• Ethereum has been designated as the primary collateral for the decentralized stablecoin DAI

  • The algorithmic stablecoin DAI now has more Ethereum backing than the centralized stablecoin USD Coin (USDC).

    The achievement comes after months in which USDC accounted for more than half of the decentralized cryptocurrency’s backing.

    According to Dai Stats data, as of press time, the amount of Ethereum backing DAI had risen to 41.4 percent, while the amount of USDC had fallen to 34.5 percent.

    The achievement also demonstrates stablecoins’ decreasing reliance on centralized entities, which is a key tenant of the industry.

    This is due to the fact that USDC is managed by the Centre consortium, of which Circle and Coinbase are members, which maintains the stablecoin’s value through reserves of real US dollars and other financial instruments that track the greenback.

    Centre also has control over every USDC in circulation, as they have stated on several occasions. As part of its cooperation with law enforcement agencies, the consortium, for example, froze an Ethereum address holding $100,000 in USDC in July 2020.

    Ethereum, on the other hand, is not backed by a fiat currency; it is a decentralized cryptocurrency whose value is determined by the market. It would be nearly impossible to halt Ethereum transfers.

    What exactly is DAI?

    DAI is a stablecoin that is managed by the MakerDAO protocol of the DeFi protocol. It keeps its dollar peg by carefully curating a pool of Ethereum-based assets. When you deposit an Ethereum-based asset into MakerDAO, such as USDC or ETH, you receive DAI in return.

    To account for the industry’s notorious volatility, the stablecoin is over-collateralized. This means that for every $150 you deposit in Ethereum, you will receive $100 in DAI.

    This pool used to be entirely made up of decentralized assets such as Ethereum. However, when the COVID-19 pandemic struck, MakerDAO voted to change that.

    The market had become so volatile at the time that the protocol required a stable asset to keep it from collapsing. MakerDAO’s community voted in March 2020 to partially back DAI with USDC.

    Despite the stablecoin’s continued dominance, raising questions about whether DAI is simply USDC with a different name, it appears the industry’s most popular decentralized stablecoin is back.

    What's your reaction?