Why is my DAI coin so volatile?

A stablecoin is a digital currency whose value is pegged to that of another asset. DAI is a stablecoin, but unlike most other stablecoins pegged in 1:1 ratio to the US dollar, DAI is pegged to a basket of different assets.

DAI is backed by a variety of cryptocurrencies which explains its volatility.

The largest crypto backing DAI is currently the USD coin ( a US dollar-focused stablecoin). USD backs about 60% of DAI, but this wasn't always the case.

Ethereum is also one of the major digital assets backing DAI. In March 2020, when Ethereum lost a third of its value, it negatively affected DAI's price, and its issuer, MakerDAO, even considered an emergency shutdown of the cryptocurrency. However, after the Ethereum incident, MakerDAO decided to shift towards USD coin to bring a bit of stability to DAI.

This is one of the risks of holding DAI. It may not necessarily be a "true" stablecoin compared to its competitors since not all the assets backing it are stable assets.

Today, one of the most popular stablecoins may be Tether, claiming to be backed 1-to-1 to the United States dollar. However, some more digging revealed that one unit of Tether stablecoin is backed by .74 of the U.S. dollar. That being said, sometimes stablecoins aren’t true stablecoins.