Steemit Crypto Academy Week 6 Task: Stable coins- Dai (DAI) | lecture by @yohan2on

Introduction

Let's face it crypto is really volatile, by the time you've finished reading this article, Bitcoin may have shifted a few percentage points. Of course, there is one form of cryptocurrency that is intended to be the polar opposite of this: a decentralized stable coin that can maintain a $1 peg or operate independently of any organization.

WHAT ARE STABLE COINS?

Stable coins are, as their name suggests, a cryptocurrency with the primary feature of stability. They are linked to the value of another asset and will maintain the same value over time. Stable coins can be linked to a variety of assets, including commodities, a price index, a real asset, and even another cryptocurrency.


They are, however, primarily pegged to fiat currencies such as the US dollar or the British pound. When you say a stable coin is pegged to the US dollar, you're referring to the fact that one unit of that cryptocurrency will always be equal to one US dollar.


Another important point to note is that if the US dollar collapses, the stable coin will collapse as well. You're holding a stable coin to hodl value in a pegged currency or asset; it's not a price play; if the US dollar depreciates in value due to trade wars, actual wars, or simply inflation, your stable coin's pegged value will depreciate as well.

DAI

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Dai (or DAI) is a stablecoin cryptocurrency that uses an automated system of smart contracts on the Ethereum blockchain to keep its value as close to one US dollar (USD) as possible. MakerDAO, a decentralized autonomous organization (DAO) composed of the owners of its governance token, MKR, maintains and regulates Dai, allowing them to vote on changes to certain parameters in its smart contracts to ensure Dai's stability.


MakerDAO's smart contracts in the form of a decentralized application facilitate an overcollateralized loan and repayment process, resulting in Dai. Users can borrow against the value of their deposits and receive newly generated Dai by depositing Ether (or other cryptocurrencies accepted as collateral). The collateralization ratio for Ether is currently set at 150 percent, which means that depositing $150 in Ether entitles you to a loan of up to 100 Dai (roughly $100). If the collateral value falls below this threshold, the smart contracts can automatically liquidate the loan. On the other hand, if the value of the Dai rises, more Dai can be borrowed.

STRENGTHS

• DAI is a generating stable coin backed by cryptocurrencies
• This has one significant advantage in that you can always prove that these cryptocurrencies exist.
• In terms of transparency, this is a huge plus because I can check the contracts at any time to ensure that all of the cryptocurrencies are present.
• Decentralization is also important because no single person or entity has control over the collateral.

WEAKNESS

• However, one fatal flaw is that cryptocurrencies are extremely volatile, and their prices can change in the blink of an eye.
  
  

Conclusion

After reading the lecture/article of prof @yohan2on, it became clear to me why the stable coins are made because of how volatile cryptocurrencies are. Cryptos can be easily affected or influenced by news, rumors or even fake news. It seems that stable coins like DAI serves as our safe haven during crypto-related crisis.

Special regards and thanks to;
Cc: @steemcurator01
Cc: @steemcurator02
Cc: @steemitblog
Cc: @yohan2on