Dai is hot.
Dai is a creative stable coin, but the truth is: 1 Dai cannot 100% equals to 1 $.
There is a market regulation mechanism that maintains the price, how does it work?
The key point of Dai is that, the proportion between Dai and Eth( the backed token, might wBTC this month, they are building ERC20 Bitcoin with many partners) is fixed. For example, Eth is 100 dollars now (now is 130+ but to make it sample I use 100).
so Dai : Ether = 100 :1
So let’s assume that Dai now is 2 dollar, it’s wrong, so people will add more Ether to create more Dai( at this time, 1 Ether is 100 dollar, but it can create 100 Dai which have 200 dollar’s value). It do have premium here.
so people will add ether to create Dai, and use Dai to buy Ether, and finally the price of Dai will decrease to 1 dollar.
if Dai is 0.5 dollar in value, people will buy Dai and return Dai to the contract to get ether back.
Those mechanism makes Dai stable.
Let’s assume eth is 100 dollars and Dai is 1 dollar , I think Dai: Ether = 100:1
Can I understand that it is to stabilize the price of DAI through the supply and demand of the market? And how does DAI work, can we mortgage ETH to change DAI?
Very close.
The word “mortage” relates to bank, the smart contract CDP replace the bank and switch your eth to Dai with a proportion.
Sure，my mistake.
I think for the Dai, the idea is that it does not have to always instantly be anchored to 1 USD. Instead over a longer period of time the market will realize the loss of peg to 1 USD and push the Dai value towards the intended value.
The major point in the system is how long the period of market irrationality will last, if it lasts too long, then the fear is that the peg maybe lost forever. Kind of like a central bank reacting too late to a major market event, similar to how Soros broke the bank of England. Of course in the Dai’s case the “Central Bank” is the smart contract and game theory design of the system.
Sure, my understanding about this is that, stable coin is not fiat, USD seems to be stable right not but it’s not the end of stable coin.
But now the global consensus is that USD is stable so Dai is pegged to 1 USD. Maybe in the future some assets will be the stable one and accepted by the whole world, and at that time a Dai could be 1/10000 of that assets. Bitcoin seems not like the one for its unclear future.
Just some thoughts right now. But the mechanism of Dai is better than other stable coin like USDT. At least Dai is truly peg to 1 USD and it’s really stable 