MakerDAO Community Decides to Keep USD Coin as Primary Reserve for DAI Stablecoin

DAI's Collateralization System and Operation Explained

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The MakerDAO community has decided to keep the USD Coin (USDC) cryptocurrency as the primary reserve asset for the DAI stable coin.

Last Monday, the protocol’s governance website revealed that 79% of voters supported this decision, while the rest opted to diversify the reserves.

Previously, another vote had determined that USDC reserves would be capped and replaced by USDP, the stablecoin held by Paxos. Then, when USDC regained parity with the US dollar, it was decided to reverse this decision.

What is DAI and how does it work?

DAI is a stablecoin that seeks to maintain a peg to the US dollar through a collateralization system. Unlike other stable cryptocurrencies, such as USDC or Tether (USDT), DAI relies on a lending platform and a set of smart contracts on the Ethereum network to ensure its stability and decentralization.

DAI’s operation is based on the lending system of the MakerDAO platform, where users can lock different types of cryptoassets as collateral in so-called Vaults to generate DAI. Users depositing this collateral are required to maintain a minimum collateralization ratio to ensure that the amount of DAI in circulation is always backed by a higher value of assets.

When users wish to recover their collateral, they must return the amount of IADs they generated along with a stability fee. This stability fee acts as an incentive to maintain the balance between supply and demand for DAI and ensure that its value remains close to the US dollar.

In addition to cryptoasset collateral, DAI has been incorporating real-world assets, such as liabilities from traditional financial institutions, to support its value. This allows DAI to have a broader and more diversified collateral base, which aims to increase its resilience to market fluctuations and risks associated with specific cryptoassets.

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