Dai 1.0

Introduction - Stability - Core API - Dai CLI


Dai 1.0 (beta) is a stable coin implemented as an ERC20 token on the Ethereum blockchain. Designed to maintain 1:1 parity with the US Dollar its value is backed by collateral (ether in Dai 1.0) which is locked up in a smart contract, the Maker collateral vault.

Dai has adopted the unicode diamond as its symbolic representation:

◈ 100 dai

The name Dai is derived from the chinese character 貸, meaning to lend or provide capital for a loan - learn more about the rational behind the name here.

Dai lifecycle

Dai is created by users borrowing against locked collateral and destroyed when loans are repaid.

  1. Anyone can create new dai by depositing ether as collateral and drawing an appropriate amount of dai.
  2. Locked collateral can be recovered at any time by paying back the borrowed dai (plus a stability fee).

Thus, all dai in circulation is at all times backed by at least as much collateral. In fact the system only allows borrowing up to what Maker governance considers to be a safe ratio (currently 150%) so USD $100M of dai in circulation would for example be backed by at least USD $150M of ETH locked in the Maker collateral vault.

Debt to collateral ratio

The USD value of locked collateral will of course change over time. When the value of collateral increases, borrowers are able to create new dai (up to the safe ratio). When the USD value of collateral falls, borrowers can choose to either repay borrowed dai, or deposit more collateral, as their position approaches the liquidation ratio. Borrowers who allow their positions to fall below the safe ratio risk forced liquidation.

Forced liquidation is Makers way of ensuring that the amount of collateral backing circulating dai remains within safe parameters. Positions that fall below the liquidation ratio can have their backing collateral seized and sold on the Maker debt market for dai, which is then removed from circulation. In cases of extreme volatility where the value of seized collateral may be insufficient to cover the outstanding debt, the supply of collateral wrapper tokens is expanded to cover any shortfall.

Note: Collateral holders can see their claim on the pool fall in value in situations where the system must cover any forced liquidations with a negative debt ratio. Collateral holders in Dai 1.0, therefore, carry the responsibility of backing the system through periods of volatility as well as having the opportunity to profit when the system is healthy.

Dai Users

Stable coin users.

For those seeking stability, the easiest way to obtain dai is to buy it on the open market from cryptocurrency exchanges. Regular users of Dai can use it as money without having to interact with the advanced mechanics of the Dai Stablecoin System. From their point of view, Dai is just another cryptocurrency obtained from a cryptocurrency exchange or broker, that can be freely sent to other users, used as payments for goods and services, or held as long term savings.

Dai Borrowers

CDP users.

Those seeking risk, and the opportunity for profit can borrow dai against locked collateral by operating a CDP (Collateralised Debt Position). A CDP is simply a lightweight record which tracks a particular borrowing position - the owner of the position, the amount of locked collateral, and the amount of dai which has been issued.