What is DAI? The Decentralized Stablecoin

DAI targets $1.00 without promising dollars in a vault. Maker (the protocol behind DAI) lets users mint DAI against approved collateral — mostly ETH and staked ETH today, plus other assets the governance token MKR voters allow. The system stays solvent by liquidating positions that fall below minimum ratios.

Supply floats with borrowing demand. In 2025–2026, DAI circulating is typically in the multi‑billion range — far smaller than USDT, but meaningful because it is the largest decentralized, on-chain stable asset that survived multiple bear markets.

Crypto collateral moves fast. Maker forces borrowers to post more value than they mint. If ETH dumps faster than borrowers add margin, keepers trigger liquidations: collateral sells (often at a discount), debt burns, and a penalty fee lands in the protocol’s coffers. Black Thursday (March 12, 2020) showed how brutal that can be when gas spiked and auctions misbehaved — the system survived, but users learned what “permissionless” costs.

Governance also let real-world assets and centralized stablecoins into the collateral basket over time. That improved scalability and introduced censorship and credit risk the pure-ETH purists warned about.

The DAI Savings Rate pays DAI holders from protocol revenue when governance turns it on. It is a policy tool: raise the rate to attract holding, cut it when DAI trades above peg. Yields move — they are not a bank CD.

Smart-contract risk never goes to zero. Governance risk is real: MKR holders vote on collateral types and risk premiums. Centralization creep shows up when large chunks of backing are USDC or tokenized Treasuries — you inherit parts of TradFi inside “decentralized” money.

If you want stablecoin exposure without a single issuer’s bank account, DAI is the usual answer — paired with a non-custodial venue, you at least remove exchange custody from the stack. You still take Maker protocol risk.