What is Dai (DAI)?

Origins: MakerDAO and Rune Christensen

MakerDAO was founded in 2014 by Rune Christensen, a Danish entrepreneur. The project was one of the earliest DeFi protocols on Ethereum, with the vision of creating a decentralized, unbiased currency that anyone could use. The Maker Foundation was established to support early development, though the project was always intended to become fully decentralized.

Single-Collateral Dai (SCD)

The first version of Dai launched on December 18, 2017, as Single-Collateral Dai (SCD), also known as "Sai." In this version, only ETH could be used as collateral through Collateralized Debt Positions (CDPs). Despite the simplicity, SCD successfully maintained its peg through the volatile crypto markets of 2018-2019.

Key Milestones

• • 2014: MakerDAO founded by Rune Christensen.
• • 2017: Single-Collateral Dai (SCD) launches on Ethereum mainnet, accepting only ETH as collateral.
• • 2019: Multi-Collateral Dai (MCD) launches on November 18, supporting multiple collateral types including ETH, BAT, and USDC.
• • 2020: DAI becomes a cornerstone of "DeFi Summer," reaching over $1 billion in circulation. Maker adds real-world assets (RWAs) as collateral.
• • 2021: The Maker Foundation officially dissolves, transferring all operations to the MakerDAO community.
• • 2023: MakerDAO introduces the "Endgame" plan to restructure governance into SubDAOs.
• • 2024: MakerDAO rebrands to Sky, introducing USDS and SKY tokens. DAI continues to exist alongside the new tokens.

Governance: MKR Token Holders

The Maker Protocol is governed by MKR token holders who participate in on-chain voting. They decide on critical parameters including which collateral types to accept, debt ceilings, stability fees, and the Dai Savings Rate. MKR also serves as the protocol's backstop - if the system becomes undercollateralized, new MKR tokens are minted and auctioned to cover the deficit, diluting MKR holders.

Maker Vaults (formerly CDPs)

To generate DAI, a user locks collateral (such as ETH, WBTC, or other approved assets) into a Maker Vault smart contract. They can then borrow DAI up to a certain ratio of their collateral value - for example, with a 150% collateralization ratio, depositing $150 worth of ETH allows borrowing up to 100 DAI. Users pay a stability fee (interest rate) on their borrowed DAI, set by MKR governance.

Liquidation Mechanics

If the value of a Vault's collateral falls below the required collateralization ratio (due to price drops), the Vault becomes eligible for liquidation. Keepers - automated bots that monitor the protocol - trigger liquidation auctions where the collateral is sold to cover the outstanding DAI debt plus a liquidation penalty.

This mechanism ensures DAI always remains backed, even during market crashes.

Dai Savings Rate (DSR)

The DSR allows any DAI holder to earn yield by depositing DAI into the DSR contract. The interest rate is set by MKR governance and is funded by stability fees collected from Vault users. The DSR serves as a monetary policy tool - raising the DSR encourages holding DAI (reducing supply), while lowering it encourages spending or selling DAI.

Peg Stability Mechanisms

DAI maintains its $1 peg through several mechanisms working together:

1Compare providers

DAI is available on major exchanges including Coinbase, Kraken, Binance, and many others. Since DAI is pegged to $1, fees and spreads matter more than price differences. Compare total costs across platforms.

2Create an account

Register on your chosen exchange and complete identity verification (KYC). Enable two-factor authentication for security.

3Fund your account

Fund your account via bank transfer, credit/debit card, or by depositing other cryptocurrencies. You can also swap other stablecoins (USDT, USDC) for DAI on decentralized exchanges like Uniswap with minimal slippage.

4Buy DAI

Place an order for DAI. Since it is a stablecoin, market orders are generally safe. Alternatively, generate DAI directly by depositing collateral into a Maker Vault at oasis.app (for advanced users).

Wallet types

DAI is an ERC-20 token, so it can be stored in any Ethereum-compatible wallet:

• • Software wallets: MetaMask, Coinbase Wallet, Rainbow, Trust Wallet
• • Hardware wallets: Ledger, Trezor (highest security for large amounts)
• • DeFi-native wallets: Rabby, Frame (optimized for DeFi interactions)

Hardware Wallets

Ledger and Trezor both support DAI as an ERC-20 token. Hardware wallets provide the best security for storing significant amounts of DAI, keeping your private keys offline while still allowing you to interact with DeFi protocols.

Dai Savings Rate (DSR)

Instead of simply holding DAI, consider depositing it into the DSR contract to earn yield. The DSR is a native, permissionless savings mechanism - your DAI remains under your control and can be withdrawn at any time. The rate is set by MKR governance and varies over time.

Seed phrase and security

When setting up a self-custody wallet, you'll receive a seed phrase (12 or 24 words). Write it down on paper and store it securely offline. Never share your seed phrase or enter it on websites. Anyone with your seed phrase can access your funds.

DeFi Lending and Borrowing

DAI is one of the most widely supported stablecoins in DeFi. Deposit DAI on lending platforms like Aave or Compound to earn interest, or use it as collateral to borrow other assets. DAI's decentralized nature makes it preferred collateral in many DeFi protocols.

Payments and Transfers

Send DAI to anyone with an Ethereum address, 24/7, without intermediaries. DAI transactions settle in minutes on Ethereum mainnet, or in seconds on Layer 2 networks like Arbitrum and Optimism at much lower gas fees.

Savings and Yield

The Dai Savings Rate (DSR) provides a native savings mechanism. Additionally, DAI can be deposited in liquidity pools on decentralized exchanges (Uniswap, Curve) to earn trading fees, though this carries impermanent loss risk.

Trading Pair

DAI serves as a stable trading pair on decentralized exchanges. Traders use DAI to park profits during volatile markets without relying on centralized stablecoins that could be frozen.

Risks

While DAI targets $1, it carries unique risks: smart contract bugs could affect the Maker Protocol, extreme market crashes could lead to under-collateralization, and governance decisions by MKR holders could impact DAI's stability. DAI has also included centralized stablecoins (like USDC) as collateral, which introduces indirect centralization risk.

During the March 2023 USDC depeg event, DAI briefly depegged as well due to its USDC exposure.

Rune Christensen

Founder of MakerDAO and architect of the Maker Protocol. Rune has led the project from its inception in 2014, guiding it through the transition from Single-Collateral Dai to Multi-Collateral Dai, the dissolution of the Maker Foundation, and the Endgame restructuring plan.

Nikolai Mushegian

Co-architect of the original Maker Protocol smart contracts. A respected smart contract developer who contributed fundamental code to MakerDAO's early infrastructure.

Andy Milenius

Early CTO of MakerDAO who helped build the initial technical architecture of the Maker Protocol and its smart contract system.

Sam MacPherson

Core contributor to MakerDAO's protocol engineering team and a key voice in governance discussions. Instrumental in the technical implementation of many Maker Improvement Proposals.

Stablecoin Regulation

Stablecoins are an area of active regulatory focus worldwide. As a decentralized stablecoin without a single issuer, DAI presents unique regulatory challenges. It does not fit neatly into existing frameworks designed for centralized stablecoins backed by bank deposits. Regulators in various jurisdictions are still determining how decentralized stablecoins should be classified and regulated.

Country Differences

DAI's regulatory treatment varies by jurisdiction:

United States: DAI is legal and widely available on regulated exchanges. Stablecoin-specific legislation is under development. Tax treatment follows standard crypto rules - capital gains apply, though gains on a $1-pegged asset are typically minimal.

Canada: Legal and available on Canadian exchanges. Subject to existing crypto regulations under FINTRAC.

European Union: The MiCA regulation framework includes specific provisions for stablecoins. As a decentralized stablecoin, DAI's status under MiCA is still being clarified.

Australia: Legal and available on Australian exchanges. Subject to standard cryptocurrency regulations under AUSTRAC.

Regulations continue to evolve rapidly in the stablecoin space. Always verify current rules in your jurisdiction.

Decentralized Compliance

Unlike USDT and USDC, DAI cannot comply with freeze or blacklist requests because it has no central issuer. While this makes DAI censorship-resistant, it also means regulators cannot directly enforce asset freezes. Users are responsible for their own tax reporting and compliance when using DAI.