Definition
DAI is a cryptocurrency stablecoin whose price is intended to stay close to 1 US dollar. It is created and managed by smart contracts rather than a single company, making it a decentralized form of digital money. DAI belongs to the broader category of stablecoins and is commonly used in decentralized finance as a relatively price-stable asset.
Unlike centralized stablecoins such as USDT, DAI is typically backed by excess collateral locked on-chain, and its supply adjusts based on users generating or repaying DAI through protocol mechanisms. The system aims to keep DAI’s market price near its peg to the dollar, reducing the impact of crypto market volatility on its value.
Context and Usage
DAI is widely used in DeFi applications as a unit of account, a medium of exchange, and a store of value with lower price swings than many other cryptocurrencies. Its design focuses on maintaining the peg so that 1 DAI trades close to 1 USD, although temporary deviations, known as a depeg, can still occur in stressed market conditions.
As a concept, DAI illustrates how a stablecoin can be structured to rely on transparent, on-chain collateral and rules instead of direct backing by bank deposits. It is often compared with other stablecoins such as USDT and FRAX, which use different models to target price stability and manage peg risks.