Dai (DAI)

Dai (DAI) is a stablecoin designed to stay worth one US dollar without a bank account behind it. Instead of cash reserves, each DAI is created when a user locks crypto collateral in a set of smart contracts and borrows against it. It was launched in 2017 by MakerDAO, a project founded by the Danish entrepreneur Rune Christensen, and became the best-known decentralized stablecoin in decentralized finance.

In 2024 MakerDAO renamed itself Sky and introduced a successor token, USDS (USDS), which can be swapped for DAI one for one in either direction. DAI still exists and is still issued by the same protocol. It is a token on Ethereum, not a blockchain of its own, and it differs from fiat-backed coins such as USDC, whose issuers hold bank deposits and government bonds.

Dai works much like a pawnshop that never closes. You hand over something valuable, such as some ether, and in return you receive dollars to spend, here in the form of DAI. To be safe, the shop lends you less than your item is worth. When you return the DAI plus a small fee, you get your item back.

If the value of your item drops too far, the shop sells it to make sure the loan is covered. No clerk makes that decision; computer programs on a public network watch prices and act automatically. Because every DAI in circulation is matched by collateral worth more than a dollar, people trust that one DAI should be worth about one dollar, and traders step in to buy or sell whenever it drifts away from that price.

MakerDAO began as an online community in 2014 and released its first version, now called Single-Collateral Dai or Sai, in December 2017. It accepted only ether as collateral. In November 2019 the system was upgraded to Multi-Collateral Dai, which allowed several assets to back loans and added the Dai Savings Rate, a yield paid to holders who deposit DAI in a savings contract.

The design faced its biggest test on 12 March 2020, known as Black Thursday. Ether fell sharply, the Ethereum network became congested and some collateral auctions closed with bids of zero DAI, leaving several million dollars of debt uncovered. Maker sold newly created MKR governance tokens to fill the gap and soon accepted USDC as collateral to support the peg. In December 2020 it added a Peg Stability Module that swaps USDC for DAI at a fixed rate. Later the protocol invested part of its reserves in real-world assets such as US Treasury bills. In August 2024 MakerDAO rebranded as Sky under its "Endgame" plan.

A user opens a vault, a type of collateralized debt position, deposits collateral and mints DAI up to a limit. Each collateral type has a liquidation ratio, the minimum collateral value per dollar of debt, which makes every loan an over-collateralized loan. Borrowers also pay a stability fee, an interest rate set by governance. The price at which a vault can be liquidated is:

• $P_{\text{liq}}$ is the collateral price at which the vault becomes eligible for liquidation.
• $D$ is the vault's debt in DAI, including accrued fees.
• $L$ is the liquidation ratio, written as a decimal (150\% is 1.5).
• $Q$ is the quantity of collateral locked.

For example, a user who locks 10 ETH and borrows 10,000 DAI against a 150 percent liquidation ratio has $P_{\text{liq}} = 10{,}000 \times 1.5 \div 10 = 1{,}500$. If ether falls below $1,500, the vault is auctioned and a penalty is charged. The Peg Stability Module and arbitrage keep the market price close to $1: when DAI trades above a dollar, traders mint or swap in more; when it trades below, they buy it cheaply to repay loans.

• Borrowing. Holders of ether and other assets borrow DAI against them instead of selling.
• Savings. DAI deposited in the savings contract earns a rate set by governance.
• Trading and lending. DAI is a common trading pair on decentralized exchanges and a major asset on lending protocols such as Aave (AAVE).
• Payments. As an ERC-20 token, DAI can be sent between wallets worldwide at any hour.

The protocol is run as a decentralized autonomous organization: holders of the governance token vote on collateral types, fees and the savings rate. The original Maker Foundation handed control to the DAO in 2021. Because no company issues DAI, it does not fit easily into rules written for fiat-backed stablecoins, such as the European Union's MiCA, which require an authorized issuer. Exchanges serving regulated markets may therefore limit how they offer it.

DAI depends on smart-contract code, price oracles and the value of its collateral, and a sudden crash can leave debt uncovered, as Black Thursday showed. Critics note that heavy reliance on USDC and on Treasury bills held through traditional firms makes DAI less decentralized than its design suggests; when USDC briefly lost its peg in March 2023, DAI depegged with it. Concentrated voting power among large token holders has also been a recurring concern.

• Sky
• Sky developer documentation