DAI is a fully collateralized stablecoin created and regulated by Maker DAO (Decentralised Autonomous Organisation), founded by Rune Christensen, the current CEO. DAI seeks to solve the volatility of cryptocurrencies by keeping its value soft-pegged to one U.S. dollar.
Are you looking to buy DAI but don’t know where to start? So read on to learn everything you need to know about the DAI cryptocurrency and find out how you can buy DAI in a few simple steps.
Let’s get right to it!
Also, read additional articles about crypto exchanges, tokens, and wallets on CoinStats, including How to Buy Shiba Inu, IDEX review etc.
What Is DAI
Dai is the first decentralized, collateral-backed stable cryptocurrency.
DAI is an ERC-20 token that attempts to maintain a stable 1:1 value with the U.S. dollar by locking other crypto assets in smart contracts. It’s the native token of the Maker Protocol – a decentralized autonomous ecosystem of smart contracts running on the Ethereum blockchain.
The DAI token is also the key to the MakerDAO lending system. Collateralized loans allow a lender to secure a loan by locking away the assets they own. When a loan is taken out on MakerDAO, DAI is created. Users borrow and pay back DAI, which functions simply as a stable Ethereum token used to pay for things.
What Are Stablecoins
Stablecoins are cryptocurrencies that are pegged to the value of an underlying asset. The underlying asset can be commodities, such as gold, fiat currencies, or the U.S. Dollar. DAI is pegged to the value of the U.S. Dollar, which means one unit of DAI is equal to the exchange value of $1.
Popular Ethereum-hosted stablecoins include Tether (USDT), USD Coin (USDC), and Wrapped Bitcoin (WBTC).
DAI Is a Stablecoin With a Twist
Unlike other popular stablecoins issued and controlled by a central authority, DAI is a decentralized, collateral-backed stablecoin. And, in contrast to other stablecoins, which rely on a customer’s trust in their underlying asset deposits, Maker Protocol uses smart contracts to back the value of DAI with collateralized crypto deposits.
To generate DAI, users must deposit assets as collateral in the Maker Vaults on the protocol. The collateral deposited is always higher than the value of DAI generated as a loan. They withdraw their collateral after repaying the principal amount plus the stability fee. Other than DAI, MakerDAO has also issued a governance token called the MKR. MKR holders govern the Maker Protocol through executive voting and governance polling.
Why Buy DAI
Before helping you with your DAI purchase, let’s first look into a few factors that make DAI a good investment.
DAI Gives Stability
One of the most important reasons to buy DAI is, of course, stability. As discussed earlier, since DAI is a stablecoin, it maintains the value of USD. Moreover, holding DAI serves as a hedge against the price of the asset you deposit in the Maker Vaults. Since you get back your deposit after repaying the borrowed DAI, you can reduce the effects of the crypto market volatility.
For example, if you deposit $200 worth of Ethereum (ETH) as collateral for an equal amount of DAI and the price of the ETH skyrockets, you will still get your full ETH back regardless of its increased value. Additionally, if the price of the ETH falls, you can hold on to your borrowed DAI and return it to the vault only after the price of ETH stabilizes or increases in value.
Additionally, DAI gives financial stability to citizens of countries where the local currency is highly volatile.
DAI Provides Unrestricted Access to Funds
DAI is a fully-transparent, non-custodial stablecoin, which gives users unhindered access to their funds. Thanks to its smart contracts, transactions on DAI are self-executed. i.e., they don’t warrant permission from any central authority. Governments can restrict access to fiat currency by setting withdrawal and transactional limits, but DAI, on the other hand, empowers users with full control over their holdings.
Quick, Cheap, and Safe Transfers
Traditional money transfers can be tedious, expensive, and time-consuming. On the other hand, transferring DAI is instant, secure, and much more efficient.
Earn Income on Holdings
DAI lets holders generate income by locking their assets in smart contracts. The self-executing smart contract distributes the earned interest to holders as per the Dai Savings Rate (DSR). The DSR is an interest rate that MKR token holders determine through an executive vote. Sometimes DAI can deviate from the USD rate, and the value can increase or decrease by a few cents on some exchanges. This creates arbitrage opportunities for DAI holders, who can buy or sell DAI for a quick profit.
Where to Buy DAI
Follow our step-by-step guide to learn where and how to buy DAI.
WARNING: Purchasing cryptocurrencies is risky. By the time you complete reading this post, the price of your favorite token may change. Please make sure you have considered all the risks involved.
Step #1: Selecting an Exchange
To purchase DAI, you need to select an exchange that trades DAI tokens. Binance, Kraken, Bitfinex, and Coinbase are among cryptocurrency exchanges that support DAI.
Please remember, not all crypto exchanges support purchases through fiat currency, and some exchanges can have regulatory restrictions or restrictions based on your location. So, before selecting an exchange, make sure it meets all your needs.
To demonstrate the purchase process, we have selected Kraken as an example.
Step #2: Creating an Account
Once you have identified the exchange of your choice, you need to go ahead and register an account with them.
First, you need to sign up on the exchange by entering a valid email address and a username. Make sure you secure your account with a strong password.
After you create an account, the exchange will send you a verification email. Once you confirm your email, you can start using the platform.
Please remember that most exchanges will also need you to pass a KYC (Know Your Customer) verification. You must submit your address and a Government-issued valid identification card (I.D.) to get verified to start trading.
Step #3: Funding Your Account
Your next step will be to fund your account.
Different payment methods can be used to fund your account, determined by the exchange. You can deposit fiat currency into your account through credit and debit cards or PayPal. You can also deposit cryptocurrencies.
Please make sure to compare your deposit options and associated fees before proceeding.
Step #4: Buy DAI
Once you have successfully funded your account, you can proceed to buy DAI.
You need to select the currency pair of your choice (USD/DAI, ETH/DAI) before moving forward. After rechecking that you have entered the correct amount, purchase DAI. Once the exchange approves your transaction, you will receive your DAI tokens.
Note: Since DAI is pegged to the USD, it’s best to check the price first to ensure its current price is either $1 or lower. If the price is higher than $1, it would be wise to wait for the value to drop before buying. Check the DAI price here before you proceed.
Where to Keep Your DAI
Another essential step to remember when buying any cryptocurrency is storing it safely. While you can opt to let your DAI remain on the exchange, it’s much safer to transfer your tokens to a decentralized custodial wallet for extra security. Each wallet comes with a unique set of keys, ensuring only you have access to your funds.
There are two types of decentralized wallets:
Hardware or Cold Wallets:
Hardware wallets are physical devices that store your cryptocurrency offline. They are similar to a pen drive which you must connect to the internet every time you want to access your funds. Although cold wallets come with a price, they are more secure. Remember to research the various cold wallets available in the market and always buy from a trusted dealer to avoid being scammed.
Software or Hot Wallets:
Unlike cold wallets, hot wallets are digital and operate online. While this makes them easier to access, they are less secure and prone to hacks.
You can install soft wallets on your mobile app or desktop, connect them to a cryptocurrency exchange, and easily access your funds.
DAI is an ERC-20 token and can be stored in Ethereum software wallets like MetaMask or TrustWallet. Alternatively, you can opt for hardware wallets like the Trezor and Keep key.
One of the key uses of Dai is to provide liquidity for various DeFi projects, and currently, more than 400 DeFi apps have integrated Dai.
Owners of Dai are motivated to lock their assets in liquidity pools by subsequently earning trading fees in exchange for creating a market. Several services offer to lend on DAI deposits:
- Coinbase users can earn two percent a year on their DAI deposits. The Coinbase Card allows users to spend DAI by converting it into fiat on a Visa Card.
- dPiggy dApp allows users to earn interest and have their returns automatically used to purchase various crypto assets at the end of each month.
- Bitcoin can also be used to generate DAI.
DAI is on its way to becoming the first trustless mainstream currency. As of July 2021, there were roughly 5.5 billion Dai in circulation, making it the fourth-largest stablecoin by capitalization.