How is DAI collateralized?

By leveraging the security and transparency of the Ethereum blockchain, the crypto over-collateralization mechanism ensures trust and stability in the DAI ecosystem. It also fosters a decentralized and self-sustaining financial system, free from the constraints of traditional financial intermediaries.

DAI, a prominent cryptocurrency, operates on a fundamentally different principle compared to fiat-backed stablecoins. It relies on a revolutionary system known as crypto over-collateralization, which sets it apart in the digital currency landscape.

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This unique system functions by enabling users to secure their digital assets within the Ethereum blockchain's smart contract framework. Users can deposit a variety of cryptocurrencies, notably ETH, into these smart contracts, effectively locking them up.

The locked cryptocurrencies serve as collateral, providing a robust foundation for the issuance of new DAI tokens. This process ensures that every DAI in circulation is backed by a substantial amount of underlying assets, mitigating the risk of devaluation.