DAI is a stable cryptocurrency that is pegged to the US dollar, designed to provide stability in a volatile cryptocurrency market. The stability of DAI is achieved through a decentralized system based on smart contracts that run on the Ethereum blockchain.
To create DAI, users must lock a certain amount of Ethereum (ETH) as collateral in a smart contract called MakerDAO. They are then allowed to borrow DAI up to 66% of the value of the collateral they locked. Users can use the DAI they have created to make transactions in the cryptocurrency market, pay for goods and services online, or simply hold it as a store of value.
To maintain the stability of DAI, the MakerDAO system employs a set of security and stabilization measures. For example, if the value of Ethereum decreases in the market, users must add more Ethereum to their collateral or repay part of the loan to maintain the proper collateral-to-loan ratio.
The MakerDAO system also has a stabilization mechanism that uses governance tokens (MKR) to make adjustments to the supply and demand of DAI and maintain its stable price. If the demand for DAI is high, the system can increase the circulating supply by creating new tokens. If the demand decreases, tokens can be burned to decrease the supply.
DAI is a stable cryptocurrency designed to provide stability in a volatile cryptocurrency market. It operates through a decentralized system based on smart contracts that utilize Ethereum collateral to issue DAI, and employs security and stabilization measures to maintain its value stable relative to the US dollar.