What is Dai
Dai is a decentralized stablecoin that is equivalent to 1 dollar, the stablecoin is maintained by Maker, they keep Dail at $1 using a system of collateral and price feeds.
Due to the high volatility in the crypto market, stablecoins were introduced to help save user funds.
DAI is the world’s first stablecoin that does not require a bank.
How is Dai created?
For a user to create Dai, he/she needs to deposit some Ether in Makers smart contract, it lets users take out loans in Dai.
A user can create 66 Dai from an ether valued at $100 and a collateralization ratio of 150%.
Each 100 Dai is created by 1.5 ether.
If the value of ether held as collateral is worth less than the amount of Dai it’s supposed to be backing, then Dai would not be worth one dollar and the system could collapse.
In a case where the price of ether crashes well below the collateralization ratio, to avoid liquidation, Maker stablecoins come in to salvage the situation.
What is Maker stable coin?
Maker stable coin or maker coin (MKR) is a token on the Ethereum blockchain that has governance rights over Maker smart contracts.
How does Maker help sustain Dai?
Should the collateral in the system not be enough to cover the amount of Dai in existence, MKR is created and sold onto the open market in order to raise the additional collateral. This provides a strong incentive for MKR holders to responsibly regulate the parameters at which CDPs can create Dai,
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