Dai (DAI) is the stablecoin that proved you could hold a dollar-pegged token without trusting a bank. Launched by MakerDAO in 2017, it's generated not by a company printing IOUs against a reserve account, but by users locking up crypto collateral in smart contracts and minting DAI against it.
What it does
To mint DAI, users deposit collateral — originally just Ether, now a broad mix of assets — into a Maker Vault and generate DAI worth less than the collateral's value, typically requiring 150% or higher collateralisation. If the collateral's value falls too close to the debt, the position gets automatically liquidated to keep the system solvent. Governance, including risk parameters and accepted collateral types, is handled by MKR token holders, now transitioning to the rebranded SKY token as part of the Maker-to-Sky shift.
DAI's peg is maintained through a mix of these liquidation mechanics, a savings rate that adjusts DAI demand, and arbitrage — when DAI trades above $1, it's cheaper to mint and sell; when it trades below, it's profitable to buy and repay debt. It's a genuinely clever piece of financial engineering, and it's mostly worked for the better part of a decade.
Increasingly, though, DAI's backing has shifted. A meaningful share of the collateral behind DAI now sits in tokenised real-world assets — US Treasury bills and similar instruments — via RWA vaults, alongside centralised stablecoins such as USDC. That's improved capital efficiency and yield but diluted the 'pure crypto-collateral' story DAI was founded on.
Risks
The RWA pivot is the central tension in DAI's story. The more Treasury-backed collateral sits behind DAI, the more it inherits the same counterparty, custodial and regulatory risk profile as the centralised stablecoins it was designed to be an alternative to — while still marketing itself as decentralised.
DAI has also depegged briefly during market stress, most notably during the March 2020 'Black Thursday' crash, when a collapse in ETH prices combined with network congestion caused some Vaults to be liquidated for near-zero DAI, exposing gaps in the liquidation auction design that Maker later patched.
Governance concentration is a live concern too — MKR/SKY voting power is unevenly distributed, and major protocol decisions, including the RWA collateral expansion itself, have been made by a relatively small set of large holders and delegates rather than a broad community.