Hello friends of Crypto Academy here is my entry to task # 6 proposed by the teacher @ yhoan2on

Introduction

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Cash is losing relevance, while digital, on the contrary, is becoming more widespread. For many, it is no secret that cryptocurrencies in recent years have generated significantly more profits than traditional assets. However, due to the development of the modern economy there are the problems of digital transformation, which generate high risks for investors who feel insecure when trading certain cryptocurrencies. This is mainly due to volatility due to unexpected market changes that cause sudden losses of 100 even thousands of dollars to its investors.

The digital transformation has brought to light the gaps in cryptocurrencies as well as possible solutions. One of the possible solutions to this problem is the so-called stable cryptocurrencies.

Stable coins are a type of cryptocurrencies with a fixed price value, pegged to other assets. They can be pegged to fiat currencies, cryptocurrencies and others on real-world commodities such as Gold. @yhoan2on.

Stable cryptocurrencies offer more security and confidence to investors; as they were designed to get the same benefits from a cryptoasset without having to worry about continuous price change.

That being said, then, a stablecoin is a cryptocurrency pegged to a relatively stable underlying asset or commodity. As we have studied in class with teacher @ yhoan2on, stable coins can be divided into three categories:

• Guaranteed Fiat Coins
• Crypto collateral currencies
• Stable Coins Guaranteed by Commodities
• Unsecured coins

At this point in the writing, I will focus on the positives of crypto-secured stablecoins.

• Instead of fiat reserves, this type of stablecoin is backed by the reserves of other cryptocurrencies,
• Guarantees the integrity of the decentralized system.
• Cryptocurrency-backed currencies eliminate volatility through overcollateralization.
• Another positive aspect is the transparency, the speed of the blockchain to settle the Stable Coins and the possibility of creating leverage.

An example; ¨ An investor has his assets in a cryptocurrency vulnerable to the volatile forces of the supply and demand market (bitcoin or ether) and is threatened by a market crash, he has the option to support his investments by linking his crypto assets to a stable currency until the rise in the market¨.

DAI is one of the best examples of this type of stablecoin backed by Ethereum (ETH) and Maker ($ MKR) through the MakerDAO protocol. To be issued with DAI, you must present a higher collateral sum of Ether that is locked in and acts as a backing for the issued DAI. For example, for $ 200 worth of Ether tokens presented as collateral, I can only receive $ 100 worth of DAI. This is done to maintain the stability of the DAI. @yhoan2on

Stablecoin DAI

DAI is a cryptocurrency that automatically responds to changing market conditions to stabilize volatility. DAI works as a stablecoin created by the MakerDAO platform in 2017, on the Ethereum blockchain.

In order to understand how DAI works, it is necessary to understand the Maker (MKR) a DeFi protocol, which operates with two DAI tokens and Makercoin. Its main vision is to create a line of stable decentralized digital assets pegged to various currencies, golds and others.

The current value of the DAI is 1: 1 with the dollar (USD), it can go down or up a few cents, that value will remain stable until the day the currency goes out of circulation, this is due to the price stability mechanisms that it does not allow you to suffer volatility.

One of the mechanisms is that it has a referential price, 1DAI = 1USD, which guarantees the stable value of the currency.

Secondly, it has an automatic feedback mechanism for the reference rate that is activated in the event of great market instability.

How does this mechanism work?

If the DAI price falls and falls below the reference price, the reference rate increases, consequently, the reference price increases very rapidly, making each new generation of DAI more expensive.

At the same time, the increase in the benchmark rate means that there is a capital gain for investors holding the DAI, which also increases the demand for cryptocurrencies.

The opposite occurs when the price of the DAI is higher than the reference price, that is, the reference rate is reduced, which increases the demand for the generation of new DAI and a decrease in the number of people who maintain the DAI, which which causes the market price of cryptocurrencies to fall, returning to the reference price level.

DAI of multiple guarantees (over-collateralize):

A collateral is an asset that serves as a guarantee against the granting of a loan, a bond issue or any other financial operation. Lawinsider

In this way Maker creates DAI. Every time someone requests credit in the Maker protocol. An autonomous system called Smart Contract is generated, which produces credit by collateralizing tokens which are transferred to issue the stable currency DAI.

It should be noted that the value of the total collateral that DAI supports in the system is always greater with respect to the total value of the DAI in circulation, that is, the investor who lends $ 100 ETH will receive $ 50DAI until paying his debt, it will be returned to him amount of $ 100 ETH.

Therefore, multi-collaterality is another of the mechanisms that guarantees DAI price stability.

The DAI stablecoin, in principle, was based on a single collateral system that only allowed collateral with ETH. Finally, the market considered the combination of the four chosen guarantees as a way to strengthen DAI's stability. currently users can deposit ETH, BAT, USDC or WBTC.

Some ways the DAI currency is used:

The versatility of DAI has allowed more and more users to want to generate it using it in different ways.

• Protection and savings.

In countries like Argentina and Venezuela where hyperinflation is overwhelming, citizens find it impossible to save with the national currency in addition to government restrictions on using the dollar as a savings currency. Dai is a solution because it is a currency. easily accessible and can be exchanged without third-party interference.

• DeFi:

DAI can be easily connected with any of the Dapps. In fact we can say that it is one of the most used stable crypto in DeFi.

• Video game:

Unlike centralized gaming currencies that can be tested by the same company, DAI offers video game fans a borderless currency that can be controlled by themselves.

• Digital art

DAI has experienced a high growth rate in the digital art industry, more and more artists are using cryptocurrencies to support their works. DAI has managed to get incorporated into some art platforms where they use DAI to auction works.

Conclusion

The infrastructure built around blockchain technology and cryptocurrency is growing exponentially in size and complexity. The still relatively experimental technology behind stablecoins and the blockchain is helping to lift our anchors out of troubled waters so that we can move towards a more efficient and transparent financial system.

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Informative sources:

makerdeo

cryptonews.com

kraken