Review on Single Collateral DAI by Sergio Daniel Delgado
DAI
MakerDAO is the company behind DAI, a stablecoin anchored to the price of the dollar in a 1: 1 ratio but, unlike the previous ones, its backup collateral remains in Ethers stored in a smart contract on Ethereum.
MakerDAO decentralization is an important goal and value. This is why, in addition to DAI, they have a utility token, the MakerCoin (MKR) for the governance of their platform and the payment of your operating fees.
The stability fee is the annual interest rate on DAI loans that primarily affects DAI supply, as it alters the cost of creating the token. The cheaper it is to order borrowed DAI, more users are incentivized to do so. Conversely, when the rate is higher, fewer users will want to borrow it. Thus, it is a tool to control the circulation of the coin.
Although initially this interest rate was relatively low in relation to that paid for the use of, for example, credit cards, throughout 2019 this rate has changed dramatically (between 0.5 and 20.5) due to the difficulties of DAI to maintain its parity with the US dollar.
In order to create DAIs on MakerDAO, instead of buying it from an exchange office, the user must block a certain amount of Ethers, in the form of Pooled Ether (PETH) in a smart contract called Collateralized Debt Position (CDP).
Currently, DAI is used in various applications over Ethereum, especially for arbitration in decentralized exchange houses (DEX) as well as in loan applications. On the other hand, thanks to the use of a gateway enabled by the Loom Network, DAI can be used in the Tron and Binance Chain networks, expanding the possibilities of using the token, as well as its scalability.
Pros
- Compared to its centralized competitors, Maker offers less friction for shifting with an almost immediate DAI mintage, while eliminating counterparty risk and geopolitical risks. It also gains in transparency and auditability, as the respective smart contract can be consulted on Ethereum.
Cons
- As the stablecoin DAI is collateralized with cryptocurrencies, it maintains the problem of volatility that can destabilize its price. Furthermore, Ether does not have a fixed supply mathematically, it is an inflationary currency that does not tend to scarcity. In addition, MakerDAO has a CDP self-assessment process in case the collateralization ratio falls below the minimum established by the user, so the User funds may be liquidated without prior notice.
- Its scalability is subject to the scalability of Ethereum, which is in a migration process to Ethereum 2.0, it is unknown how this will affect MakerDAO, which generates certain uncertainty. And since the migration from a Proof of Work system to one of Proof of Participation is proposed, you run the risk of plutocratic centralizations that produce decisions oligopolistic in the governance of the network, such as that of the user who decided only the stability fee.
