Having trouble wrapping your head around the terminology behind the Dai stablecoin? This should help.
Maker is a smart contracts platform governed by MakerDAO, a decentralized autonomous organization (DAO) run on the Ethereum blockchain.
The Maker platform has two native currencies, one of which is a stablecoin named Dai. Dai is listed on cryptocurrency exchanges under the ticker symbol DAI, which is why you might sometimes see it written using all capital letters.
A step-by-step guide to buying Dai
If you want to get your hands on this stablecoin, you may be able to buy directly with Canadian dollars on certain exchanges, but may also prefer to acquire a digital currency listed in a trading pair with Dai, such as bitcoin or Ether, and then exchange it for Dai.
Dai can be traded on a variety of crypto exchanges, so compare the features and fees of those exchanges so you can choose a platform that’s right for you. Here’s an example of how to use Ethereum to buy Dai on the Bibox crypto exchange.
The first thing you’ll need to do is acquire some Ether (ETH), which is the native currency of the Ethereum platform. For details on how to do this, check out our how to buy ETH guide.
Bibox is a Chinese cryptocurrency exchange where you can buy and sell dozens of cryptocurrencies. To register for a Bibox account, head to the Bibox website and click the “Sign up” link at the top right of the screen.
You can then provide your email address and choose a password to create an account. We also recommend setting up 2-factor authentication and a funds withdrawal password on your account before proceeding to step 3.
If the ETH you’ll use to buy DAI is already in your Bibox account, skip ahead to step 4.
If not, you’ll need to transfer your ETH tokens to your Bibox wallet. To do this, log in to your Bibox account and select “Master account” from the “Funds” tab. Find “Ethereum” in the list of supported currencies and click the relevant “Deposit” link.
You’ll then be shown your Bibox Ethereum wallet address. Copy this address and then paste it in the “To” field when depositing funds from your external wallet or from another exchange.
Once your ETH deposit has arrived, navigate to the exchange page and buy Dai.
On Bibox, this means you’ll need to look for the “Token Trading” tab at the top left of the screen and choose either the “Basic” or “Full Screen” view.
Next, hover your mouse over the trading pair drop-down menu near the top left of the trading screen. Use the search box provided to search for and select “ETH/DAI”.
Now it’s time to sell your ETH for DAI. On the “Sell” side of the screen, select a limit order and then specify the price you’re willing to pay and how much ETH you want to spend. Make sure you take a moment to review the transaction details before you click “Sell”.
How to sell Dai
If you want to sell your Dai tokens, the process you’ll need to follow is quite similar to that outlined in step 4. However, please be aware that Dai is only listed in trading pairs alongside a limited range of currencies, so you may not be able to make a direct exchange for the coin or token you want.
Which wallets can I use to hold Dai?
While you can store your Dai tokens on an exchange if you prefer, the risk of hacking and theft means it’s generally considered a safer option to transfer your tokens to a secure wallet.
Dai is an ERC20 token on the Ethereum network, so there are plenty of wallets to choose from. Some of the popular ERC20-compatible wallets you may like to consider include:
One of the key barriers to the widespread adoption of cryptocurrencies is their volatility. Bitcoin, Ether and other major digital currencies have all been known to experience substantial price fluctuations, sometimes rising or falling as much as 25% in the space of a single day. If cryptocurrencies are to offer a viable alternative to fiat currency for everyday use, many believe we’ll need the introduction of a price-stable cryptocurrency – widely known as a stablecoin.
MakerDAO is the company behind Maker, a smart contracts platform designed to back and stabilize the value of the Dai stablecoin. The Maker platform has two currencies:
Makercoin (MKR). This utility token has a fluctuating price and is used to govern the Maker platform.
Dai (DAI). Dai is a stablecoin that protects against market instability and can be used for payments, savings and more.
Dai is a collateral-backed cryptocurrency designed to have a stable value relative to the US dollar. Anyone who has Ethereum assets can leverage them to generate Dai on the Maker platform through smart contracts known as Collateralized Debt Positions, or CDPs.
As explained in the whitepaper:
CDPs hold collateral assets deposited by a user and permit this user to generate Dai, but generating also accrues debt. This debt effectively locks the deposited collateral assets inside the CDP until it is later covered by paying back an equivalent amount of Dai, at which point the owner can again withdraw their collateral. Active CDPs are always collateralized in excess, meaning that the value of the collateral is higher than the value of the debt.
Real-world use cases for Dai
Why are stablecoins so important? Apart from providing much-needed legitimacy to digital currencies as a whole, Dai has a number of use cases for both individuals and businesses.
Hedging. When the crypto market is experiencing high levels of volatility, holders can shift their funds into Dai so they can store their value without having to cash out for fiat currency.
Payments. Dai can be used to buy goods and services from merchants that accept crypto payments.
Prediction markets. Long-term betting requires the use of a currency that can provide long-term price stability.
Lending. The price fluctuations of most cryptocurrencies make them unsuitable for loans, as market movements can have a dramatic effect on the value of loan collateral and amounts. Dai’s low volatility could offer stable, predictable loans.
Instant global transfers. Dai can also offer fast and price-stable transfers to reduce the cost of international trade and payments.
Before you buy Dai: Things to consider
Cryptocurrencies are complicated and volatile assets, so you’ll need to thoroughly research any coin before deciding whether to make a purchase. There are many competing factors that can potentially drive a currency’s value up or down, so if you’re thinking of buying any Dai, consider the following factors first:
Collateralization. The value of Dai is dependent on the value of the underlying collateral in MakerDAO. If you’re looking for certain characteristics in a stablecoin, it’s also important to be aware of the overarching characteristics of MakerDAO’s underlying collateral pool. For example, someone who wants a completely decentralized stablecoin might be wary of the proportion of centralized stablecoins backing MakerDAO CDPs.
The nature of stablecoins. If you’re searching for a currency that could potentially experience a sharp rise in value, a stablecoin obviously won’t be the right choice. Dai is pegged to the value of US$1 and is designed to offer price stability and protection against crypto market fluctuations.
Investment. In September 2018, Andreessen Horowitz’s dedicated crypto investment fund bought a 6% stake in the MakerDAO project for US$15 million. This investment is designed to help Dai through its next growth stage.
Competitors. The stablecoin space is becoming increasingly competitive, with a host of other projects (including Tether, DigixDAO and Basis) all offering their own price-stable cryptocurrencies. Do your research to find out how Dai stacks up against these competitors.
Consider all these factors and any other potential risks before deciding whether you should buy any DAI.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Tim Falk is a freelance writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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