DAI Is The Most Stable And Proven Decentralized Stablecoin But How it Keeps Its Correlation And How It Works?

DAI is a decentralized stablecoin issued by MakerDAO. This decentralized stablecoin is the most stablished and proven in the market, maintaining its correlation to the USD through every troubled time. DAI will have 6 years of existance in the end of this year, which is remarkable after all the chaos with decentralized stablecoins.

DAI can be minted by doing overcollateralized loans of this stablecoin, the collateral assets can be many and ETH is one of them. The overcollateralized loans ensures that the amount of DAI in circulation is always less than the total value of the reserves held by MakerDAO. This way the coin maintains its correlation to the USD.

The collateral supporting DAI is made of various assets and includes real world assets, ETH, USDC, STETH and many more. Right now the ration between the collateral and the circulating supply is 145%, this value can never go bellow 110%.

If the value of the collateral goes bellow 110% anyone can call a function that will trade some collaterall for DAI and it will pay off the debt. By having a minimum higher than 100%, DAI protects itself from flash crashes that could cause the deppegging of the coin, this ensures that DAI has time to recover from a flash crash and doesn't go into a death spiral.

Every alteration made to the DAI protocol has to be approved by the DAO, meaning that everyone that holds Maker (MKR) token, has the right to vote in changes made to DAI.

Although DAI has resisted very well through the test of time, some people say that being backed by centralized stablecoins and other centralized assets puts in cause its decentralization, but DAI can still be used in every DeFi system and still doesn't have a central point of authority, since MakerDAO is composed of everyone who owns the Maker token.

There's a fun fact about DAI, in 2020, DAI deppeged from the USD and went as high as 1.22$, it lost the correlation to the USD but everyone who owned it, was in profit just by holding it. DAI also deppeged when the USDC deppeged, due to the amount of USDC backing DAI, DAI went as low as 0,88$, but recovered quickly.

Although some critics, DAI is still the most valuable decentralized stablecoin in the crypto ecosystem and the most successfull one, it endure the chaos that was every decentralized stablecoin deppegging after the UST fiasco. DAI is used in many Defi protocols and it's trusted by many, some prefer to use this stablecoin than USDT or USDC, because of its decentralized nature and because it doesn't operate any shady business behind its reserves.