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For those who are not yet familiar with it, the Dapp known as DAI is the first and only smartcoin built based on the ethereum blockchain.

The concept of smartcoin was born with Bitshares, the blockchain designed by Daniel Larimer and from which Steemit and EOS were later developed. In itself, smartcoin is an absolutely brilliant and revolutionary concept that allows the creation of “stable” assets, or at least pegged to other such assets outside the reference blockchain.

Today Bitshares has several smartcoins available, with the most common one being BitCNY, a stable coin pegged to the Yuan, followed by BitUSD, BitGold, BitBTC and many others.

For years, the smartcoin idea has been confined to the strict limits of Bitshares adoption, trapped as it was in an extremely weak and questionableprogrammer and adoption environment that is substantially centralized and controlled by a small number of stakeholders, just like with Steemit and EOS.

With Maker Dao, everything has suddenly changed.

Maker Dao was born in 2015 and after a phase of studying the Bitshares environment (in fact, they opened their own hub on that blockchain for a while) they decided to move to ethereum. Not many people remember that Maker Dao is one of the very first companies to announce a series of Dapps on ethereum. The complexity and sensitivity of the project and an objective initial lack of maturity when it came to Solidity (the programming language of the Dapps on ethereum) and of the ethereum ecosystem in general substantially slowed down the development phase: it took almost 3 years to get into production (in main net) with the first smartcoin version: DAI.

DAI probably represents the state of the art among the decentralized governance systems that currently exist around the world: it is indeed a stable coin pegged to the U.S. Dollar that in order to function needs a complex validation system,mathematical algorithms, oracles and economic incentives so as to ensure that for each DAI issued there is a sufficient amount of collateral.

Currently DAI is the only Dapp managing the more “value” in terms of ether or fiat currency inside it. At the time of writing this, the collateral used to guarantee the issue of 47,770,349 DAI is represented by 481,835 ether, with collateral representing 2.83 times the U.S. dollar countervalue of DAIs issued (1 DAI = $ 1) therefore 135,190,087$.

The recent collapse of ether’s prices has also confirmed the goodness and stability of the DAI system: there have been forced liquidations due to the very significant lack of collateral (almost 20% of all DAIs issued that had reached a maximum of 58 mil. and then fell to 47mil) and yet the system has held up well, exactly as expected.

Today DAI is of strategic importance for the ethereum environment because it offers a system for obtaining a stable coin (I prefer pegged coins, it is not clear why an asset that is volatile by nature, including the U.S. Dollar, should be defined as “stable”) and a system for obtaining leverage without having to depend on a centralised counterparty.

In addition to this, DAI is a powerful source of deflation for the collateral that it accepts, currently just ether. Suffice to think that we are only at the beginning of the project and that there is only one pegged asset, and there are no limits to the types of assets that can be pegged (there may be DAI-Eur, DAI-Yuan, DAI-Apple, DAI-BTC …).

What the future holds

Recently, Maker Dao has announced that on September 17 it will release on testnet Kovan, DAI’s second version, that is to say the one that completes the initial planning as per its whitepaper.

A new series of smart contracts will go on and replace some of the previous ones and will allow you to:

– make the ether collateralisation process more efficient (as in, cheaper). Currently they must first be wrapped (Weth and then transformed into Peth redemption rights).

– use other types of assets rather than ether as collateral for the issued stable coin (pegged coin). Particularly, the Guarantee Pools may decide on baskets of assets (e.g. 80% eth, 10% omg, 5% edg, 5% noku) as a collateral for the DAIs issued.

Financial leverage will therefore also be allowed on assets (e.g. tokens erc 20) other than ether.

I will write about the way DAI works and how it is created and how to get financial leverage in a future article.

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This post is also available in: Italiano (Italian)