Homework Task 6: Stable coins - DAI stable coin | lesson by @yohan2on
Hello, everyone. It’s the week 6 at the Steemit crypto academy and I
am glad to attend the lectures for the new week. I’ve attended a lecture from professor
@yohan2on based on stable coins, it’s really packed with more cryptocurrency knowledge. And at this point, I will attend to the task given at the end of the lecture where I will talk about
DAI stable coins.
What is DAI Stable Coin
With the basic knowledge of stable coin, stable coin is the type of cryptocurrency that has its value pegged to certain commodities which could be Fiat currencies, other cyptocurrencies or other assets outside the crypto ecosystem like Gold or Silver. DAI is a type of stable coin which is a ERC-20 token (built on the Ethereum blockchain) pegged at 1:1 to USD with the sole aim to keep its value close to the U.S dollar. DAI is pegged to $1 with the ratio 1:1, meaning 1DAI is equals to $1.
DAI is kept close in value to the United States dollar through the
automated system of smart contracts deployed on the Ethereum blockchain. DAI came into
limelight when it was founded on the 18th of December 2017. Just like every other stable coin, it was invented to control the crypto market high price volatility by bringing the price of DAI close to USD on a ratio of 1:1.
DAI origination is from Maker, a decentralized finance that operates
on the Ethereum blockchain and with this DAI is a stable coin that runs on the Etheruem
blockchain and claimed by MakerDAO to be the world’s first unbiased currency and leading
decentralized stablecoin.
DAI Usage on MakerDAO
As explained earlier, DAI is an invention of Maker and the
effectiveness of DAI on the MakerDAO lending system can’t be overlooked. DAI is the asset
made available for the process of borrowing on the MakerDAO lending platform, meaning a loan
can be taken out with this stable coin and the borrower can only pay back with DAI, this is one
of strategies employed by MakerDAO to further strengthen DAI. And once DAI is created in the
process of borrowing, it functions simply as a stable Ethereum token (ERC-20).
How Stability is maintained with DAI
The DAI stablecoin system employs an automatic mechanism known as TRFM to maintain the stability of the stablecoin. Take for instance, if the price of a DAI is below $1, the TRFM increases to push the price of DAI up, to attain the $1 peg. Also when the price of DAI is above $1, the mechanism resumes work by pulling the price back to $1.
DAI special uses
- DAI is used as a stable hedge against price volatility other cryptocurrencies like Bitcoin,
Ethereum, Litecoin and the likes, do experience. - It is used by traders that predicts that a particular asset is going down and thereby exchange their assets to DAI to avoid loss. DAI is used to buy the preferable assets back when a trader thinks the market is stable again.
- DAI holders earn Dai Savings Rate (DSR) on the DAI they lock through smart contracts.
- Convenience of exchange to other cryptocurrencies, fiat or for money transfer process.
DAI availability for trades
DAI is widely available on exchanges and it can be traded against other cryptocurrencies in pairs like BTC/DAI, ETH/DAI and so on. I use the Huobi Global exchange and a lot of DAI trading pairs are available on the exchange.
Conclusion
DAI has proven be an efficient stable coin which gives stability
amidst volatility, convenience of preserving one’s generated profits from other trades to prevent value diminish and also gives rewards to investors that locks it on the smart contract. The lecture of the crypto professor @yohan2on has opened my eyes to many more about stable
coins, thanks professor for this wonderful one.
Regards; Cc: @steemcurator01 , @steemcurator02 , @steemitblog , @yohan2on
Hi @temitopef
Thanks for attending the 6th Crypto course and for your effort in doing the given homework task.
Feedback
This is excellent work. Well done with your research study on DAI stable coin.
Glad to know that there are even opportunities to earn on DAI, through locking it up in Smart contracts. I better get involved in the DeFi world by beginning with a purchase and holding some DAI tokens.
Homework task
10
Thanks so much professor @yohan2on. I look forward to learn more from you.