I recently discussed what dai is with some friends, and it turns out many people are still confused about this stablecoin. So, dai is basically a fully decentralized stablecoin, built on Ethereum without needing a central intermediary like a bank or a fintech company.

What makes dai different from USDT or USDC is its system. While USDT or USDC are backed by fiat currency stored in banks, dai is backed by crypto assets locked directly in a smart contract. So it’s more transparent and truly decentralized.

Its operation is fairly interesting. Users can lock their crypto assets—such as ETH—inside a CDP (Collateralized Debt Position), then generate dai as a return. But there’s a catch: the value of the locked assets must be greater than the dai generated. This is called over-collateralization, which maintains the system’s stability even when the market is volatile.

Dai is managed by the MakerDAO community through their governance token, MKR. So decisions about risk parameters and system updates are not made by a single person or company, but by the community that holds MKR. That’s why what dai is about isn’t just technology—it also includes decentralized governance.

In practice, dai is widely used in DeFi for various purposes. Some use it as a stable medium of exchange on decentralized platforms, some use it in lending protocols to earn yield, or simply use it as a hedge during bear markets. For example, I could lock 1,5 ETH in a CDP, generate 1.000 dai, and then use that dai to trade or earn interest on lending platforms without worrying that the price of dai will drop.

Of course, there are risks too. The main risk is that if the collateral asset collapses drastically, the CDP could be auctioned off to protect the system. But overall, dai is a fairly solid innovation for people who want a truly decentralized stablecoin backed by crypto—not fiat. If you’re curious to learn more, you can explore it yourself on Gate or other DeFi platforms.