I recently discovered that Argentina was using DAI a lot more than before so I decided to check why DAI and not another Stablecoin, we estimate that there are over 200 different Stablecoins right now. A lot governments are turning to cryptocurrency and consider it as an interesting solution for the current crisis and their development in their future, like China with its numerical Yuan project or USA with a possible blockchain linked Application for the 2020 elections.
First we are going to see what a Stablecoin is, how it works and in what purpose do we use it, and then we will talk about DAI in general and its special relationship with Argentina. Let me drive you into this !
1. First, what are Stablecoins ?
Stablecoins are basically a cryptocurrency but aim to have a stable value, they are blockchain-based currencies and they manage to keep their price-stability with various methods. For example based on fiat currency like the US Dollar or commodity like oil, or in conjunction with another cryptocurrency.
From all the 4 different types of Stablecoins, the most popular is the US Dollar-pegged coin like DAI for example. Basically this coins are backed by US dollar holdings held by the issuer, while new coins are issued, more dollars are being held by the issuer to ensure that the Stablecoin’s value remains on a 1:1 basis with the USD.
The Stablecoins participate to democratize cryptocurrency in general because of the absence of volatility and incertitude that traditional cryptocurrency have. In other words, Stablecoins exist so that users can benefit from the characteristics of blockchain-powered cryptocurrencies, such as low-cost, and high-speed transactions.
2. And what is DAI exactly ?
DAI is the result of MakerDAO's project founded by Rune Christensen, with a limit of 100 millions coins. It is a Stablecoin but with specific characteristics, pegged by the US Dollar, built on the Ethereum Network, and also backed by Ether. As a result DAI is stable and also fully decentralized, it doesn’t rely on any governments or banks but is sustained by smart contracts.
What makes DAI so special is its smart contract system I just mentioned, because those contracts can automatically execute themself. And also because MKR Tokens (MakerDAO other coin) are being created or burned to stabilize DAI's price, as a result of all this system DAI managed to stay stable without a major fluctuation during the last 2 years.
Concerning its production it is pretty simple, a DAI is generated when someone takes out a loan on MakerDAO, and a DAI is destroyed when the loan is paid back.
3. DAI's relationship with Argentina and its future :
South-America is showing more and more interest into cryptocurrency, I have talked about Venezuela in the past and now it seems that it is Argentina turn now, especially concerning DAI. Indeed since the start of the quarantine DAI's exchanges have been multiplied by 4, from 5 to 20 millions USD by month.
The Argentines are using more and more DAI because it allows them to convert their money into dollars without facing the strict restrictions from the Argentine government. However due to a bad management from their government, those DAI are unfortunately suspected to be involved in illegal activities. But all in all DAI appears to be the best solution for the South-American governments because of the Peso's hyperinflation, and also because 22 millions people in Argentina don't have a bank account, so DAI by its transparency and decentralization appears like the ideal solution for them.
To conclude DAI is indeed the "King of Stablecoins", it seems that on the long term DAI could be the most probable solution in our future financial systems. Mainly because of its durable stability, fully decentralization thanks to Ethereum Network and its attractiveness which will facilitate the mass adoption.