Stablecoins, like Tether (USDT) or Facebook’s Libra, are a new sort of cryptocurrencies that differ from the rest by avoiding fluctuating prices which make even the popular cryptocurrencies, such as Bitcoin(BTC)trade, difficult for trade. Their value is based on stable underlying resources. Some are backed by dollars, and some by gold.
But a new stablecoin, Dai, in the market is making headlines for not being tied to any traditional financial asset, but instead it is backed by another digital currency.
Dai uses Ethereum (ETH)trade, the second-largest cryptocurrency by market capitalization, to maintain a stable value. It works through smart contracts, covenants based on blockchains with terms drafted in code. This means that Dai will always maintain a connection to a major cryptocurrency while remaining transparent.
Libra and Tether are examples of stablecoins that have previously been criticized by regulators for how their companies manage their reserves. Dai was launched back in 2017 and since then has tried to avoid such concerns by shifting control to the Ethereum’s price and its blockchain-based code contracts. This supposed to endow the advantages of both worlds: the immediacy of transactions and also a more stable price on the one hand, while dodging regulatory issues on the other.
The way regulators treat Dai could shape how cryptocurrencies can grow from hesitant consumers to a regular money for electronic transactions.
Similar to Bitcoin, Dai aims to create a digital economy so people can evolve from banks and other finance institutional firms and carry out transactions on individual basis. Dai is pegged to the dollar and backed by the cryptocurrency Ethereum, which makes it inseparable from the transparent smart contracts that the Ethereum’s blockchain stores.
The Crypto Company Wishes Not to Exist in the Next Few Years
Stablecoins are generally trusted more because their value is backed by central bank currencies. However, consumers trust Dai as Ethereum in the contracts will exceed the value of Dai in circulations; this means that whenever Dai’s value deviates too far from the central digital currency, it will balance itself out with a virtual mechanism that will stabilize it again.
Dai is, however, not completely decentralized. The Marker Foundation, registered in Cayman Islands, oversee the operations for this crypto technology. At the helm of the Market Foundation is Rune Christensen who aspires that Dai will one day be operated entirely by cryptocurrency users.
The head of smart contracts at the Marker Foundation, Mariano Conti, even went further by asserting that he hopes that Marker Foundation will not exist in the next two to three years, adding that the purpose of the foundation is to bootstrap the system until it is not needed anymore.
