Token prices dropping on a volatile crypto day, yet DAI remains stable as ever.

DDEX now offers 4 trading pairs utilizing Dai as the base pair

WETH-DAI, MKR-DAI, ZRX-DAI, and OMG-DAI are all active markets now. Dai is the first non-WETH base pair on DDEX! In the first couple weeks of Dai trading, we have already seen over $1m USD worth of trading volume on these four trading pairs.

Dai is a decentralized “stablecoin” —a digital asset designed to maintain a consistent price, often pegged to a fiat currency like the US dollar or collateralized against commodities like gold. Dai’s value is held constant with the US dollar, such that 1 Dai equals 1 USD.

Why Stablecoins?

Any currency that has large volatility in price suffers from a wealth of challenges when actually trying to purchase something. Lack of price stability creates innumerable hurdles for financial development. Beyond just traders and developers in the blockchain space worried about their volatile crypto prices, not all countries have the luxury of relying on a relatively stable form of government currency.

Why Trade Stablecoins?

Cryptocurrency price has historically been extremely volatile. Market shifts of 25% in a single day are relatively normal in the crypto world, while a 25% shift in traditional stock markets would be seen as a cataclysmic event. This lack of stability has a wealth of negative connotations for future progression within the blockchain ecosystem.

Without stablecoins, in order to hedge against crypto volatility, traders must transition back into fiat currency (like USD). Going back and forth from fiat currency to crypto requires some sort of a centralized gateway. Users have to deposit, withdraw, pay fees, and risk all of the security problems associated with centralized systems. Having a stablecoin like Dai allows users to easily hedge against crypto volatility without the challenges associated with transferring back to actual fiat currency.

As a decentralized exchange, Dai provides considerable value. While we cannot trade fiat itself on DDEX, Dai allows our users to effectively take advantage of the perks and stability of fiat trading without the typical risk.

Data Driven — Maintaining Stability In Crypto Winter

In order for a stablecoin to serve its purpose, it needs to truly maintain price stability regardless of what happens in the crypto market. The crypto market from December 2017 through September 2018 provided a substantial amount of price fluctuations. The graph below shows Dai’s price from late Dec 2017 through early Sept 2018.

The green line displays Dai price in USD. The slight spikes are largely due to calculation issues with the value — it truly achieves the goal of staying “stable” at $1.00 USD.

The green line that hovers around $1.00 is the Dai price in USD from December of last year to present. The chart below shows Ethereum’s price in USD from late Dec 2017 through early Sept 2018.

Often called “Crypto Winter”. Ethereum went from over $1400 USD to under $300 USD.

The data speaks for itself. Despite being inherently tied to both Ethereum and USD, the collateral system Dai uses successfully worked through some pretty striking market fluctuations (more than 400% difference in price in 9 months!).

Base Pair Dilution — Exchange Challenges

So why don’t we just offer all of the stablecoins as base pairs? Why not offer all of our listed tokens immediately paired with Dai? There are actually some challenges to consider with adding multiple base pairs.

Adding multiple base pairs can dilute the liquidity of a given token on an exchange. Generally, more users results in greater liquidity — tighter spreads, greater depth, etc. All good things. By adding multiple base pairs, we run the risk of siphoning users to a new marketplace and effectively diluting the liquidity from an existing marketplace. This is one major reason why you don’t see hundreds of base pairs even on the largest exchanges.

We have started with just 4 tokens paired with Dai. All of these tokens already have a large amount of existing liquidity in their respective WETH marketplaces. Even if some users were to shift away from trading these tokens directly with WETH on DDEX, the orderbook would likely not noticeably suffer. It’s also not completely mutually exclusive for users to only trade against 1 base pair: there are likely potential arbitrage opportunities this could open up for savvy traders even within our own relayer.

A More Natural Trading Experience

Prior to offering Dai pairs, the only base pair on DDEX was “wrapped Ethereum”, or WETH. In order to buy a token on DDEX, you first had to wrap your Ethereum into WETH — an ERC20 compatible version of Ethereum. We have tried to simplify this process as much as possible (graphics, tutorials, etc. — we even tried changing the terminology), but it still remains a large challenge and barrier to entry. The whole concept of wrapping Ethereum in order to trade is often extremely overwhelming for new users.

The trading process for Dai is actually considerably more natural than that of WETH. There is no wrapping process, as Dai itself is already an ERC20 token. It removes an entire step from the trading process: no wrapping or unwrapping!

Thanks for reading!

Happy Trading :)