Introducing DaiDai (DAI) is a stablecoin that runs on the Ethereum network. The decentralized stablecoin aims to maintain a value of roughly $1. However, DAI is not backed by US dollars like in the case of Tether (USDT) but rather by collateral on Maker. At the time of writing, the price of DAI is exactly $1 according to Coinmarketcap.
How does Dai maintain its value?In order for the DAI to maintain a target price of $1, it relies on the Target Rate Feedback Mechanism (TRFM). The TRFM can be compared to a game whereby economic incentives are balanced to sustain a given value.
So, if the DAI should fall below $1, the ‘game’ will incentivize users in order to increase the value and vice versa. The further away the DAI is from $1, the greater the incentives will be to restore the price of the coin. These incentives are usually in the form of earning interest by holding DAI tokens to increase demand for the coin. On the other hand, to lower the supply of DAI, users can borrow DAI and buy from the market by means of a Centralized Debt Concept (CDP).
A CDP is a decentralized margin trading platform. It enables users to deposit a coin into a smart contract which is to be used as collateral for a loan. This is where Decentralized Financing (DeFi) comes in. Once the CDP has your coins you put up as collateral, you will receive the loan equivalent (USD value) in DAI tokens. Keeping in mind that one DAI equals $1. You can use this loan for anything you want like buying a house, to trade or as personal savings.
What is Maker?Maker DAO is a smart contract platform built on the Ethereum blockchain. Two tokens are issued on the Maker platform namely DAI and Makercoin (MKR). Users can borrow and lend money on this platform. The system allows for community governance. In other words, MKR token holders can vote on important issues that affect the platform making it truly decentralized. MKR coins act as payment for the ‘stability fee’ when taking out a loan. They are burned during the settling process. However, DAI is the main product on the Maker platform.
How to make money with DAISince the price of DAI will remain roughly $1 at all times, you can rest assured that you will owe as much as you borrow since there are no price fluctuations. If you deposit 1 ETH into a CDP and borrow 226 DAI (price of ETH at time of writing was $226), you will pay back 226 DAI plus interest. Once the debt has been settled, you will get your 1 ETH back. Market volatility will not impact the amount you owe. You can make money with DAI by buying another coin on AltCoinTrader and selling it at a profit. Since you have to pay back a given amount, the profits made from your trade will be yours. Fair and square.
This week AltCoinTrader is listing tokens from the DeFi space. One of them is DAI. There are many ways to earn additional income with DeFi coins such as DAI. Be sure to follow the Rads ACT YouTube channel presented by AltCoinTrader CEO Richard de Sousa to learn all the tricks of the trade.