How does Dai maintain its stability as an algorithmic stablecoin?

1 answers

• Mar 28, 2022 · 3 years ago
  As an algorithmic stablecoin, Dai maintains its stability through a combination of smart contract mechanisms and market dynamics. The MakerDAO system, which governs the creation and management of Dai, uses a decentralized network of participants to maintain the stability of the stablecoin. Users can generate Dai by locking up collateral in a smart contract, and the system ensures that the value of the collateral is always greater than the value of the generated Dai. This collateralization ratio helps to maintain stability by providing a buffer against fluctuations in the value of the collateral. Additionally, the system adjusts the supply of Dai based on market demand, using debt auctions and other mechanisms to ensure that the value of Dai remains close to $1. By combining these mechanisms, Dai is able to maintain its stability as an algorithmic stablecoin.
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