DAI

DAI is a decentralized, dollar-pegged stablecoin created by the Maker protocol (whose ecosystem later rebranded around the name Sky). Unlike USDT or USDC, DAI is not issued by a company holding bank reserves; it is minted by users who lock collateral in smart contracts on Ethereum, making it the longest-running major crypto-backed stablecoin.

The mechanics work like a loan against collateral. For example, a user can deposit Ether worth 1,500 dollars into a Maker vault and mint up to some fraction of that value — say 1,000 DAI — as debt. If Ether's price falls and the collateral buffer shrinks below the required ratio, the vault is automatically liquidated to keep every DAI backed. Interest rates and other parameters, set by MKR token holders through governance, nudge supply and demand to hold the peg near one dollar.

A common misconception is that DAI is purely backed by volatile crypto; over time its collateral has come to include large amounts of USDC and real-world assets such as tokenized Treasury exposure, which improves stability but dilutes the original censorship-resistance argument. DAI's appeal remains that no single company can freeze the token itself or halt the system unilaterally, and its solvency is verifiable on-chain. Its risks are smart-contract bugs, collateral crashes, and governance decisions — a different trust model from fiat-backed coins, not the absence of one.