DAI

1. What Is DAI

DAI is a decentralized, collateral-backed stablecoin on Ethereum, issued by the MakerDAO protocol and soft-pegged to the US dollar. It maintains its peg through over-collateralization and economic mechanisms rather than a central issuer.

2. How It Works

Users lock collateral (ETH, stablecoins, RWAs) into Maker Vaults and mint DAI up to a collateralization ratio. If a position falls below the liquidation ratio, it's liquidated (collateral sold, DAI burned). The peg is supported by arbitrage (DAI can always be used to repay debt at 1:1) and by the Stability Fee, adjusted by Maker governance.

3. Why It Matters

DAI is the flagship decentralized stablecoin — no central issuer, governed by token holders (MKR), and battle-tested since 2017. It is core DeFi infrastructure (used as collateral, quote currency, and yield). Its peg resilience through market stress makes it a reference for trustless stability.

4. Key Facts

• Over-collateralized: DAI is always backed by collateral
• MKR holders govern the protocol and Stability Fee
• Peg mechanism: arbitrage + liquidation + fee adjustment
• Peg stability has been tested in extreme events (2018, 2020, 2022)

5. Related Concepts

• stablecoin
• collateral-ratio
• makerdao
• fiat-backed-stablecoin