Dai DAI

Backed not by dollars in a bank account but by crypto collateral. A user locks assets in a smart contract and mints DAI against them, with the collateral deliberately worth more than the debt: the excess is a cushion against falling prices. Once that cushion is gone, the collateral is auctioned automatically on the open market and the proceeds retire the debt.

The peg is maintained by arbitrage and protocol parameters rather than an issuer's promise: the rate charged on debt and the yield paid on the savings contract, both adjusted by votes of governance token holders. A dedicated module swaps DAI one-for-one against other dollar tokens and serves as the fast route back to par. There is no issuer able to refuse redemption — the system is executed by code.

It is the longest-lived of the decentralised dollar tokens and the template later protocols worked from. It has come through several market crashes with the peg intact, each time at the cost of an emergency reset of parameters by governance.

Over time a sizeable share of the collateral came to consist of centralised dollar tokens, reintroducing precisely the external risk the design set out to avoid.