Stablecoins: DAI VS USDT
Apr 28, 20228 min read
Let’s find out more about what exactly a stablecoin is. A stablecoin is a kind of cryptocurrency that is pegged to a more stable asset as a basis for its value. Often it’s linked to a fiat currency, such as the U.S. dollar, but it can also be linked to precious metals or even other cryptocurrencies. Stablecoins are considered to be less volatile with a bigger potential to be like the types of currencies people already use on a daily basis.
The most important qualities are:
- They are open, worldwide, and highly accessible on the Net 24/7
- They’re quick, cheap, and secure to send
- They’re native to the Internet and programmabl
Main types of stablecoins:
What Is $USDT?
- Market cap: $83,145,280,750
- Circulating supply: 83,126,200,539 USDT
- Price change history: $0.84 - $1.077
Tether is a stablecoin pegged to fiat. The most common peg Tether uses to the US Dollar (ticker $USDT). 1 USDT remains exactly equal to $1—not more or less. It’s something like a crypto dollar. Tether users are preserved from the volatility of cryptocurrency, but they’re still open to fluctuations in the pegged fiat currency’s price.
How Tether Works
Initially, all Tethers were based on the Omni Platform. This platform is used for many other digital assets, which are backed by the Bitcoin blockchain. Ethereum-based Tether coins were also launched, and now it’s their most-utilized network. But that was just the beginning, and Tether tokens now exist on over 8 blockchains, including Tron and Solana. The Tether peg is maintained through collateral. For every 1 USDT in existence, there’s a US Dollar worth of currency or other assets stored in deposit. For 1 USDT to be worth $1, it must be refundable at any time for $1 of fiat currency. By now, USDT is only straightly convertible to USD through a limited number of exchanges or through Tether itself (to do so, you need a $100K minimum, and you’ll be charged noticeable fees, as well). For 1 USDT to be worth $1, Tether and exchanges must keep a reserve of dollars to back every existing USDT.
What Is $DAI?
- Market cap: $9,108,200,505
- Circulating supply: 9,111,126,615 DAI
- Price change history: $0.96 - $1.09
The Maker Protocol — the architecture underlying the DAI stablecoin — was introduced in December 2017.
DAI really differs from other stablecoins. Firstly, DAI is about an incredible degree of decentralization. For example, stablecoins like tether (USDT) provide you with a cryptocurrency pegged to fiat assets controlled by a central organization, meanwhile, no one controls the DAI issuance. Instead, users looking to hold DAI submit Ethereum-based assets into a smart contract that uses them as collateral in maintaining DAI’s peg to the U.S. dollar.
Secondly, most stablecoins are usually collateralized against a single fiat currency or cryptocurrency, and DAI can use various cryptocurrencies as collateral: ether (ETH), basic attention token (BAT), USD Coin (USDC), wrapped bitcoin (wBTC), compound (COMP), and others. From the beginning, the Maker Protocol supported only ether as collateral. However, in 2019, the technology added BAT and USDC, designing today’s multi-collateral DAI system. The increased number of collateralizable currencies reduces user risk and increases DAI’s price stability. New collaterals will be added via voting by the MakerDAO community.
Thirdly, DAI holders earn interest on their DAI. Those who hold MKR, MakerDao’s native token, set the DAI Savings Rate (DSR) and act as for warrantor’s DAI — meaning, their MKR tokens can be eliminated if the system is crashed. This structure incentivizes guarantors to ensure the proper functioning of the DAI system and its collateralized tokens.
How DAI Works
DAI is an ERC-20 token, and you can buy it from centralized exchanges (CEXs) and decentralized exchanges (DEXs). Above all, you can generate and borrow DAI if you have a Maker collateral vault with MakerDAO’s Oasis Borrow dashboard and store Ethereum-based assets as collateral. Maker collateral vault is a smart contract that has collateral in escrow until the borrowed DAI has been returned. It’s with mentioning that the collateral value you deposit must overtake the DAI value you are issued. If the value of the collateral is below the value of the issued DAI tokens, your collateral will be eliminated. DAI is one of the best-integrated crypto assets in the blockchain ecosystem and, once borrowed, can be used in decentralized finance (DeFi) apps, in blockchain-based games, and in other places.
DAI VS USDT
To compare these two, let’s have a look at their pros and cons closer:
- Stable price backed by the U.S. Dollar
Cryptocurrencies are famous for their volatility. But stablecoins like DAI change the game's rules in the crypto industry. As long as the US dollar is stable, so does the DAI's price. The DAI trade market attracts investors looking for steady growth of assets over time.
- Financial freedom
Before approving a traditional loan application, a bank has to thoroughly inspect your credit history and financial statements and does other investigations and check-ups on you.
Borrowing DAI coins give you some financial freedom. You just need to have collateral to deposit to take out a loan. Thanks to such a permissionless and transparent system, it’s easier for business owners, investors, and individuals to start diversifying and liquidating their assets. The Dai Savings option makes the saving experience easier and more rewarding.
- Money transactions 24/7
No “banking hours” and high fees. What’s more important, the MakerDAO developers make sure it’s secure to manage finances with the Maker Protocol. There are smart contracts, built-in wallets, and two-factor authentication safety measures.
- Adopted DeFi app
DAI has already integrated within 400+ apps. That includes DeFi apps, games, wallets, etc. Because of DAI's stability, users can be more confident in taking loans, sending, receiving, and investing with stablecoin.
Crypto debit cards, such as Coinbase cards, also accept DAI as retail payment anywhere in the U.K. and the European Economic Area.
DAI is only listed on a few big exchanges that's why it doesn't have that many trading pairs compared to centralized stablecoins such as USDT and USDC.
- Ethereum Dependent
It's collateralized by Ethereum, which is way more volatile than the US Dollar. That involves a higher risk for DAI holders comparing to centralized stablecoins collateralized by fiat currency.
- Peg Stability
DAI tends to fluctuate more than centralized stablecoins because it's collateralized by a volatile asset in Ethereum.
USDT’s Pros and Cons
- Stable, stable, and stable one more time
In the case of the stablecoins tier, the main benefit is that they aren’t as volatile as other cryptocurrencies. So, 1 USDT is equal to 1 $ USD.
- Cheap transactions
If you transfer money from one USDT account to another, you’ll pay any fees for that transaction. But there is a small commission once you swap USDT for other cryptocurrencies or fiat currencies.
- It is a highly flexible currency
USDT is easy to integrate into exchange platforms. That’s why all exchange platforms have pairs to trade.
The USDT brought much clarity to the crypto world. The U.S dollar backs the coin. A buyer can be sure of the coin’s cost they are purchasing. Above all, Tether limited has promised to control and manage the coins reserve and then which also boosts the transparency.
They provide the information about the value of the reserves daily and update it once a day.
- Not a brilliant reputation
The matter is that the stablecoin was used several times to perform gray operations in crypto markets, such as price manipulation of other cryptocurrencies and criminal acts. A money-laundering scheme? Nobody can tell for sure, but having such a vast market capitalization reached in a short time, is still a mystery.
- No anonymity
You need to make a bank deposit to create the tokens, which removes the privacy that gives your data to the company.
- Lack of decentralization
Tether controls it, so it can’t be fully decentralized, and it depends on the company begins it.
Where to Buy and Store DAI and USDT?
You can buy these stablecoins from various CEXs and DEXs such as SimpleSwap, Binance, Gate.io, Huobi, Kucoin, and alike.
To store your DAI and USDT, you can use a SimpleHold wallet, a beginner-friendly, easy-to-use, and nicely designed wallet with NFT viewing feature.
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