What is Dai (DAI)?

Deep Dive

1. Purpose & Value Proposition

DAI was created to provide a stable, decentralized digital dollar for the crypto economy. Unlike stablecoins backed by bank-held fiat currency, DAI is generated through a decentralized finance (DeFi) protocol. This design aims to offer transparency, censorship resistance, and permissionless access, making it a foundational building block for lending, borrowing, and trading across DeFi applications without relying on traditional financial intermediaries.

2. Technology & Mechanism

DAI is an ERC-20 token on the Ethereum blockchain. New DAI is minted when users deposit approved collateral assets—like Ether (ETH) or Wrapped Bitcoin (WBTC)—into smart contracts called Vaults. To ensure stability, the value of the locked collateral must exceed the value of the DAI borrowed, typically maintaining a ratio of over 150%. If the collateral's value falls too close to the debt, the system automatically liquidates the vault to protect the peg.

3. Governance & Evolution

The rules of the Maker Protocol, including which assets can be used as collateral, are set by a decentralized autonomous organization. Governance token holders propose and vote on changes. The ecosystem is evolving, having rebranded to Sky Protocol and introduced a new primary stablecoin, USDS. DAI remains in circulation as the original decentralized stablecoin within this broader system.

Conclusion

Fundamentally, DAI is a pioneering attempt to create a stable digital currency through decentralized, on-chain collateral and community governance. How will its role and utility evolve alongside its successor, USDS, within the expanding Sky ecosystem?