Is DAI a safe stablecoin?

Yes, DAI is a safe stablecoin that you can use to lend and borrow cryptocurrencies without a third party. Basically, it is an algorithmic stablecoin issued by MakerDAO – an Ethereum-based smart contract – and pegged to USD. Currently, it’s among the 25 largest digital currencies by market capitalization. Besides, it’s easy to buy since it is available on almost all major crypto marketplaces.

Stablecoins were created as a safety net for investors who want to remain in the crypto space but don't want to bother themselves with crazy market swings. However, in light of the Terra LUNA UST disaster, it is essential to consider the viability and, most importantly, the safety of stablecoins.

DAI is an algorithmic stablecoin, just like Terra's UST. This means they utilize algorithms and smart contracts to help maintain their peg to a stable asset. However, the key difference here is that DAI is overcollateralized - meaning that users that lock up DAI can borrow against it. The system allows users to borrow DAI worth 55 - 75% of their collateral.

Some experts claim this model of over-collateralization is much safer than partial collateralization used by other stablecoins. Since UST's crash, investors have flocked to DAI, and it has risen to become the fourth largest stablecoin ecosystem with a $6.47 billion market cap.