DAI is a decentralized stablecoin built on the Ethereum blockchain. It was introduced by MakerDAO, a decentralized autonomous organization, in 2017. DAI's main objective is to maintain a stable value relative to the US dollar, making it a reliable medium of exchange and store of value within the cryptocurrency ecosystem.
Unlike traditional stablecoins that are backed by fiat currency reserves, DAI achieves stability through an algorithmic mechanism. It is collateralized by other cryptocurrencies, primarily Ether (ETH), which are locked in smart contracts known as Collateralized Debt Positions (CDPs). The smart contracts automatically adjust the supply of DAI based on market conditions to maintain its value close to $1 USD.
DAI offers users a decentralized and censorship-resistant alternative to traditional stablecoins. It allows individuals to access a stable digital asset without relying on centralized entities or traditional banking systems. Moreover, DAI has gained popularity in decentralized finance (DeFi) applications, as it provides liquidity and serves as a stable trading pair for various decentralized exchanges and lending protocols.
Overall, DAI represents an innovative approach to stablecoins, combining the advantages of decentralization and stability. Its algorithmic design and collateralization mechanism have contributed to its growing adoption and use in the decentralized finance ecosystem.