Crypto Academy Week 6 // Stable Coins // Homework post submitted to @yohan2on

Happy new week Prof. @yohan2on

Am delighted to be part of your class this week.

Today's lessons is centered on stable coins. I will be dwelling on DAI stable coin.

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What is a stable coin
It is important to know that cryptocurrency is very volatile and has serious price fluctuations, they cannot be accepted by merchant for trading purposes, cryptocurrency adoption is growing by reason of the stable coins. A stable coin according to our lectures today is a currency whose value is fixed and can be attributed to a real commodity like fait currencies.

They can be pegged to fait currencies, they are stable because they maintain the same value as this fait currencies.

Stable coins helps reduce inflation, it tackles the volatility of the cryptocurrency coin but the question we ask is:How is this Possible?

DAI Stablecoins
Dai as a stable coin is a decentralized crypto currency,runs on the Ethereum blockchain, unbiased, that pegged itself to a fait currency. This pegs are done on 1:1 bases,meaning that it keeps its value close to the normal fait US dollars.

Dai was founded by Rune Christensen and a product of MakerDOA.

How is DAI created and able to maintain stability
MakerDOA is organisation developing technology making it possible to lend, borrow and ensure the stability of coin on the Etherum blockchain. MakerDOA has a protocol in place where if you have Ethereum, you can lend money in form of stable coins called DAI, once this is done, some amount of Etherum is locked which will lead to a creation of a certain amount of DAI by the help of MakerDOA smart contracts. More Dai stable coins are created when more Ethereum is locked.

At the time of paying back the loan, they pay using Ethereum with every possible interest and fees attached.

Dai offer stabilization, but is also offers transparency and decentralization, since it is built on top of the Ethereum network source

The concept used to attain this stability is called collateralized debt position (CDP). Just as explained before, the Economic CDP smart contracts mechanism holds deposit made into the smart contract, it generates the USD equivalent of lending asset to the user, the user can then either trade, sale, hold Dai since its value, even the value of funds borrowed will still be the same. source

For an example, you can deposit 10 Eth which will be about 18500 USD and you borrow Lets say 5000 USD, the CDP will generate DAI stable coin worth 5000 USD to you, to do anything with, since the price of DAI is pegged at 1 USD, the amount they will return to the CDP mechanism will be the same, so assuming you misuse the lended funds and it reduces to 3000 USD, you will have to find a way to pay back, knowing that your 10 Etherum is held in the lending pool. Marker by reason of this smart contract is then able to maintain DAI @ stable cryptocurrency.

We say that Maker controls the price of DAI, peraventure the price of DAI fluctuates, marker is burnt to stop production.

Advantages and disadvantages of DAI stable coin (Crypto-Collateralized Stablecoin

Considering the various categories/types of stable coins as described by the lecture, Dai is a Crypto Collateralized Stablecoin.

Advantages of Dai stable coin:

1)It is decentralized and there has Censorship resistance.

2)Certaintity and Auditability comes into plays because it is transparent

3)Funds can be liquidated as quickly as possible.

Disadvantages of Dai stablecoin:

1)It could be less price stable than fiat currency

2)There is inefficient use of capital

3)Funds can also get liquidated if there is any collateral if a price crash occurs.

4)It is collateral based.

In conclusion, stable are needed for full adoption of cryptocurrency. Dai is a stable coin and well as other stable coins in the cryptocurrency market are considerd safe and can be traded.