What is Dai (DAI)?

Dai is a stablecoin meant to be worth one US dollar. Unlike USDT or USDC, no company issues it against money in a bank. Dai is created by smart contracts when someone locks up crypto worth more than the Dai they take out.

Where it came from

The first version launched in December 2017 under MakerDAO. At first Dai could only be created against ether. In November 2019 it moved to accepting several kinds of collateral.

In August 2024, MakerDAO renamed itself Sky. It launched a new stablecoin, USDS, in September 2024. Dai holders can upgrade to USDS one for one if they choose. Dai itself still works.

How it works

Lesson 10 explains the main kinds of stablecoin. Dai is the collateral-backed kind:

• You lock crypto in a smart contract called a vault.
• You can take out Dai worth less than what you locked. The first version required 150%: $150 of ether for $100 of Dai.
• If your collateral's value falls too far, it is sold to repay the Dai. This is liquidation, explained in Lesson 43, and it comes with a penalty.
• To get your collateral back, you repay the Dai.

Holders of MakerDAO's governance token voted on the rules: which collateral is accepted, how much Dai can be created against it and the fees charged.

What backs it

The collateral has changed over time. By the end of September 2022 about 40% of it was USDC, a stablecoin issued by a company. So Dai, though run by smart contracts, partly depends on dollars held by a company.

What people use it for

People use Dai to hold dollar value on a blockchain, to lend it out and to trade. Others borrow Dai against their crypto rather than selling it.

Risks to know

• Collateral can crash. If crypto prices fall faster than vaults can be liquidated, Dai can lose its backing. Lesson 45 covers risks like this.
• Partly backed by USDC. Problems at Circle, the company behind USDC, would hit Dai too. The USDC guide covers those.
• Two versions. Dai and USDS now exist side by side, and apps may support one and not the other.
• Smart contract risk. Dai depends on code working as intended.

Learn more

Lesson 10 covers stablecoins, Lesson 43 explains collateral and liquidation, and Lesson 41 introduces DeFi.