What Is DAI? Understanding the Most Popular Decentralized Stablecoin

LeeMaimai

/Oct 24, 2025

Key Takeaways

• DAI is a U.S. dollar-pegged stablecoin created by locking collateral in smart contracts.

• It employs mechanisms like overcollateralized vaults, oracles, and the Peg Stability Module to maintain its peg.

• DAI is backed by a diversified set of collateral, including crypto assets and real-world assets.

• The MakerDAO governance system plays a crucial role in managing DAI's risk parameters and collateral types.

• Users can mint DAI, swap it on exchanges, and earn yield through the Dai Savings Rate.

DAI is a U.S. dollar‑pegged stablecoin issued by the Maker Protocol, designed to keep its value close to $1 while remaining transparent and non‑custodial. Unlike fiat‑backed stablecoins issued by a single company, DAI is created by users who lock collateral in smart contracts and mint DAI against it. As a cornerstone of DeFi, DAI powers payments, savings, and lending across Ethereum and beyond. For an overview of market metrics and circulating supply, see the DAI page on CoinMarketCap.

How DAI Maintains Its Peg

DAI’s design combines several mechanisms that collectively aim to keep the token trading near $1:

Overcollateralized Vaults: Users deposit crypto assets (e.g., ETH, stETH) into Maker Vaults and mint DAI up to a collateralization threshold. If collateral value falls, positions are liquidated to maintain solvency. This credit system is governed on‑chain by MakerDAO. See the MakerDAO documentation for a high‑level protocol overview.
Oracles: Price feeds inform collateral valuations and liquidation triggers. Maker uses decentralized oracle modules to provide asset prices to the protocol. Learn more in the MakerDAO oracle docs.
Peg Stability Module (PSM): To dampen volatility, the PSM lets users swap certain stablecoins (notably USDC) for DAI at near‑par with low fees, helping anchor DAI to $1 even during market stress. The original proposal and design rationale are on the Maker governance forum.
Dai Savings Rate (DSR): Holders can deposit DAI into a savings contract and earn a variable rate determined by governance. The DSR is integrated across the Maker ecosystem and accessible via interfaces like Spark Protocol.

Together, these components balance supply and demand, create arbitrage opportunities around the peg, and incentivize risk‑aware behavior from Vault users.

What Backs DAI Today

DAI is backed by a diversified set of collateral, including major crypto assets and real‑world asset exposures governed by MakerDAO. Since 2020, the PSM has added significant support via stablecoin reserves. For the latest breakdown of collateral types (crypto, RWA, and stablecoin backing), see the Makerburn dashboard.

A few key points:

Crypto Collateral: ETH, liquid staking derivatives, and other vetted assets are used by Vaults to mint DAI.
Stablecoin Buffer: The PSM allows for rapid swaps, which can temporarily increase DAI’s backing with centralized stablecoins.
Real‑World Assets (RWA): Allocations to short‑term U.S. Treasuries and similar exposures diversify income and reduce reliance on purely crypto collateral. You can track RWA metrics on Makerburn.

This mix has helped DAI remain liquid across market cycles, but it also introduces trade‑offs around centralization and regulatory exposure.

What’s New in 2025

Endgame Rollout: MakerDAO continues implementing its multi‑phase “Endgame” plan, which aims to streamline governance, modularize the protocol, and expand ecosystem resilience. The official hub outlines goals and progress.
Spark Protocol Growth: Spark is the Maker‑aligned lending market and a primary on‑ramp for DSR deposits. As DeFi infrastructure matures, Spark’s role in distributing yield and providing borrowing liquidity has increased. See Spark Protocol.
Regulation in Focus: The EU’s MiCA framework entered into force with stablecoin rules rolling out since 2024, shaping issuance, reserves, and disclosures for crypto‑assets. While DAI is decentralized, its exposure to centralized collateral makes regulatory developments relevant. Read the EU’s MiCA overview.

These dynamics highlight the balance DAI tries to strike: decentralized issuance and governance, tempered by practical liquidity tools.

Why People Use DAI

Everyday Payments: DAI’s programmability and broad exchange support make it convenient for cross‑border transfers and settling on‑chain transactions.
Savings and Yield: The DSR offers a native way to earn on idle DAI without leaving the protocol. Interfaces like Spark let users deposit with a few clicks.
DeFi Legos: DAI is integrated across major AMMs, lending markets, derivatives, and yield strategies, offering deep liquidity and composability.

Key Risks to Understand

Collateral Centralization: A portion of DAI’s backing can be tied to centralized stablecoins via the PSM. This reduces peg volatility but adds reliance on off‑chain entities.
Market Stress Events: During exogenous shocks, DAI can temporarily trade away from $1. For example, the 2023 USDC depeg briefly impacted DAI, underscoring interconnected risk. See coverage from CoinDesk.
Governance and Parameter Changes: Risk parameters, DSR, and collateral listings evolve via Maker governance. Users should monitor changes, especially if running leveraged Vaults.

Staying informed through community forums and dashboards is essential for risk management. Useful resources include the Maker governance forum for proposals and Makerburn for live metrics.

How to Get and Use DAI

Mint via Vaults: Advanced users can open Vaults, deposit collateral, and mint DAI directly through Maker‑compatible interfaces that support Vault management (always mind collateral ratios).
Swap on Exchanges: DAI is available on most centralized and decentralized exchanges, often with deep liquidity in major trading pairs.
Earn with DSR: Deposit DAI into the DSR to earn protocol‑native yield. Spark Protocol provides an easy interface to get started.

Securing Your DAI: A Practical Guide

Stablecoins are only as secure as your private keys. For long‑term holdings and high‑value transactions, a hardware wallet helps keep keys offline and signing isolated.

OneKey is built for multi‑chain asset management with secure offline signing, clear‑display transaction verification, and simple integration with popular Web3 wallets. If you hold DAI for savings, payments, or DeFi activity, storing your keys on a hardware device reduces the risk of malware, phishing, and unauthorized access while keeping your on‑chain experience flexible.

Bottom Line

DAI remains a foundational decentralized stablecoin thanks to its overcollateralized design, the PSM’s peg dampening, and a robust governance process. As 2025 brings continued Endgame deployment and evolving regulation, DAI’s hybrid approach—on‑chain transparency combined with pragmatic liquidity tools—keeps it central to DeFi.

If you rely on DAI for everyday transactions or DSR savings, consider securing your keys with a hardware wallet like OneKey to protect funds without sacrificing usability. For protocol details and ongoing updates, bookmark these resources: