Recently, I have been learning about DAI and realized that it is truly different from other stablecoins. Today, I want to share some interesting things I discovered.

There are many types of stablecoins on the market, from Tether, USDC, PAX to other coins. But most of them rely on one thing - you must trust the issuer to hold enough USD in the bank. DAI is completely different.

What exactly is DAI? It is an ERC20 token on Ethereum with a stable value equivalent to 1 USD. But the special thing is that DAI is created through the MakerDAO lending system - no intermediaries, no trust in anyone. When you borrow on MakerDAO, DAI is generated. When you repay, it is burned. That’s it.

What makes DAI stand out? Its price is maintained through automated smart contracts. If DAI deviates too far from 1 USD, the Maker (MKR) tokens will be burned or minted to stabilize the price. The entire process is fully automated, with no trusted third parties managing it. So what is DAI? It is a truly decentralized stablecoin, not dependent on any organization.

I see that DAI has maintained stability for over three years, with only minor fluctuations around the 1 USD target. This proves that its mechanism works quite effectively.

Since DAI is just a regular Ethereum token, anyone can use or build applications with it without permission. Developers even wrap DAI into other smart contracts — for example, xDAI is moved to a sidechain for faster transactions, or rDAI allows automatic interest earning.

How to get DAI? The most direct way is to borrow on MakerDAO’s Oasis platform. Or you can trade it on centralized exchanges. From a usage perspective, what is DAI? It’s very useful when you want to avoid the volatility of Bitcoin or Ethereum, or when you need a stable asset for spending.

What really makes DAI stand out is the explosion of DeFi. From 2020 onwards, DAI became one of the most popular assets in the DeFi ecosystem. Many services allow you to deposit DAI to earn interest. There are even applications like dPiggy that automatically use the yield to buy other cryptocurrencies. Today, Bitcoin can also be used to generate DAI.

Overall, what is DAI if not a revolution in how we think about stable money? No trust, no intermediaries, only mathematics and open-source code. That’s why it is different.