US dollar. The key thing to understand is dai (dai) cryptocurrency, which is a mechanism of interconnected smart contracts that stabilize the system through automated feedback. It is thanks to this that the first centralized platform for mortgage sales was invented. Any user deposits funds as collateral for a loan by forming a CDP smart contract. Upon receipt of the amount, the client receives a certain amount of DAI in the equivalent of the current general market rate in US dollars. Further, with coins it is possible to do the same as with any other cryptocurrency - pay for goods or services, invest, and so on.

Initially, DAI allowed users to take out only one loan linked to Ether — Pooled Ether (PETH). In order to get this crypt, it would be necessary to initially invest a certain amount in the ether in a smart contract. And that's where the point is — in the event of an unexpected collapse of the Ether market, secured debt positions keep the price higher compared to the debt of customers. It turns out that developers, in order to recapitalize the market, reduce the supply of PETH, raising the demand and price of dai, which will positively affect CDP.

Regulation Mechanisms

The main mechanism that allowed the transformation of DAI into a stablecoin is the Target Rate Feedback Mechanism (TRFM). The essence is simple — as soon as the value of cryptocurrencies decreases, then the TRFM mechanism shifts its attention to stimulating an increase in its value.  What happens is that the price rises and creating Dai thanks to CDP becomes much more expensive. Thus, coin holders earn interest, which fuels interest in them. The higher the demand, the lower the supply, and in the future, every day lowering the rate of the initial level of the dollar. Since TRFM and percentage are formed by changes in the level of supply and demand on the market, thanks to this, developers have the opportunity to determine the reaction to rate fluctuations. And the whole mechanism is set up for time to regulate the impact of the user, who has gained control over most of the positions. Only the constant interaction of clients with the online platform ensures the productive work of automated mechanisms and keeps the deposit in the CDP not lower than the debt. And if the backed CDP assets turn out to be unreliable, then the moderator can declare their liquidity at any time.

There is another mechanism of regulation - the global settlement (Global Settlement). In case of start of this mechanism, the system is switched off. DAI holders and CDP users automatically receive the value of assets. This process is decentralized and the launch is due to the global consensus of regulators. Individual users have more rights (Global Settlers). Their peculiarity is that they are independent of the situation inside the DAI protocol and they get a way to cooperate with it from the outside, and they can also monitor the situation, which makes it much more effective to take control of security. There is also such a category as Key External Actor, otherwise referred to as “guards” - automated and independent figures who benefit from keeping the system constantly running, often these are merchants that work like a TRFM mechanism. They come into play in the event of a drop in the price of DAI below $ 1, thereby provoking a drop in supply, raising demand and triggering a price increase.

Where to buy and how to store DAI?

It is possible to become a happy owner of DAI only if you purchase cryptocurrency, because mining is unforeseen. Many popular exchanges offer DAI in cryptocurrency pairs, other stablecoins or fiat. The highest turnover occurs on the Binance exchange, where the coin is sold in crypto pairs with Bitcoin, Ethereum and Tether. In a pair of DAI-USDT or with another large variety of cryptocurrencies and tokens, DAI can be purchased or sold on our website.

It is possible to save the coin on any wallet that supports this type of token. As an option, such dai wallets are suitable: Atomic, Electrum, Crypto.com Defi, Binance Chain.

Experts say that DAI is not quite suitable for investments, because the exchange rate is constantly tied to the dollar price, so do not think that within a few months you will increase your initial investments. DAI is more likely to help out those who are not satisfied with fiat, but do not agree to put up with the increased volatility of the crypto. It is ideal for settlements, trading, in particular international, because you will receive several times lower commissions, as for the financial sector, its stability will be useful in working with securities. In view of this, DAI is a very promising cryptocurrency, but not for those who want to earn extra money on the course.

DAI cryptocurrency: forecast and prospects for the development of the coin

As you already understood, we can only talk about prospects if Ethereum is popular. Due to the transition to PoS, the speed of transactions should increase, therefore, transactions are faster.

For example, lawyer Preston Byrne expressed his opinion about DAI, and according to him, this coin is only a derivative. In almost all articles, he says that the power of the collateral is preserved in Ether and exceeds the price of an ETH-based stablecoin. In the event that ether prices decrease, then the collateral loses its value and the coin will lose its main role.

According to him, the system is thought out only for the growth of the ratio of collateral to the amount of tokens, and only this will serve as protection for the course. He also mentioned that due to the high attachment of users to the ETH rate, they run the risk of losing more. He justifies his point of view by the fact that the DAI stablecoin may simply not be able to cope with competition, and there is the following reason for this - any financial system must work stably and always fulfill its obligations.

As far as stablecoins are concerned, currency backing is a must, otherwise it's something else. If nothing changes, then dai (dai) cryptocurrency can even compete with other tokens of this type. And most importantly — provided that the popularity of decentralized finance grows sufficiently, then the coin will get its big advantage. Due to the binding of DAI to the US dollar, the price will remain unchanged in the future. But do not forget about the change in the price of ETH. Therefore, any changes in the course that will enable positional traders to earn money are quite a real phenomenon.