What is DAI collateral?

Dai is a unique cryptocurrency designed to maintain a consistent value equivalent to 1 USD. This stability sets it apart from conventional stablecoins, which rely on centralized entities and traditional financial instruments for their peg.

Rather than being backed by a reserve of fiat currency stored in a bank, Dai utilizes a decentralized and trustless mechanism to ensure its value remains anchored to the US dollar. This approach eliminates the need for intermediaries and reduces the risk of manipulation or interference.

The Dai stability mechanism involves the use of smart contracts on the Ethereum blockchain. These contracts automatically adjust the supply of Dai based on market demand, helping to maintain its peg to the US dollar.

One of the key components of the Dai system is the MakerDAO platform, which oversees the creation and management of Dai. Users can lock up collateral, such as Ethereum, in a smart contract to generate Dai, which can then be used for various purposes.

The decentralized nature of the Dai system also allows for greater transparency and accountability. All transactions and interactions with the MakerDAO platform are recorded on the Ethereum blockchain, making it easy for anyone to verify the system's operations.