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Just earlier today, Coinbase announced on Medium that they are fully supporting the MakerDao's Multi-Collateral Dai stablecoin on the Coinbase Card. This is the first stablecoin supported on their debit-like card meant to make crypto more mainstream and consumer friendly.

While there are many stablecoins already out there, and certainly many with greater “market caps”, DAI is quickly gaining in popularity. Today, I want to explore what DAI is, why I think it's so great, and how it could be a picture of what an XRP collateralized stablecoin could look like.

What is DAI?

Like most other stablecoins, such as USDC and USDT, MakerDao's DAI aims to always be equal to a single dollar in US Dollars. Unlike these other stablecoins, however, DAI does not do this by requiring a banks or other organizations to back the cryptocurrency with a real US Dollar. Instead, DAI uses cryptocurrencies, collateralization, and some clever code to achieve this. In this way, DAI is “soft-pegged” to the US Dollar.

Prior to the November update, DAI solely relied on Ethereum to maintain its price. Today, DAI is multi-collateral (and thus abbreviated as MCD or Multi-Collateral DAI), with BAT as the first additional cryptocurrency to back it. This was an important step to create a more stable foundation for DAI to be pegged to the US dollar. Just as an investment portfolio needs to be diversified to maintain stability, it's important that DAI has different kinds of currencies that can back up its value.

In order to generate DAI, a user could buy Ethereum and BAT and open a CDP (Collateralized Debt Position). The ETH or BAT then becomes the collateral, and DAI is generated for the user based on a percentage of its worth. If the user wants his or her crypto back, then they pay back the DAI plus a “stability fee”. This stability fee is a sort of “interest rate” that is usually paid when borrowing from bankers for their money management troubles. In this case, it's most essential function is to help keep DAI pegged to the USD.

If DAI were to fall under $1, users can buy DAI on the cheap and begin paying back their CDP. If DAI were to go over $1, then they can use their CDP to generate more DAI. As more and more cryptocurrencies are added to support DAI, this system has the potential to become the most robust stablecoin that isn't dependent on physical assets that may not actually exist.

Why DAI is so Great

Thus, what has happened is the creation of a monetary a system that is both decentralized and stable. People no longer need to rely on banks and financial institutions to get their financial needs, whether through lending or earning interest. In fact, currently, anyone with DAI can connect a hardware Ledger Nano to the Compound.finance exchange and earn interest on their DAI. In effect, if that same person has BAT or ETH in a Maker CDP while using their DAI to earn interest, as ETH or BAT grows in price, they're essentially using their assets multiple times, which is an essential component of being your own bank.

With Coinbase adding support for DAI on their debit card, it means that many people can now spend stablecoin as they would with normal fiat currency. And since DAI is soft-pegged, they don't need to worry about volatility affecting their purchasing power.

As I've stated before, I personally don't believe that traditional banks and financial institutions are going away. But I do think the ability to freely decide how one uses his or her money is extremely important. Given that most big banks and financial institutions have displayed little ability to care for their masses of customers' money, it's important that we as individuals are able to make use of the value we create without needing to mind the banks. Perhaps I'm showing a bit of my moral side, but I believe financial institutions should be created to serve the individual's needs, rather than individuals being hosts to the parasitic greed of large corporations.

With the rise of DeFi (decentralized finance), and especially with MakerDao's DAI as well as services such as Coinbase's debit cards and Compound.finance's decentralized exchange, I really do believe we are beginning to walk into a future where individuals can once again take control of their personal and financial lives.

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