Cryptocurrencies are volatile investments. Stablecoins backed by an underlying asset can help you retain a level of stability within your portfolio while investing in the cryptocurrency market. As the first stablecoin backed by crypto, Dai is a unique offering in the stablecoin realm. Our beginner’s guide to Dai will help you learn more and add this token to your portfolio.
What is Dai?
Dai is a stablecoin that runs on the Ethereum network. A stablecoin is a cryptocurrency that provides investors with a much-needed safeguard against volatility by maintaining a consistent price by tying itself to an underlying asset. While cryptocurrencies like Bitcoin rise and fall as market demands change, stablecoins attempt to stay at a single price regardless of market conditions. In most cases, this value is $1 USD.
Most stablecoins are backed by fiat currency like the USD in bank accounts. Dai is different because it’s backed by fiat currency pegged to cryptocurrency collateral staked on the Maker Dai Stablecoin System. This provides investors with a more transparent stablecoin, as collateral assets held on the Ethereum network can be viewed publicly. Dai works closely with Ethereum as an ERC-20 token.
Brief History of Dai
Dai was developed by the makers behind the MakerDAO and Maker Protocol instead of a single person or small group of individuals. MakerDAO is a decentralized autonomous organization that governs itself entirely based on smart contract executions. MakerDAO tokens (which trade freely on many cryptocurrency exchanges) act as governance tokens, providing investors with a future vote on development matters. These tokens function in much the same way as owning shares of stocks.
Dai was introduced in 2017. Its soft peg to the USD quickly caused it to become among the most popular Ethereum-based stablecoins. Dai is currently the 28th largest cryptocurrency project when measured by total market capitalization.
How to Buy Dai (DAI)
- Open an online account.
The simplest way to purchase Dai is by opening an account with a crypto broker that supports the token. Dai is available on a range of brokers’ platforms, which means you’ll get to choose between multiple brokers when you open your account. Some of the factors you might want to consider when you choose a broker may include:
- Each broker’s trading platform
- Fees and commissions
- Additional cryptocurrencies available to buy and sell
- Local availability
- Buy a wallet.
After you choose a broker to open an account with, you’ll want to open a private wallet to store your tokens. A cryptocurrency wallet provides you with a personal set of keys that you can use to store your investments off your exchange of choice. There are 2 types of cryptocurrency wallets:
Hardware wallets: A hardware wallet is a USB-like device that allows you to store your tokens offline. Hardware wallets are more expensive when compared with software wallets, but they provide you with a higher level of protection for your tokens.
Software wallets: Software wallets are desktop or mobile applications that allow you to store your tokens and coins using a private online wallet. Though software wallets aren’t as secure as hardware wallets (because they must be connected to the internet to access your investments) they provide investors with a free way to store their investments off-exchange. Software wallets are also usually open-source, which means that they support more types of tokens when compared to hardware wallets.
As an ERC-20 token, you can store Dai on almost any wallet that supports Ethereum. Consider our favorite ERC-compliant wallets below if you aren’t sure where to begin.
- Make your purchase.
After you’ve set up both your trading account and your wallet, it’s time to make your purchase. Although the specific process you’ll go through will vary by broker, here are the basic steps that you can expect to take as you purchase DAI:
Step 1: Fund your brokerage account. Before you can buy or sell cryptocurrency, you’ll need to add a funding method to your brokerage account. Most brokers allow you to buy cryptocurrency using a direct bank transfer, but more and more brokers are now allowing credit and debit card purchases. Be sure that your correct funding method is linked and cleared before proceeding.
Step 2: Choose the type of order you want to place. Most brokers offer you access to a multitude of order types, ranging from quick-executing market orders to strictly controlled limit orders. Select the type of order that you want to place and take a look at the current price of DAI. In most cases, the price will be almost exactly equal to $1 USD.
Step 3: Submit your order. Set a price and number of DAI that you’d like to purchase and submit your order through your trading platform. From here, you can relax — your broker will take care of completing your order according to the limits and specifications in your order.
Depending on current market conditions, it can take a few minutes to 1 hour for your broker to finish filling your order. When your broker succeeds in filling the order, you’ll see your tokens in your exchange wallet. If your broker cannot fill the order, they will either leave the order open indefinitely or close it at the end of the trading day.
Best Cryptocurrency Exchanges
Not sure where to start your search for the best broker? Consider a few of our favorite options that currently support Dai trading below.
Best Crypto Wallets
Browse a few of our favorite online and offline wallet options below to get started.
Best Hardware Wallet: SecuX W10
Investing in a hardware wallet can sometimes mean spending hundreds of dollars on a physical device. The SecuX W10 provides investors with a safe and secure place to store cryptocurrency investments without breaking the bank. The SecuX W10 allows you to safely store any ERC-20 token with other types of coins like Bitcoin, Litecoin and Ripple. The SecuX W10 features a convenient yet sturdy hardware design, with a full-color touch screen that allows you to manage your investments without connecting to the internet anywhere you are. With a simple and straightforward setup process and an affordable price tag, the SecuX W10 is an ideal choice for beginners looking for a hardware wallet with flexibility.
Best Software Wallet: MetaMask
Available as both a browser extension and a mobile app, MetaMask is a comprehensive and free software wallet that allows you to safely store any ERC-20 token alongside Ethereum. MetaMask provides you with a key vault, secure login and private set of keys after you set up your account — which means that you can get started transferring your tokens in as little as a few minutes.
MetaMask is also a fantastic introductory wallet for those interested in decentralized apps. You can connect with hundreds of blockchain-based applications directly through your MetaMask wallet — all without sacrificing any of your personal information or data.
As a stablecoin, Dai’s value is tied to its ability to maintain a consistent price. This means that the coin will likely not stray far from a value of $1 per token. When choosing an exchange, it’s a better idea to consider other tokens on the exchange that you can strategically convert between Dai than to wait for Dai to increase in value over $1 per token.
Trade or Sell Your Cryptocurrency
Dai is intended as a store of volatility for investors in the cryptocurrency market. Holding Dai in the long-term won’t result in much of a return for investors, as the price is tied to a 1:1 ratio with USD through the Maker Dai Stablecoin System.
You can profit from an investment in Dai by strategically converting the stablecoin into an altcoin, waiting for that coin to rise in value and then converting back to Dai. As Dai maintains a consistent value, you can buy back into the project of your choice when prices fall again without losing money. This allows you to accumulate more tokens and see a return on your investment.
If you plan on becoming an active investor, you need a responsive, quick trading platform. Consider a few of our favorite brokers for frequent investors below.
Current Crypto Prices
The cryptocurrency market can be very volatile. Though stablecoins like Dai are unlikely to see frequent changes in value, non-backed assets like Bitcoin, Ethereum and other altcoins can show high volatility. Understanding how the cryptocurrency is moving day-to-day can help you enhance your trading and make the most out of your investments. Learn more about the market at a glance with our chart below.
Investing in Dai
If you’re a new cryptocurrency investor, it can be confusing to understand the differences between altcoins and stablecoins. Stablecoins like Dai allow investors to access a stable resource when investing, which can be a crucial element for day trading and scalping in such a volatile market.
If you’re considering becoming a short-term cryptocurrency investor, learn how to use stablecoins effectively before you enter the market. This will help you avoid fees that come with converting your coins to fiat currency each time you want to exit a trade position.
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