Decentralized finance (DeFi) is an umbrella term that could refer to a lot of cryptocurrency. After all, holding ETH instead of a fiat-backed currency is a way of altering one's financial portfolio with a decentralized asset. But DeFi as we know it tends to refer to systems and tools that let people use banking and investment products like lending and borrowing without relying on a bank or other centralized financial institution.
To do this, many decentralized or cryptocurrency-based financial products rely on stablecoins to give end-users another tool for holding currency at a more stable exchange rate. A stablecoin is a digital crypto-asset that stays equal in value to another asset. Most examples are of a coin that stays equal to $1.00 USD, but they can be pegged to other currencies too like Euro, RMB, or other crypto assets like BTC or ETH.
One interesting and decentralized stablecoin is DAI (pronounced "DYE"). DAI is maintained by a process from MakerDAO and it is secured on the Ethereum network. MakerDAO's system keeps 1 DAI close to $1 by collateralizing DAI with ETH and MKR. ETH and MKR are bought, sold, or deposited for DAI to create a supply and demand loop that buys DAI when the price is low, or sells DAI when the price is high. Buying low raises the price, selling high lowers the price. MakerDAO's system enables MKR holders to participate and ensure that there is collateral for DAI to stay close to $1.
Having 1 DAI = $1 is an amazing tool for crypto finance. It keeps a stable record of value, profit, and loss. It opens up opportunities for differentiated products and clear value. For example, putting ETH into an interest-bearing account is possible, but the volatility in ETH and other non-stable assets make the return on that investment difficult to track. It's not impossible, but it's far more complicated, especially to non-crypto natives.
DAI and stablecoins let people access a common framework for value. We all know 1 bitcoin = 1 bitcoin, but most of the world still sees crypto as a speculative venture tied to the value of fiat currencies. Giving people tools to work within this framework opens up more developers and user to decentralized systems.
At Status we love decentralized finance tools that neatly pair with our Messenger Wallet. Holding DAI in your wallet on mobile is simple, and you can send and receive DAI or other crypto right in chat. It's like a Venmo or Cash App for crypto with incredible messaging privacy features built in.
Another great aspect of DAI is its interoperability across Ethereum dapps. DAI earned from Oasis can be brought back to the Status Wallet and used to buy Dragonereum eggs, or swapped for SNT to buy a sticker pack, or deposited into an Aave leveraged position. These interoperable dapps can all be facilitated with and through the Status messaging, wallet, and dapp explorer super-app.
You can try DAI for yourself. Grab the Status Messenger and join in the chats to talk with us about getting started with a little DAI, so you can start to take the next steps in crypto finance.
*Disclaimer - This article was written for your entertainment, and the content is for informational purposes only. You should not construe any such information or other material as investment, financial, or other advice. Using decentralized financial tools does not come without risks and using Status is simply a portal to these tools - Status does not mitigate associated risks of said products.