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- What is DAI token?
- How Is DAI Created?
- What Makes DAI Special?
- What Can DAI Be Used For?
- How to Buy DAI From Scratch
- How to buy DAI with another cryptocurrency
DAI stands out among popular cryptocurrencies because it is the only stablecoin out there that strives to keep a peg to the value of the United States Dollar (USD) through an automated network of smart contracts within the Ethereum blockchain. If you want to buy DAI but do not know how to do so, we are here to help.
What is DAI?
DAI is an ERC20 token on the Ethereum blockchain with a fixed price pegged to the dollar. It is also the key to the Maker DAO cryptocurrency lending system. Maker is an Ethereum-based system, allowing users to issue DAI – a token that has a soft peg to the value of the USD. Maker’s participants own a governance token (MKR), which gives them the right to vote in protocol changes.
This is where part of the name DAO (Decentralized Autonomous Organization) comes from – the protocol is managed by a distributed network of stakeholders who own MKR tokens.
DAI’s stability was threatened in March 2020 due to a dramatic market crash caused by a global pandemic. The project’s developers decided to introduce a controversial feature that will allow the token to maintain its peg secured by another stablecoin, USDC.
How Is DAI Created?
DAI is created whenever someone gets a loan on MakerDAO and destroyed when that loan is paid back.
Building blocks of the Maker Dao network are called “Vault” When someone wants to create new DAI tokens, they need to place collateral into the Vault. This measure prevents the deficit of value in the system, securing the borrowed DAI tokens (like most national currencies are secured by gold). You can use $ETH, $USDC, or $BAT to deposit collateral within the system.
The Vault locks the collateral and then generates DAI for the Vault owner, so that the collateral serves as a means to back up the loan. To close a loan, a Vault Owner simply needs to pay the borrowed DAI tokens back and get their collateral refunded. The newly-minted DAI tokens function as a regular Ethereum-powered coin. They can be used as a payment medium for goods and also be easily transferred between Ethereum wallets.
The Maker Dao system exists entirely on the Blockchain and does not involve any trusted counterparty. Anyone in the world can set up a “Vault”, without the need to identify themselves. The system does not need to identify users because the loans are backed by the collateral in the “Vaults” smart contract.
This stablecoin is traded on secondary markets, and you can buy and sell DAI through appropriate crypto wallets, exchanges, and brokers.
What Makes DAI Special?
DAI is a product of Maker DAO, which was founded by Rune Christensen, the company’s CEO. What makes Dai a unique stablecoin is that its rate is controlled through a system of smart contracts that automatically execute themselves.
If the DAI price gets significantly different from the current USD price, Maker tokens may be either created or burned to stabilize the value of DAI. Maker protocol automatically manages the DAI price, so no trust between contracts is required to maintain stability.
If the system works as intended and one DAI equals one dollar, then MKR holders will benefit because the total MKR supply will decrease. And when an asset becomes deficient, its price gets up. DAI has remained stable for over three years so far, with only minor fluctuations from its one USD price peg.
What Can DAI Be Used For?
Those who hold DAI can earn the DAI Savings Rate (DSR) by locking DAI into a special smart contract. DSR is not subject to any fees, residence constraints, or liquidity issues. The DAI Savings Rate smart contract is accessible through Maker DAO’s Oasis app and other projects that have integrated the DSR, such as Zerion and the Argent wallet.
As a stable medium of exchange, DAI can be used to pay off debts, for cross-border transactions, and to purchase goods and services. Sending money across countries using traditional remittances is expensive and slow. But since the Maker protocol is built on Blockchain, users can transmit DAI peer-to-peer around the world in seconds and with a very small charge (users only pay a gas fee).
Developers can leverage DAI to offer the users of their own platforms the ability to transact in the stable dollar-pegged asset. Traditionally, it has been very difficult for developers in emerging markets to integrate dollar payments into FinTech applications. DAI is available to anyone as it is placed on the Ethereum blockchain.
How to Buy DAI From Scratch
Novice crypto traders without previous experience in crypto trading may be scared to buy DAI for the first time. Don’t fret! It is a great deal simpler than you may think.
You can purchase digital assets with your debit card or bank wire. It is also possible to trade DAI for other altcoins or stablecoins on centralized and decentralized exchanges like Coinbase or Binance. Here is a step-by-step guide on purchasing DAI without any hassle.
Step 1: Set Up a Crypto Wallet
You first need to get a crypto wallet where you will store your virtual capital. The market abounds with services to store crypto. You may consider:
- Cold storage (hardware) wallets keep the private keys to your electronic holdings offline, so no one, but you, can access your tokens. However, hardware solutions are pricey, making them not the most affordable solution to store electronic funds. Hardware devices connect to computers and smartphones by USB, allowing you to manage your cryptocurrencies through a convenient interface. You will need to press the “OK” button on the physical device before confirming transactions.
- Desktop wallets are essentially software installed on your computer. Such a program serves as a destination address, so you can send and receive transfers and have the ultimate control over your virtual savings.
- Web wallets are accessed through a browser. Such a solution allows you to store, send, and receive tokens. Note that web wallets are custodial solutions, meaning they are managed by third parties, which hold users’ private keys and public keys on their own servers. You may lose your virtual savings if the servers get compromised.
- Mobile wallets can be installed on your smartphone or tablet, and they offer sufficient functionality to manage your electronic resources on the move.
Since there are both single-currency and multi-currency wallets, you want to make sure the product of your choice supports DAI.
Step 2: Find Your Wallet Address
You must know where you are going to send your tokens. For this, you want to discover the wallet address – the destination where the tokens will drop on after you purchase them from a broker or receive transfers from other users. Open your wallet’s menu, navigate through the list of supported coins, and find DAI. Press “Receive”.
The address will present a long string of random alphanumeric symbols, for example, skhhtngdnvax98yv8dvvcyd3uyjx08nvxvgnmw93w88. You can copy-paste or QR-scan the address to get tokens into your place.
Step 3: Buy DAI with Fiat Currency
If you have never owned crypto before, you first need to register and open an account with a reputable crypto wallet, broker, or cryptocurrency exchange that allows users to buy DAI with a virtual card bitcoin, debit card, credit card, or wire transfer. The process on most platforms will involve the following stages:
- Completing registration and identity verification formalities. Get ready that most brokers will take up to several business days to verify your account before they let you get down on crypto trading. At this phase, you may be required to provide some ID documents, a selfie, or the paid utility bills.
- As you become a verified user of the crypto website, navigate to the section that is called “Buy Crypto” or something like this.
- On this page, you will generally see a list of available assets supported by the platform. There are often dozens of them to choose from, including DAI, Bitcoin, Ethereum, USDT, and a bevy of other altcoins and stablecoins.
- Pick the coin that appeals to you. Specify the amount of fiat money you want to convert to crypto. Some systems allow you to alternatively enter the amount of tokens you want to acquire for your fiat money.
- If the order seems OK, hit “Buy”.
- Then you will be asked to provide payment details. For card purchases, you will need to specify a card number, a cardholder’s name, an expiration date, a secret code. If you pay through a wire transfer, you will require entering your bank account details.
- Review the transaction again, confirm it, and check your balance. If you pay with a card, orders are executed immediately, and the purchased tokens safely land on your platform’s account. But it may take up to several business days to complete your transaction if you purchase through a wire transfer.
Popular dealers that support buying DAI with fiat currency include Coinbase, Kraken, Binance, Gemini, CEX.IO. These operators allow you to make deposits in national currency through bank cards or wire transfers.
Most online cryptocurrency exchanges also allow you to set up a wallet with them once you register and complete a verification process. Identity verification is a necessary evil to prevent bad actors from joining the trading platform. Get ready that you may not be able to buy DAI on a centralized or decentralized exchange until you are verified. Verification may involve uploading certain documents and photos, and if there are some issues with the information you provided, your application to become a crypto trader may be rejected.
Surely, if you already possess some virtual coins like BTC, ETH, or USDT, you can trade them for DAI on a cryptocurrency exchange of your choice or through the wallet where your tokens are kept (provided it can support such operations).
How to buy DAI with another cryptocurrency
If you already hold some stablecoins or altcoins, you can buy DAI using any token that has liquidity on the exchange platform, for instance, ETH, USDC, or BTC. Note that crypto-to-crypto transactions generally involve fees.
You can also exchange cryptocurrency to DAI inside your crypto wallet if it supports the needed coins and the exchange option. For example, Choise.com wallet allows you to exchange your digital holdings for fiat or other cryptos, without worrying that you overpay for mediation. Choise.com integrates with the world’s TOP 10 cryptocurrency exchanges to let you pick the best rate for your transaction.
The wallet supports 19 of the most popular cryptocurrencies, and new coins are added on the regular basis to meet the demand. Coins like BTC, ETH, LTC, BCH, DASH, QASH, ZRX, REP, CRPT, OMG, DAI.
Sending DAI to your wallet
Once you have bought DAI with a debit card, bank transfer, or another cryptocurrency, you want to move your tokens to your wallet. For that, you need to copy the address from your wallet and paste it in the “destination” field of the platform or exchange from where you are going to transfer.
Remember that it is highly unrecompensed to store your crypto holdings on the exchange. If you have signed up with Kraken or Coinbase (or any other cryptocurrency exchange) and the system has generated an inner DAI wallet for you, it is in your best interests to move your assets to a more secure place, like hardware or mobile storage.
Keeping tokens on exchange-based wallets is quite risky as the exchange may one day shut down and make away with your coins, leaving you with NOTHING. Online exchanges may also be buggy or can be hacked, making your private keys exposed.
That’s all. Now you officially own DAI and can use your tokens as you wish. Moving your DAI to Choise.com is the best way to put your assets into full action. It is the only storage solution on the market that enables safe keeping, trading, spending, investing, and withdrawing your virtual finances, all within one interface.
You can also take advantage of depositing DAI with up to 7,8% APR, which is several times more than traditional fiat deposits can offer. For example, most leading US banks average an annual interest rate of less than 0.1%. Things are only a smidgen higher in Europe.
Use the full potential of DAI stablecoin in your investment portfolio.
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