DAI Stable Coins, Part2, Stabilization System Basics
This post is Part 2 of the ongoing series DAI Stable Coins. In this piece, I’m going to talk about the simplified version of their stabilization system for the sake of understanding the core mechanism. In the upcoming posts, I add more complexity as we think of cases where DAI can be unstable.
DAI Stable Coins,Part1: Why Stable Coins Matter
This post is Part 1 of the ongoing series DAI Stable Coins. Last year, a part of my salary was paid with Ether. It made sense for both my client and me because it was easy and cost-efficient. As you may know, the market price of ether plummeted last year, and as a lazy person who didn’t bother exchanging ether immediately with fiat money, I lost a fair amount of money. It was around that time of the bear market that I first seriously looked into stable coins. How wonderful is it if cryptocurrencies protect us from downward fluctuations without going through a tedious process of exchanging volatile cryptocurrencies with fiat money? You may say it would be difficult to control the price once people start to trade coins in the open market. However, considering the stability of the yen and how people trade it in the open market, this is possible. In fact, some of the stable coins have been working well so far. The beauty of stable coins is that they cannot fake their legitimacy: look at the price change. Last year, Ethereum plummeted from $1400 to $90, but DAI(one of the stable coins) fluctuated slightly around $1. Sure, they fluctuate a little bit, but this is much more stable than other cryptocurrencies that fluctuate as much as 25% in a day. In essence, you can use stable coins as a store of value: they ensure that value is retained. The volatility of cryptocurrencies might be a good feature for investors, but a bug for other uses. People would not want to use unstable cryptocurrencies for everyday currencies. Stable coins enable us to use cryptocurrencies other than speculative purposes. Permission-less nature of the blockchain allowed citizens of unstable national currencies to…