Dai (DAI) collateral backing, by cryptocurrency 2022
MakerDao's Dai stablecoin is primarily backed by USDC and Ethereum and is further supported by smart contracts. DAI is the most famous of the decentralized stablecoins that have other crypto assets as their collateral. This is a different approach from, for example, Tether, which is backed by real-world assets such as the U.S. dollar. DAI and other crypto-backed stable do not work like that: Essentially, DAI saves (locks up) other crypto assets - other cryptocurrencies, but also crypto loans or other DeFi protocols - on the blockchain so that it can create new tokens of its own. This is handles through smart contracts, via a pre-determined ratio that only allows new stablecoins to be made when a certain value threshold of backing has been reached. This threshold is always higher than the overall value of stablecoins in circulation. In technical terms, crypto-backed stablecoins have an overcollateralization, serving as a safety buffer should crypto assets suddenly lose their value. Nevertheless, some have criticized DAI for not being truly decentralized as it mainly relies on the centralized, fiat-backed USD Coin (USDC).