Altcoins News
By Steven Anderson
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How does DAI’s price stability work?
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Stablecoins like DAI are an essential part of the cryptocurrency market because they facilitate easy transfer of value and they help cryptocurrency holders to protect their…
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DAI is a decentralized stablecoin that is not backed by the U.S dollar but still maintains a dollar peg through collateralized crypto debt and its price is kept at equilibrium…
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Maker Dao is the same organization responsible for the MKR ERC20 token and it plays a vital role in maintaining DAI.
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DAI uses a mix of game theory and economic incentives to maintain its dollar peg. Arbitrage opportunities occur every time that the value of DAI deviates from the dollar value.
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Users can put their ETH or BAT in the vault to unlock or lock DAI and a small fee to unlock their ETH or BAT.
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The amount of profit made will depend on the amount of ETH locked into the vault. How does this affect the stability of the stablecoin?
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The same mechanism works in reverse. One can borrow DAI when its price drops below $1, lock it to generate ETH and then sell the ETH for DAI once the price reaches $1 to repay…
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There are also some mechanisms that discourage users from taking advantage of drops in ETH prices.
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DAI’s stability mechanisms have held up quite well and the fact that it is decentralized means it can be used in DeFi.
The Currency Analytics
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