Stablecoin 2.0: DAI is a decentralized stablecoin created by MakerDAO, a project based on the Ethereum blockchain. Unlike centralized stablecoins like the USDC or BUSD, which are backed by fiat currency reserves held by centralized entities, DAI maintains its stability through a complex mechanism of smart contracts and underlying cryptocurrency collateral.

Functionality:

DAI is designed to maintain a stable parity with the U.S. dollar (1 DAI = 1 USD) and is backed by cryptocurrency collateral, typically in the form of Ether (ETH) or other ERC-20 compatible tokens. Users can generate DAI by locking these assets into smart contracts called "Vaults" on the MakerDAO platform. This process is often referred to as "Minting" DAI.

The DAI stabilization mechanism relies on a system of economic incentives and smart contracts that automatically adjust parameters such as stability fees and collateral ratios to keep the value of the DAI close to $1. If the DAI deviates from its parity with the dollar, users are incentivized to create or destroy DAI to take advantage of these deviations and thus bring the DAI value back to its target.

DAI is widely used in the DeFi (Decentralized Finance) ecosystem as a stable medium of exchange, store of value and collateral for loans and borrowings. Its decentralized and transparent nature makes it a popular alternative to centralized stablecoins, although it is often perceived as more complex and less stable due to its underlying collateral mechanism.

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