12 months ago ·
5 min read
We often get asked by people how to buy DAI and where to buy it from.
For those who are not sure what DAI is, it’s a decentralized stablecoin whose value is pegged to the US dollar. Unlike centralized stablecoins which are issued by private companies who simply maintain the peg by guaranteeing to hold an equivalent amount of dollar reserves in bank accounts, DAI is generated and kept stable by the Maker protocol. The Maker protocol is not a company. It’s a system that consists of multiple smart contracts on the Ethereum Blockchain and is governed in a decentralized manner.
The main building block of the Maker system are so-called ‘Vaults’. In short, anyone who wants to generate DAI tokens has to deposit collateral into a ‘Vault’. This is necessary to ensure that there’s always enough value in the system backing the borrowed DAI (similar to how the dollar used to be backed by gold). Currently, the system accepts $ETH $BAT and $USDC as collateral and there are plans to add more assets.
Once the collateral is locked in the 'Vault', DAI is generated by the Vault and paid out to the Vault owner. Effectively the system is lending DAI to the ‘Vault’ owner and taking the collateral as security for the loan. When a Vault Owner wants to close a loan they simply pay the borrowed DAI tokens back and receive their collateral paid out in return.
Note, that this system lives entirely on the Blockchain and doesn’t rely on any trusted counterparty. Anyone in the world can open a ‘Vault’, the process takes seconds and ‘Vault’ owners don’t need to identify themselves. The system doesn’t need to know identities because the loans are secured by the collateral in the smart-contract ‘Vaults’.
No. Like any currency, DAI is traded on secondary markets and can be bought by anyone on these markets. For example, a ‘Vault’ owner who borrowed DAI might sell their DAI on an exchange to buy more Ether (or maybe a car). This is good news, as you will most likely need DAI if you want to use any of the awesome DeFi applications like Compound (to earn interest), PoolTogether (a no-loss lottery) and many others.
There are many ways to buy DAI and we’ll walk you through each of them and explain the benefits and trade-offs of each method.
Like most cryptocurrencies, you can buy DAI on traditional cryptocurrency exchanges. The most well-known exchanges listing DAI are Kraken, Coinbase) and Bitfinex. Like with any other cryptocurrency you’ll first have to deposit fiat money in your exchange account to buy DAI.
If these are not available in your region there are other smaller regional exchanges listing DAI like:
Custodial wallets are wallets where the provider holds the crypto funds on behalf of their clients.
The difference between buying on an exchange vs. buying within a wallet is of technical nature and not really obvious to the end-user: whereas exchanges facilitate trading on their platform, custodial wallets connect to exchanges and other brokers when selling crypto to their users. That’s why buying within a wallet is often a bit more expensive than if you would buy it from an exchange.
Custodial wallets are convenient for beginners because users don’t bear the responsibility of storing their private keys. The provider stores the funds for you. However, this means that you’re not entirely in control of your assets.
Fiat on-ramps allow users to purchase cryptocurrencies in a simple manner. They’re not exchanges because there’s no trading occurring on their platforms. They’re also not wallets because you don’t store your crypto with them. Instead, you specify your wallet address and once you’ve made your purchase they send the cryptocurrency to your wallet address.
Fiat on-ramps sole focus is on providing an easy and secure buying experience. Fiat on-ramps selling DAI include:
Some non-custodial wallet providers also let you buy DAI. As a reminder, non-custodial wallets are wallets where users themselves are responsible for storing the private key. The wallet provider has no means of accessing the users funds. Some of these wallets have integrated fiat on-ramp providers from the list above to make it easier for their users to acquire DAI.
Another possibility to buy DAI is by turning to a decentralized exchange. Decentralized exchanges like centralized exchanges are online trading platforms where users can trade crypto assets. However, they differ in their design.
DEXs work by using smart contracts and on-chain transactions to reduce or eliminate the need for an intermediary. They don’t hold users funds. Instead, users trade from their non-custodial wallet. Moreover, they are optimized to be resistant to government intervention and can often be accessed through multiple interfaces. The only caveat is that you can’t buy DAI with fiat using a decentralized exchange because that would go against their principle of decentralization. You can only use Ether (ETH) or other Ethereum tokens. Some popular decentralized exchanges include:
Now that we've established how to buy DAI and where to buy it from let's look at some of the things you can do with DAI.
Holders of the Dai stablecoin can earn the Dai Savings Rate (DSR) on the Dai they hold by locking it into a special smart contract. There are no fees involved, no geographic constraints, and no liquidity impediments—no minimum deposit is required to earn the DSR, and all or any portion of Dai can be withdrawn at any time.
The Dai Savings Rate contract is accessible through Oasis Save and other projects that have integrated the DSR, including Zerion and the Argent wallet. The DSR is not only a propeller of financial freedom, offering complete user control, but also game-changing for the DeFi movement.
As a stable medium of exchange, Dai can be used for repayment of debt, cross-border transactions, and payment for goods and services. Sending money across borders using traditional financial services is expensive and time-consuming. For example, at the time of this writing, Bank of America charges $45 for international wire transfers of USD from the United States, while Western Union charges $9 to transfer $1,000 from a WU location in the United States to a WU location in Argentina. But because the Maker Protocol is built on the blockchain, users can transfer Dai peer-to-peer across the globe within seconds and at a fraction of the cost of traditional means (users only pay a gas fee).
For Developers, Dai represents an opportunity to offer users of their own platforms the ability to transact with a stable dollar denominated asset, opening the door to more risk-averse participants. Traditionally, it has been very hard for developers in emerging markets to integrate dollar currency into Fintech applications. DAI is accessible to anyone as it exists on the Ethereum Blockchain.
The growing developer base and Dai user base also contribute to the network effect of the Maker Protocol, increasing awareness and improving the stability of the ecosystem.
We’ll continuously update this post to feature the best options for users to buy DAI. If you know of any other convenient options let us know and we’ll update the article. Check out cryptotesters.com if you’re interested in crypto products and looking for which crypto wallet or exchange to use. Subscribe to our newsletter if you enjoy articles like this one.
12 months ago ·
5 min read
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