DAI (DAI) Analysis
The original decentralised stablecoin — deeply embedded in DeFi with a 1:1 USD peg and an evolving migration to USDS.
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Peg target
1.00 USD
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Analysis published · Related coverage · All token analyses
The Overview
Quick take on DAI
DAI was created by MakerDAO as a decentralised alternative to centralised stablecoins like USDT and USDC. Rather than being backed by dollars held in a bank account, DAI is backed by crypto assets locked in smart contract Vaults. Users deposit collateral (ETH, USDC, WBTC, and others) at above 150% collateralisation and mint DAI against it. If collateral value falls below the liquidation threshold, the Vault is liquidated to maintain the peg.
The Sky Protocol rebrand (formerly MakerDAO) in 2023–2024 introduced USDS as the successor stablecoin to DAI. DAI and USDS are convertible 1:1 through the Sky protocol interface. The migration is gradual and voluntary — all existing DAI integrations continue to work, and DAI can be converted to USDS (which earns the Sky Savings Rate) at any time.
For existing DeFi participants, the practical answer is: DAI and USDS are functionally equivalent and interconvertible. DAI will continue to exist for as long as MakerDAO/Sky smart contracts operate. The key decision for new users is whether to hold DAI (widely accepted in existing integrations) or USDS (newer, earns SSR yield). Both are legitimate.
- Peg mechanism: over-collateralised Vault positions, automated liquidations.
- Collateral: ETH, WBTC, USDC, RWA (real-world assets), and others.
- Migration: 1:1 convertibility to USDS via Sky Protocol interface.
- DeFi integrations: one of the most widely integrated tokens in DeFi across lending, DEX, yield.
- Key risk: collateral concentration; real-world asset (RWA) dependency; Maker protocol smart contract risk.
Under the Hood
The over-collateralisation mechanism
Vault-based DAI creation
To create DAI, a user opens a Vault (formerly CDP — Collateralised Debt Position) in the Maker Protocol. They deposit collateral and draw DAI up to the collateralisation ratio for that asset type. For ETH, the minimum collateralisation is 150% — to mint 100 DAI, you must deposit at least $150 worth of ETH. The DAI is a loan against your collateral; you pay a Stability Fee (interest rate) set by MKR/SKY governance.
If the collateral value falls below the liquidation ratio, the Vault is eligible for liquidation: a keeper bot liquidates the Vault and sells the collateral to recover the outstanding DAI and a liquidation penalty. The liquidation mechanism is the core peg defence: it ensures that outstanding DAI is always backed by more collateral value than the DAI is worth.
DAI Savings Rate and RWA
The DAI Savings Rate (DSR) allowed DAI holders to deposit into the Maker Protocol and earn yield funded by Stability Fees. The DSR has been succeeded by the Sky Savings Rate (SSR) for USDS holders. Existing DAI in the DSR continues to earn, but new deposits earn SSR through USDS.
MakerDAO/Sky has significantly expanded its real-world asset (RWA) collateral — US Treasury bonds, short-term bond funds, and other traditional finance assets. This has increased DAI's effective yield (since RWA collateral earns real-world yields that contribute to the protocol's surplus) but has also increased centralisation and counterparty risk compared to the original ETH-only model.
DAI vs USDS
Understanding the migration
Sky Protocol (formerly MakerDAO) rebranded in 2023–2024, renaming MKR to SKY and DAI to USDS. The migration is voluntary and gradual. DAI can be converted to USDS at exactly 1:1 through the Sky Protocol interface at any time. The conversion is reversible — USDS can be converted back to DAI.
USDS earns the Sky Savings Rate (SSR) when deposited. DAI earns the DAI Savings Rate (DSR) in the legacy contract. Both rates are set by governance. The practical advantage of USDS over DAI is the SSR, which is typically higher than the DSR as Sky directs new yield to USDS holders to incentivise migration.
For DeFi protocol integrators, the implication is: existing DAI integrations continue to work exactly as before. New integrations may choose to support USDS natively (for SSR integration). Both tokens are valid for the foreseeable future.
Risks
DAI's real risks
Collateral concentration is a risk: a large portion of DAI is backed by USDC (which is itself a centralised stablecoin). If Circle were to block a major Maker Vault address, it could create a peg instability event. Sky has been working to reduce USDC dependency through RWA diversification, but the concentration remains.
Smart contract risk is inherent — the Maker Protocol is a complex system of interacting smart contracts that has been audited multiple times but remains a target for sophisticated exploits. The protocol's age and extensive auditing record is its best defence here.
Real-world asset dependency adds traditional finance counterparty risk. Treasury bill price movements, custodian risk for RWA vaults, and legal/regulatory risks around tokenised RWA exposure all now affect DAI's backing.
Competitive Landscape
DAI vs the stablecoin landscape
USDC and USDT are larger and more widely accepted, but they are centralised — Circle and Tether can freeze addresses, and both hold fiat reserves with custodian risk. DAI (and USDS) offer crypto-native, censorship-resistant stability for users who specifically want those properties.
Ethena's USDe offers a delta-neutral synthetic dollar with a different mechanism (ETH staking + perp short). USDS is DAI's direct successor. For genuinely decentralised stablecoin exposure, DAI and USDS remain the dominant options at meaningful scale.
Target Holder
Who DAI is genuinely useful for
DAI is most appropriate for DeFi users who want: a stable store of value integrated into the broadest set of DeFi protocols; crypto-native collateralisation (no fiat custodian counterparty risk); or the ability to borrow against crypto collateral at competitive rates.
For new capital entering the ecosystem, USDS may be the more forward-looking choice given the SSR yield advantage and Sky Protocol's focus. For existing DeFi participants with DAI positions, the 1:1 conversion path to USDS makes migration simple whenever appropriate.
DAI is not appropriate for users who prioritise centrally guaranteed redemption, maximum liquidity, or maximum exchange coverage. USDC or USDT are better for those use cases.
The cases
Bull case and bear case
Bull case
- Deepest DeFi integration of any decentralised stablecoin — accepted in Aave, Compound, Uniswap, Curve, and hundreds of other protocols.
- Over-collateralisation mechanism has maintained the peg through multiple severe market downturns since 2017.
- Crypto-native backing provides censorship resistance that USDC and USDT cannot offer.
- 1:1 convertibility to USDS preserves existing holder value during the migration.
- Sky Protocol's RWA diversification has improved protocol revenue and savings rate sustainability.
Bear case
- Large USDC collateral exposure creates indirect centralisation risk — Circle can freeze USDC held in Maker Vaults.
- Migration to USDS creates a bifurcated ecosystem — existing integrations stay on DAI, new development focuses on USDS.
- RWA collateral introduces traditional finance counterparty and legal risks absent from the original ETH-only model.
- Smart contract complexity creates a broad attack surface despite extensive auditing.
- Yield on DAI (DSR) is typically lower than USDS (SSR) — existing DAI holders earn less than USDS holders.
Where to buy
Where to Buy DAI
DAI trades on a wide range of centralised exchanges and decentralised liquidity pools. The table below covers the highest-volume venues as of April 2026, sourced from CoinMarketCap market data.
Decentralised exchanges
CryptoTokenTalk may earn a commission if you buy DAI via these links. This does not affect our editorial coverage or scores. Prices sourced from CoinMarketCap, April 19, 2026. Always verify current prices before trading.
FAQ
Frequently asked questions
What is DAI?
What is the difference between DAI and USDS?
How does DAI maintain its $1 peg?
Is DAI safe to hold?
Should I convert my DAI to USDS?
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