The cost of popular cryptocurrencies constantly fluctuates in a wide range,
that makes it difficult to use them as a means for settlements, savings or collateral.
In order to reduce the negative effects of cryptocurrency volatility,
digital assets with constant value, called Stablecoins (Stablecoins).
Among the most famous : Tether, TrueUSD (TUSD), BitCNY (BTS), Tiberius (TCX).
What is the basis of the usual (centralized) stablecoin
Issuers of stablecoin tokens can be crypto-exchanges, various financial structures and funds.
Stablecoins maintain a stable price tied to the value of traditional assets (world currencies, gold, raw materials). If, for example, the price of a stablecoin is tied to any currency, the Issuer
a special Bank account places the amount in this currency as collateral. The number of issue tokens must correspond to the amount of collateral. Centralized control over their trafficking is carried out by issuers. Ordinary members of the network do not have the authority to make management decisions. Information about the real state of collateral assets is not transparent to them.
Blockchain can do anything
The potential of blockchain technology allows you to create decentralized stablecoins secured by traditional cryptocurrencies. The amount of cryptocurrency collateral should significantly exceed the corresponding value of stablecoin (in Fiat currency). This oversupply, combined with the use of a special stabilization mechanism, maintains the volatility of the stablecoin rate at the level of 5%. There is a possibility of its binding to Fiat currencies.
About Maker platform features
To implement such projects in 2015, a smart contract (decentralized) Maker platform on the Ethereum blockchain was launched. The platform management token is the MKR token, which has a volatile rate. The Maker platform is a decentralized Autonomous system.
After setting its parameters, external interference in the workflow (within the specified parameters) is excluded. To make changes to the work of the Maker only the owners of the MKR tokens by voting.
They are interested in making decisions in the interests of all users of the platform. MKR token holders suffer the greatest financial losses if their solutions prove ineffective.
DAI Stablecoin – the first decentralized stablecoin
The first (and so far only) decentralized stablecoin received from Maker was called DAI Stablecoin. The platform generates DAI, controls its sale and turnover. The equivalent of the Dai token is 1 us dollar. An overview of the DAI Stablecoin system and the Maker DAO platform can be found
on a special website (https://makerdao.com/en/whitepaper/#overview-of-the-dai-stablecoin-system).
About stability of DAI and Maker platform
To maintain the stability of DAI, traditional methods of economic stimulation of external players are used, and a system of secured debt positions CDPs (Collatterized Debt Position) is created using the algorithm of smart contracts. The mechanism of stabilization of the platform itself is designed to minimize the consequences of the impact of negative market factors (collapse of the cryptocurrency market) and systemic risks of the Ethereum blockchain (hacker attack).
The creators of Maker provided open access to the system to everyone who makes a Deposit to exchange for DAI.
The Maker and DAI ecosystems are completely transparent to the user. At any time, you can verify the availability of collateral assets that support the DAI.
How is DAI created
To generate Dai tokens, users open secured collateral positions (CDPs)
in the form of smart contracts platform Maker. The cryptocurrency ETH is used as collateral. The buyer transfers the required amount of his ETH to the special address of the smart contract. In response, the platform generates a corresponding amount of collateral DAI and makes it available to the user. From this moment, you can dispose of the asset as a conventional cryptocurrency: store, send, pay for goods and services.
The user can return his Deposit to ETH. To do this, it must destroy the acquired DAI by returning it to the CDP smart contract.
Collateral positions have their own risk indicators, upon reaching which, the position is closed forcibly.
The value of each of these indicators is determined by voting by the owners of MKR tokens.
This maintains the stability of the collateral that binds the Dai rate to the USD.
How is the number and value of debt positions regulated
Market feedback mechanisms allow you to adjust the number and value of debt positions.
Thus, the price of DAI exceeding 1 dollar will lead to an increase in the number of debt positions, since at their opening and closing 1 DAI = 1 dollar.
The subsequent increase in the supply of tokens will help to reduce their value. At the price of DAI below $ 1, holders of debt positions benefit from buying back their liens, as they become cheaper. As a result, the market supply of the token will decrease, and its price will begin to increase.
How does DAI behave on exchanges
The volatility of the value of the DAI against the dollar (since its appearance on the stock market) is not
exceeds 5%, which indicates its stability. This indicator is the norm even for traditional financial instruments.
Participants of the cryptocurrency market can already use DAI to insure their risks and earn on margin trading. If the stabilization mechanisms of DAI and the Maker platform demonstrate their stability in an environment of real large-scale problems (market instability, hacker attack, Ethereum system failure), DAI will become the most stable cryptocurrency. It will be possible to use DAI as a means of payment, on a par with traditional Fiat currencies.
Dai can be bought on decentralized exchanges: Oasis (OasisDex) and Bibox (a clone of the Chinese exchange – Binance).
You can login to OasisDex through the Ethereum browser.