Dai (DAI)

What Dai is

Dai is a stablecoin that targets one US dollar and is created by locking collateral in smart contract vaults rather than by a company holding dollars in a bank. No issuer takes your money and sends you Dai. Instead, a borrower deposits crypto collateral into the protocol, generates Dai against it as debt, and later repays that debt to unlock the collateral. Dai runs on Ethereum and has been ported to several other chains.

This makes Dai structurally different from bank-backed stablecoins. Its backing is on-chain and inspectable, and its stability depends on code and collateral rules rather than on a redemption promise from a company.

How it works

The protocol's core is a contract that Maker's own source documentation calls the "core cdp and balance database," and which is written to make "no external calls" and contain "no precision loss" (makerdao/dss README, as of September 2026). CDP stands for collateralized debt position, the vault that holds a user's collateral and records their Dai debt.

Collateral reaches that core through adapters. The design is deliberately "token agnostic," and adapters are described as "the only connection between collateral types and on-chain tokens," normalizing the differences between one ERC-20 and another before anything touches the core. This is why the system can add new collateral types without rewriting its accounting.

The protocol needs to know what collateral is worth, so it depends on price oracle feeds. Maker's documentation states plainly that the system requires "working price feeds" to determine how much Dai debt is acceptable per unit of collateral. Every vault must stay above a minimum collateralization ratio set for its collateral type.

When a vault falls below that ratio, it is liquidated. Maker's system does not dump collateral at a fixed price. It auctions it, and it does so "in fixed size lots" to limit the damage a single large liquidation can do to the market. The proceeds repay the vault's debt plus a liquidation penalty, and any remainder returns to the vault owner. See liquidation for the general mechanics.

Two further auction types handle the system's own balance sheet. If liquidations do not raise enough to cover the debt, the shortfall becomes protocol debt, which triggers what the source calls MKR dilution auctions: new governance tokens are minted and sold for Dai to recapitalize the system. When the protocol runs a surplus instead, it sells Dai in the opposite direction. The governance token therefore functions as the system's backstop, and holders bear the cost of undercollateralization.

Governance itself is implemented as "a very simple multi-owner authentication system, where a contract totally trusts multiple other contracts," with changes expected to arrive through a governance interface layer. Collateral types, ratios, fees and auction parameters are all governance-controlled variables, not constants.

Supply and tokenomics

Every Dai in existence was minted against collateral by someone opening a vault, and it is destroyed when that debt is repaid.

Fee revenue accrues to the protocol and funds the surplus that surplus auctions later sell.

Because Dai is debt against collateral, the interesting number is not the token supply but the collateral behind it and the composition of that collateral. Both are visible on-chain. See tvl for how such figures are usually measured, and treat any single headline number as a snapshot of governance decisions that can change.

Dai holders are not entitled to redeem Dai from an issuer for a dollar. The peg is maintained by arbitrage and by the incentives of vault owners, who must buy Dai to repay debt and reclaim collateral, not by a redemption window.

History

Dai was launched by MakerDAO and began as a single-collateral system before moving to multi-collateral Dai, which is the system the dss contracts implement. The move mattered because it let the protocol accept assets beyond a single collateral type through the adapter design described above.

MakerDAO subsequently rebranded to Sky. As of September 2026, MakerDAO's documentation domain redirects to the Sky developer documentation site, and the project's newer dollar token is issued alongside Dai rather than replacing it. Both the older MakerDAO name and the Sky name refer to the same lineage of contracts and governance.

The protocol's collateral mix has widened considerably over time, from crypto assets alone toward including tokenized real-world assets and other stablecoins. Each such addition is a governance decision with its own risk parameters.

Risks and what to watch

Collateral composition is the first thing to check. A Dai backed largely by volatile crypto has different failure modes than a Dai backed largely by other stablecoins or by tokenized off-chain assets. The latter reintroduces exactly the counterparty and custody risk that a decentralized stablecoin was meant to avoid, because a tokenized Treasury position depends on an issuer, a custodian and a legal claim. Look at what is actually in the vaults, not at the design's stated intent.

Oracle dependence is structural. Maker's own documentation says the system requires working price feeds. A wrong or manipulated price can trigger liquidations that should not happen, or fail to trigger ones that should.

Liquidation risk falls on vault owners, not on Dai holders, but a market moving faster than auctions can clear can leave the protocol with bad debt. That is what MKR dilution auctions exist to cover, and they cover it by diluting governance token holders.

Governance is a live risk rather than a background one. Collateral types, ratios, fees and auction parameters are all mutable by vote, and a governance capture or a poor parameter choice affects every Dai holder. Governance also runs on a governance token whose distribution determines who decides.

The peg is a target, not a guarantee, and Dai has traded away from one dollar during periods of stress. Availability also varies by venue and jurisdiction; see where to buy Dai and Exchanges.

Frequently asked questions

Who issues Dai?

Nobody, in the sense that applies to a bank-backed stablecoin. Dai is minted by users who lock collateral in the protocol's vaults and generate Dai as debt against it, and it is burned when that debt is repaid. There is no company that takes dollars and issues Dai in return, and no company that redeems it.

What backs Dai?

Collateral held in the protocol's vaults, which must exceed the value of the Dai generated against it by a margin set per collateral type. The collateral mix is set by governance and has included crypto assets, other stablecoins, and tokenized real-world assets at different times. It is visible on-chain.

What happens if collateral falls in value?

The vault is liquidated. Its collateral is auctioned in fixed size lots, the proceeds repay the debt plus a penalty, and any surplus goes back to the vault owner. If auctions do not raise enough, the protocol takes on the shortfall as debt and covers it by minting and selling governance tokens.

Can I redeem Dai for a dollar?

Not from an issuer. Dai holds its target through market arbitrage and through the demand from vault owners who must acquire Dai to repay their debt and release their collateral. If you want dollars, you sell Dai on a market.

Is Dai the same as Sky's newer dollar token?

They are separate tokens from the same protocol lineage. MakerDAO rebranded to Sky, and as of September 2026 its documentation domain redirects to Sky's developer site. Dai continues to exist alongside the newer token rather than being replaced by it.