Dai is ERC-20 token on the Ethereum blockchain that is pegged to the US Dollar, making it what is known as a stablecoin.

Dai is created by the Maker Protocol, which is a series of smart contracts, or code that runs on the Ethereum Network, that facilitates the creation of Dai.

Dai is created when users deposit ether (Ethereum's cryptocurrency), as collateral into the Maker Protocol. Depositors receive Dai equal to a portion of their collateral.

If the collateral's value drops below a predetermined threshold, the user must either pay back some of the Dai, or the ether is liquidated to cover the outstanding Dai balance.

The Maker Protocol uses live price feeds to stabilize the price of Dai to the US dollar by liquidating the collateral backing Dai before the collateral backing it drops too low.

In simplified terms, Dai is a stablecoin loan on ether.