What is dai?

What is dai?

If you’re asking what is dai (DAI), you’re looking for a clear, trustworthy explanation of a decentralized, crypto‑collateralized stablecoin designed to track the U.S. dollar on public blockchains. dai (DAI) is issued by smart contracts of the Maker Protocol—governed by the MakerDAO community—and primarily lives on Ethereum as an ERC‑20 token. It is widely used across decentralized finance (DeFi) as a stable medium of exchange, a unit of account for trading and lending, and a store of value that can earn yield via the Dai Savings Rate. This guide explains how dai (DAI) works, how its peg is maintained, the technology behind it, its tokenomics, benefits and risks, and how to trade it.

• Official resources: MakerDAO’s website and docs describe the protocol that issues dai (DAI) and its mechanisms, including Vaults, auctions, risk parameters, and governance. See the official site at makerdao.com and docs at docs.makerdao.com for authoritative details.
• Data sources: For market data and profiles on dai (DAI), see CoinGecko, CoinMarketCap, and Messari. General background is also available at Wikipedia and Investopedia.

If you want to engage with dai (DAI) on Cube.Exchange, you can view an overview at cube.exchange/what-is/dai, or go directly to buy DAI, sell DAI, or trade DAI/USDT.

Introduction

dai (DAI) is a decentralized, overcollateralized stablecoin pegged to the U.S. dollar and created by the Maker Protocol, a set of smart contracts governed by the MakerDAO community. Unlike fiat‑backed stablecoins that primarily hold bank deposits or short‑term Treasuries in centralized custodial accounts, dai (DAI) is minted when users lock approved collateral assets in Maker “Vaults” and is burned when positions are repaid. Its peg stability is supported by a combination of market incentives, risk parameters, a Peg Stability Module (PSM), decentralized oracles, liquidations, and governance.

• Category: Stablecoin; crypto‑collateralized and protocol‑managed
• Primary chain: Ethereum (ERC‑20), with bridged versions on other networks
• Governance: MakerDAO (MKR token holders) via on‑chain voting
• Key mechanisms: Vaults, Stability Fees, Liquidation Auctions, the Dai Savings Rate (DSR), and the Peg Stability Module (PSM)

Authoritative explanations of these components are available in Maker’s documentation (docs.makerdao.com) and widely summarized by third‑party research from CoinGecko, CoinMarketCap, Messari, and Binance Research (which covers MakerDAO and its stablecoin).

History & Origin

The Maker project began in the mid‑2010s with the idea of creating a decentralized stablecoin resilient to centralized custody risks. The earliest iteration, Single‑Collateral Dai (known as SAI), launched in 2017 and supported only ETH as collateral, as documented by MakerDAO and summarized in Wikipedia. In November 2019, the protocol upgraded to Multi‑Collateral Dai (MCD), enabling multiple collateral types beyond ETH, and introduced the Dai Savings Rate (DSR). Maker’s documentation captures this transition and the architecture changes (Maker docs: DSS modules).

Since then, dai (DAI) has become a foundational asset in DeFi. It has been integrated as a base trading and lending currency on decentralized exchanges (DEXs) and lending markets, and is used in payment tools and on‑chain treasuries. The protocol has continued to evolve governance and risk frameworks to manage collateral diversity, including crypto assets (e.g., ETH, liquid staking derivatives) and certain real‑world assets (RWAs) bridged via on‑chain structures, which Maker documents in its risk and collateral modules (docs.makerdao.com).

Key moments that shaped dai (DAI):

• 2017: Launch of SAI (Single‑Collateral Dai), introducing a decentralized dollar‑pegged token overcollateralized by ETH (MakerDAO; Wikipedia).
• 2019: Upgrade to MCD; new features include multi‑collateral, the DSR, and redesigned liquidation mechanics (Maker docs).
• 2020: “Black Thursday” price shock tested liquidation systems; Maker community implemented changes to strengthen robustness (Maker governance forum).
• 2020–2021: Introduction and scale‑up of the Peg Stability Module (PSM) to help maintain the $1 peg via low‑friction swaps with approved stablecoins (Maker docs: PSM).
• 2023: The USDC depeg event triggered temporary pressure on the DAI peg due to PSM reserves, later restored as markets normalized (Reuters).
• 2023–2024: Maker’s long‑term “Endgame” roadmap proposes structural changes to governance and product architecture (Maker Forum: Endgame).

Throughout these phases, dai (DAI) maintained its core identity: a decentralized, overcollateralized stablecoin that leans on algorithmic incentives and market mechanisms rather than centralized bank reserves. These foundations are described consistently in Maker docs, Wikipedia’s entry on Dai, and overviews from Investopedia.

Technology & Consensus Mechanism

dai (DAI) is an ERC‑20 token on Ethereum, inheriting Ethereum’s security model and settlement assurances. Ethereum transitioned from Proof of Stake (PoS) consensus via the Merge in 2022, providing finality properties, validator‑based security, and energy efficiency improvements. For background on core blockchain concepts that underpin how dai (DAI) settles and transfers on Ethereum, see Cube’s definitions of Blockchain, Transaction, Gas, and Finality.

What makes dai (DAI) unique is not a bespoke consensus algorithm—dai does not run its own blockchain—but the Maker Protocol smart contracts that govern its issuance and risk. The protocol, documented in detail in docs.makerdao.com, includes:

• Vaults (formerly “CDPs”): Users deposit approved collateral and mint dai (DAI) up to a collateralization ratio determined by governance. If positions fall below required thresholds, they are liquidated to ensure solvency. See collateral and liquidation design in the DSS modules and liquidation components like the “Clipper” auction mechanism.
• Oracles: The protocol relies on decentralized price feeds to assess collateral values. Maker’s oracle system uses a medianized feed from multiple reporters, a concept often referred to as a “medianizer” in early Maker literature; see Maker’s oracle documentation and consider the concepts in Cube’s Price Oracle and Medianizer explainers. Robust oracles are critical for accurate liquidations and risk management.
• Peg Stability Module (PSM): A module that enables low‑slippage swaps between dai (DAI) and specified reference stablecoins (such as USDC), helping to keep the market price near $1. The PSM has fees and quotas set by governance and is described in Maker’s PSM docs.
• Dai Savings Rate (DSR): Holders can lock dai (DAI) into a smart contract to earn a variable protocol‑determined rate. The DSR is funded by protocol revenues (e.g., Stability Fees) or allocation of reserves and is explained in Maker docs: DSR module.
• Governance: MKR holders vote on risk parameters, collateral onboarding, fees, DSR, and other protocol changes via on‑chain governance. Governance processes and modules are described in Maker’s docs and governance portal, with conceptual background in Cube’s On-chain Governance and Off-chain Governance guides.

Because dai (DAI) operates on Ethereum, its transfers, approvals, and smart‑contract interactions are subject to EVM semantics, gas pricing, and nonce logic. Readers new to EVM might review Cube’s primers on the EVM (Ethereum Virtual Machine), Gas Limit, Gas Price, and Nonce.

Tokenomics

The tokenomics of dai (DAI) are centered on maintaining a robust $1 peg via overcollateralization and market incentives rather than fixed supply. Key elements:

• Elastic supply: dai (DAI) is minted when users draw debt against collateral in Maker Vaults and burned when they repay. There is no hard cap. The circulating supply expands and contracts in response to demand for leverage or stable liquidity. These mechanics are detailed in Maker’s DSS modules and summarized by Messari’s DAI overview and CoinGecko.
• Collateral types and ratios: Governance periodically approves collateral types (ETH, liquid staking tokens like wstETH, select stablecoins via PSM, and some RWA exposure through on‑chain structures). Each has a risk model with parameters such as liquidation ratio, debt ceiling, and stability fee. For fundamentals on overcollateralized lending mechanics, see Cube’s entries on Overcollateralization, Collateral Ratio, Lending Protocol, and Liquidation.
• Stability Fees: Borrowers who mint dai (DAI) pay a variable interest rate (the Stability Fee) on their debt. Fees accrued contribute to protocol revenues which, among other uses, can fund the DSR or reserves. Parameters are set through Maker governance.
• Dai Savings Rate (DSR): Holders can deposit dai (DAI) into the DSR contract to earn yield. The DSR is adjustable by governance to influence supply/demand for dai and is documented at docs.makerdao.com. Third‑party resources like Investopedia provide accessible summaries.
• Peg Stability Module (PSM): The PSM provides direct arbitrage channels between dai (DAI) and other stablecoins, contributing to peg maintenance. Design details are in the PSM docs, and the peg’s behavior is covered across CoinMarketCap’s DAI page and CoinGecko’s market data.
• Governance token relationship: While dai (DAI) is non‑governance and intended to be stable, MKR is used for governance and risk signaling. MKR holders can be diluted in extreme recapitalizations, aligning incentives to manage risk prudently (explained in Maker’s docs and early Maker literature).

In contrast to algorithmic stablecoins that rely strictly on reflexive mint‑and‑burn rules with no collateral, dai (DAI) is collateralized. This distinction is discussed broadly in the industry and is important for understanding risk; see Cube’s entries on Stablecoin and Algorithmic Stablecoin.

Use Cases & Ecosystem

dai (DAI) is one of the most integrated assets in DeFi. Common uses include:

• Trading and base currency: Many DEX pools and order‑book venues use dai (DAI) as a base pair, providing a dollar‑stable quote asset for pricing and risk management. On Cube.Exchange, you can trade DAI/USDT, buy DAI, or sell DAI directly.
• Lending and borrowing: Users supply dai (DAI) to lending protocols to earn interest or borrow it against other collateral. The mechanics mirror general Lending Protocol and Borrowing Protocol models, often with Interest Rate Models that adjust yields based on utilization.
• Savings and cash management: The Dai Savings Rate allows holders to earn protocol interest without leaving the Maker ecosystem (DSR module). This makes dai (DAI) appealing for DAO treasuries and on‑chain funds seeking low‑volatility yields.
• Payments and remittances: Merchants and dApps accept dai (DAI) for goods and services, benefiting from fast settlement and a stable unit of account. As an ERC‑20, dai can be used in wallets, payment processors, and cross‑chain bridges. See Cube’s entries for concepts like Cross-chain Bridge and associated Bridge Risk.
• Hedging and collateral: Traders park PnL in dai (DAI) to reduce volatility, use it as margin on derivatives platforms, or as collateral in structured products. Concepts like Perpetual Futures, Funding Rate, and Risk Engine are relevant when dai is used on derivatives venues.
• Composability in DeFi: dai (DAI) integrates with AMMs, order‑book DEXs, yield optimizers, and RWA rails. For trading mechanics, review Cube’s primers on Automated Market Maker, Liquidity Pool, Constant Product Market Maker (CPMM), and concepts like Slippage and Price Impact.

Because dai (DAI) is programmable money, it benefits from the broader Decentralized Finance (DeFi) stack, integrating with oracles, governance, and cross‑chain infrastructure. The breadth of integrations is reflected in profiles from Messari and data from CoinGecko.

Advantages

• Decentralized issuance: dai (DAI) is minted and burned by smart contracts, not by a single company’s discretionary reserve management. The mechanics are transparent on‑chain and parameterized by decentralized governance (docs.makerdao.com).
• Overcollateralization and risk buffers: Vaults require collateral above 100% of dai debt, providing a buffer against market volatility. Liquidations are designed to keep the system solvent. See general concepts of Overcollateralization and Liquidation.
• Peg support via PSM and markets: The PSM facilitates arbitrage around the peg, and deep secondary markets on DEXs and CEXs reinforce price stability. Maker’s PSM documentation outlines fees and guardrails.
• Composability: As an ERC‑20, dai (DAI) integrates across Ethereum‑based protocols and is bridgeable to multiple networks, enabling broad adoption in Web3.
• Potential yield via DSR: Holders can earn passive yield without giving up self‑custody by using the DSR ( docs.makerdao.com).
• Transparency: Risk parameters, collateral lists, and governance decisions are visible on‑chain and in public forums, with data mirrored by aggregators like CoinMarketCap and CoinGecko.

Limitations & Risks

• Peg correlation to reference stablecoins: The PSM’s reliance on specific fiat‑backed stablecoins introduces exposure to their issuer and reserve risks. The March 2023 USDC depeg event temporarily pressured dai (DAI), as documented by Reuters. While the peg recovered, this underscores systemic linkage.
• Smart‑contract and oracle risk: As with any on‑chain system, bugs or oracle failures could impact solvency or peg. Maker mitigates with audits, multiple oracle reporters, and governance processes, but risk cannot be eliminated. Concepts like Oracle Manipulation and protections such as TWAP Oracle and Medianizer are relevant.
• Liquidation risk for borrowers: Users minting dai (DAI) face liquidation if collateral prices fall and ratios breach thresholds. Understanding Collateral Ratio, Liquidation, and market Volatility dynamics is essential.
• Regulatory uncertainty: Policies impacting stablecoins, RWAs, or DeFi governance could affect operations, market access, or demand. Established finance media frequently highlight evolving regulatory landscapes for stablecoins and DeFi.
• Governance and parameter risk: MakerDAO parameter changes—Stability Fees, DSR levels, collateral onboarding—can shift incentives and market dynamics for dai (DAI). While governance is transparent, it may react imperfectly to fast market changes.
• Bridge and cross‑chain risk: Bridged dai (DAI) depends on bridge contracts and custodians. See Cube’s coverage of Bridge Risk and Cross-chain Bridge.
• Concentration risk in collateral: If large portions of backing concentrate in a small set of stablecoins or RWAs, systemic correlation can increase. Maker’s risk frameworks aim to manage this, publicly discussed in governance forums and docs.

Notable Milestones

• 2017: Launch of Single‑Collateral Dai (SAI) overcollateralized by ETH (MakerDAO; Wikipedia).
• Nov 2019: Launch of Multi‑Collateral Dai (MCD) with DSR and redesigned liquidations (docs.makerdao.com).
• 2020: Black Thursday market crash; governance upgrades liquidation mechanisms and risk parameters (Maker governance archives).
• 2020–2021: Peg Stability Module introduced and scaled to enhance peg stability (PSM docs).
• 2023: USDC depeg amid banking stress leads to temporary dai (DAI) dislocation before normalization (Reuters).
• 2023–2024: Maker’s “Endgame” proposals and the emergence of complementary products like Spark Protocol (Maker‑aligned lending platform) as part of a broader product stack.

These milestones are corroborated across Maker’s official docs, CoinGecko, CoinMarketCap, and Messari.

Market Performance

As a stablecoin, dai (DAI) targets a $1 price; performance is therefore judged by peg stability, depth of liquidity, and adoption rather than appreciation. Market monitors like CoinGecko and CoinMarketCap provide real‑time price, market cap, circulating supply, and 24‑hour volume. Profiles from Messari add analytics on supply composition and integrations.

Key observations about dai (DAI) markets:

• Liquidity and depth: dai is widely paired against crypto majors and other stablecoins, both on AMMs and order‑book venues. Depth varies by chain and exchange but is generally robust given years of adoption.
• Peg resilience: dai (DAI) has historically maintained a tight band around $1, with brief deviations during systemic events (e.g., March 2023), after which pricing typically reverts as arbitrage and PSM mechanisms engage. Press coverage and data from Reuters and aggregators document these episodes.
• Supply dynamics: Supply expands during risk‑on periods when users lever up against collateral and contracts during risk‑off or when rates change (e.g., a higher DSR can attract holders while higher Stability Fees may reduce minting). This elasticity is a design choice outlined in Maker’s docs.

For the most current circulating supply, market cap in USD, and 24‑hour trading volume for dai (DAI), consult CoinGecko and CoinMarketCap, which update continuously and cite their data methodologies. Cross‑checking at least two sources helps ensure accuracy at any point in time.

Future Outlook

The future of dai (DAI) is closely linked to the evolution of the Maker Protocol and Ethereum’s broader DeFi stack:

• Governance evolution: MakerDAO’s “Endgame” vision proposes more modular governance, refined product branding, and risk compartmentalization. Any changes are subject to governance approval and implementation; follow the Maker governance forum for developments (Endgame overview).
• Collateral and RWA strategy: Maker has explored and adopted diversified collateral, including crypto assets and select RWAs with on‑chain wrappers. Ongoing risk assessment, regulatory clarity, and operational controls will likely shape allocations and the peg profile of dai (DAI). Official updates appear in docs.makerdao.com and governance posts.
• Infrastructure and cross‑chain reach: As rollups and L2s proliferate, dai (DAI) distribution via bridges and canonical deployments may expand, bringing considerations of Rollup architecture, Validity Proof, Fraud Proof, and Shared Sequencer ideas. Bridge design and security will remain central (Bridge Risk).
• Rates and monetary policy: The DSR and Stability Fees give MakerDAO levers analogous to monetary policy for its on‑chain economy. Market conditions, peg behavior, and collateral yields will influence these parameters. Understanding these levers is essential for dai (DAI) users seeking yield or leverage.

While dai (DAI) has demonstrated resilience, future outcomes depend on governance discipline, security practices, regulatory environments, and the health of its collateral base. Readers should rely on primary sources (makerdao.com, docs.makerdao.com) and reputable data providers (CoinGecko, CoinMarketCap, Messari) for ongoing updates.

Conclusion

dai (DAI) is a decentralized, overcollateralized stablecoin engineered for dollar stability without centralized banking custody. It is minted and burned through Maker Protocol Vaults, with peg maintenance supported by the PSM, oracles, liquidations, and parameter governance. Its design gives it significant advantages—decentralized issuance, transparency, composability, and potential yield via the DSR—while also introducing risks tied to collateral concentration, oracle reliability, governance, regulation, and bridge exposure.

For anyone asking what is dai (DAI) in practical terms: it is programmable, dollar‑pegged liquidity that sits at the center of DeFi, used for trading, savings, lending, payments, and treasury management. To engage with dai (DAI) on Cube.Exchange, explore the overview at cube.exchange/what-is/dai, then buy, sell, or trade DAI/USDT as needed. For authoritative technical and governance information, consult docs.makerdao.com; for current market cap, circulating supply, and volume, cross‑check CoinGecko and CoinMarketCap. With these resources, you can evaluate dai (DAI) confidently as a stable, composable building block for Web3.