How Do Majority of Stablecoins Function? – Tech-Lens
A stablecoin pegged to the price of the US dollar, MakerDAO’s Dai can be bought and sold on a decent range of crypto exchanges.
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Although it remains to be seen if MakerDAO is truly sustainable over the long term, or whether the market for lending based on crypto holdings (willingness to hold DAI) will fail to match the demand for borrowing based on crypto holdings (willingness to create DAI or SAI), for the time being, MakerDAO and DAI occupy a relatively warm place in our hearts as our community’s crypto pawnshop.
MakerDAO is a protocol behind the DAI stablecoin which is a cryptocurrency that maintains a 1: 1 peg to the USD.
About 80,000 eth held in DAI collaterals has been sold or withdrawn in the past week as MakerDAO (MKR) holders move to raise the DAI issuance fee yet again.
But when ETH prices go down, MakerDAO starts liquidating ETH collateral in anticipation so the value of Ether backing Dai doesn’t go below 1: 1 .
Therefore , to keep the value of DAI at equilibrium, MakerDAO usually issue out new DAI tokens while simultaneously increasing stability fee ( interest rate ) of DAI loans to increase the price of DAI to parity with the greenback.
Stablecoins are an exciting type of cryptocurrencies which are stable and are pegged (or linked ) to real-world assets such as fiat like (USD, EUR, CNY or JPY) and sometimes even gold or oil, so as to keep their value stable unlike the price of BTC or ETH which keeps varying in USD every time.
Unlike other cryptocurrencies, such as Bitcoin and ether, stablecoins by design aim to achieve stability and decrease the volatility that is frequently associated with the cryptocurrency markets.
These stablecoins are backed by digital currency and account for the volatility of the cryptocurrencies by over collateralising, which means providing more digital assets than needed.
Published at Thu, 30 Jan 2020 00:36:15 +0000
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