How Do DAI Tokens Work?
Dai is the first decentralized stablecoin, as opposed to a semi-centralized stablecoin like USDC, that aims to maintain its value with the US dollar through a 1:1 peg. It strives to solve one of the major challenges facing the mass adoption of cryptocurrencies—volatility. Unlike other stablecoins issued by centralized entities, Dai is the native currency of the Maker Protocol, a decentralized autonomous organization (DAO) built on the Ethereum network. How Is DAI Created and Destroyed? Dai is created when a user borrows against locked collateral and is destroyed when the user repays their loan. For example, if you lock ETH or any other accepted crypto in the Maker Protocol, you will receive a loan in the form of new Dai tokens. When you repay the loan, the protocol burns the Dai tokens and gives you your collateral. Importantly, the Dai ecosystem is governed through a democratic system of governance. Here, every change and decision affecting Dai is executed after approval by most token holders. What Is DAI Pegged To? Dai is pegged to the US dollar on a 1:1 ratio by leveraging the Target Rate Feedback Mechanism (TRFM). When the Dai price is below $1, TRFM rises and pushes the price upwards. When the price increases, Dai holders make profits, and the demand for Dai increases. As the demand rises, the supply of Dai begins to reduce because users borrow tokens from the market via Collateralized Debt Positions (CDPs). Therefore, they make the Dai price rise to its target price again. Benefits of Dai Over Other Collateralized Stablecoins Here are the main benefits of Dai over other centralized stablecoins: Complete financial independence Dai is managed by the Maker Protocol, eliminating intermediaries from the equation. This means Dai tokens cannot be censored or frozen.Self-sovereign money generation You can create Dai by locking collateral in the Maker Protocol to eliminate counterparty risks instead of trusting a custodian with it.Savings Dai holders can put their assets into use and earn the Dai Savings Rate (DSR) by depositing Dai in smart contracts. You can access these contracts via the OKEx Marketplace, and by using crypto wallets such as Oasis Save and Argent wallet. Convenient, fast, low-cost remittance Unlike most stablecoins, you can use Dai to repay loans and perform cross-border and other online payments cost-effectively. Transparency minting mechanism Unlike in centralized stablecoins where custodians might mismanage the locked funds (remember the collapse of TerraUSD), Dai embraces transparency through the use of smart contracts in managing its reserves.
Asked a month ago
What Is Liquid Staking and How Does It Work?
Liquid staking entails outsourcing your tokens to a service that stakes them on your behalf without the risk of losing funds. When you make use of a liquid staking service like Lido staking, you don't lose access to your funds even while they are staked. This is the main difference between this and regular staking: the staked funds are not locked up or inaccessible. Instead, liquid staking platforms use an escrow to hold the funds. You can remove your assets from the protocol anytime you please or sell them if you wish. Both of these options are unavailable with regular DeFi staking. With liquidity staking, users can enjoy the benefits of staking cryptocurrency at a lower risk level since they can still control their assets. How Does Liquid Staking Work? By delegating the staking process via liquid staking, users can avoid most pitfalls associated with regular staking, such as centralization, illiquidity, and complexity. When you stake on a liquid staking protocol, you receive a derivative token or a tokenized version of your staked asset. For instance, you may deposit ETH into a smart contract via a third-party application (deposit contract). In exchange, you will be given a tokenized version of Ethereum or wrapped ETH. This freshly created token stands in place of your ETH. It may now be moved, saved, spent, or exchanged just as you would any other "free" token. With this approach to staking, the wrapped token allows the user to maintain their token's liquidity with the freedom of transferring it as they please while earning the token's staking rewards all at once. The liquid staking strategy creates a fair balance between staking risks, rewards, and ease.
Asked 4 months ago
What Is Protocol Owned Liquidity?
Protocol-owned liquidity was pioneered by Olympus DAO to provide liquidity to decentralized exchange tokens. What Is Olympus DAO? Olympus DAO is a decentralized autonomous organization (DAO) dedicated to building and maintaining the OHM; Olympus DAO’s native token. The goal of Olympus DAO is to create a cryptocurrency-backed global stablecoin reserve currency asset that is: DecentralizedCommunity-ownedCensorship-resistantDeeply liquidAsset-backed (not by USD)Used widely in Web3 Also called a “non pegged stablecoin,” OHM aims to be less volatile than other cryptos even though it is not pegged to fiat money. OHM’s value tends to float based on the underlying treasury’s value, determined by the DAO. The ultimate goal of Olympus DAO is for OHM to become a crypto-native currency that can be used as an alternative to fiat currency, specifically the USD. How Does Olympus DAO Own Its Liquidity? Instead of renting its liquidity like other decentralized finance (DeFi) protocols, Olympus owns its liquidity. How so? Unlike other DeFi protocols like Curve and Uniswap, Olympus doesn't depend on its users to provide liquidity to the protocol. Instead, it uses bonding and staking of tokens to encourage users to sell and/or deposit their collateral to the Olympus treasury. In return, they get discounted OHM tokens. Olympus currently holds 99.32% of its liquidity. By owning the vast majority of it, Olympus protects the value of its tokens and keeps the protocol liquid. It also grows its treasury even further through the rewards from its liquidity protocol tokens, thereby further raising the reserve's floor value, and the value of OHM.
Asked 4 months ago
How DAOs Make Money
What Is a DAO? A DAO, or decentralized autonomous organization, is a community-based organization with no hierarchical structures. A DAO is completely autonomous and transparent, and it uses smart contracts to outline the operating rules and execute mutual agreements. Since DAOs are built on blockchain networks, proposals, voting, and transactions can be publicly audited. DAOs are governed entirely by their communities, which jointly decide the future of their projects, like network upgrades and financial allocations. DAO community members suggest proposals affecting the future functioning of the project and then vote on these proposals. Submissions that attain the set terms and conditions are accepted and executed automatically by the protocol. The non-hierarchical structure of a DAO is the basis of incentives. In other words, it’s in members’ best interests to be sincere in their voting. This leads to the approval of plans that will only serve to benefit the project—and as the DAO succeeds, so do the community members. An active DAO community and a robust protocol will gain more usage, consequently boosting the value of the underlying governance tokens held by the members to the advantage of both the organization and its members. How Is a DAO Profitable? Typically, DAOs make profits through dividends from their various investments. An entrepreneur starting a DAO can also make money by persuading interested investors to back them based on their project ideas. With the current DeFi trends like non-fungible tokens (NFTs), DAOs are reclaiming their former success after the 2016 death of the Genesis DAO. Billionaire investor, Mark Cuban, labeled DAOs the ideal blend of capitalism and liberalism. Cuban strongly feels that investors can reap big profits with DAOs if their communities perform well in governance. Crypto investor and influencer, Cooper Turley strongly agrees with Cuban. He suggests that DAOs will determine how future businesses invest and make money. He further claims that companies won’t offer equity in five years. Instead, they will issue tokens and operate as DAOs. MakerDAO is one of the oldest and most successful DAOs in the DeFi space. It issues and manages the DAI stablecoin. MakerDAO splits its proposals into Governance Polls for non-technical resolutions and Executive Votes for protocol changes. You can participate in MakerDAO Governance Polls by holding the DAO token.
Asked 4 months ago
Are DAOs Established Legal Entities?
Decentralized Autonomous Organizations, or "DAOs," are community-run organizations powered by blockchain technology and smart contracts without a centralized authority. They are entirely decentralized and open to public scrutiny at any time: smart contracts establish the basic rules and carry out the agreed-upon choices, requirements, proposals, and voting. The individual members that make up the DAO control its fate by presenting proposals for the rest of the community to vote on. This approach to organization building is in stark contrast to traditional companies with a CEO or a select board of directors that run everything. A DAO is much more democratized as every member comes together to make important choices regarding the project's future, such as financial distributions and software updates. Are DAOs Legal? Most jurisdictions don't recognize DAOs as legal entities, hindering public knowledge and recognition. This shouldn't come as a surprise since the DAO phenomenon is still relatively new, and the space is still evolving. Moreover, in the absence of legal recognition, a DAO doesn't have to comply with any state's registration laws and doesn't require corporate rights like a limited liability company. While this may appear advantageous on the surface, there are some demerits to unclear regulations regarding DAOs. For instance, a DAO's lack of legal standing may prevent it from entering business relationships with other companies or the government. This limitation may restrict the DAO's business and its profits. Since DAOs are unrecognized by the law in most places, this presents a huge barrier to the public's understanding and acceptance of these organizations. How to set up a DAO Legally Since there are no proper regulations regarding DAOs, there is no exact formula for creating one legally. However, one must bear the following points in mind before proceeding with building a DAO. DAOs don't follow the existing corporate world hierarchy of having a board of directors and corporate executives.DAOs aren't corporations, so they do not enjoy the legally backed protections against liabilities as corporate bodies do.Decision-makers are honed from the bottom up and not the other way round as obtained in the corporate world.Even though DAO mimics the values and expectations of a corporate entity, it does not have the same privileges. So, starting a DAO will vary depending on the country and jurisdiction that the creators of the DAO are interested in targetting.
Asked 4 months ago
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