Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.
DAI is a cryptocurrency that uses algorithms to maintain a peg to the US dollar. It is what is known as a “decentralized” or “algorithmic” stablecoin, and it’s one of the oldest of its kind.
The DAI stablecoin is part of a protocol called MakerDAO, which mints DAI whenever people issue deposits of volatile cryptocurrencies, like Ethereum. These loans are overcollateralized. That means, for example, you have to put down, in one vault as of March 2022, $175 of Ethereum to take out a loan of $100 worth of DAI.
Why bother? One popular strategy is to sell that DAI crypto for $100 worth of Ethereum, and then use that to take out an additional loan of DAI, essentially creating more tokens and providing you with a decentralized form of leverage. You can also use this DAI within other decentralized finance protocols—and if your returns are greater than the cost of the loan, you’ll be in the green.Buy and Sell Bitcoin, Ethereum, and over a dozen other cryptocurrencies with Wealthsimple. Sign up and Trade here.
More generally, however, the DAI token is very useful as a stablecoin—one that, given its decentralized governance structure and backing, can’t easily be shut down by a government or anyone on its governance board.
DAI’s design contrasts with centralized stablecoins like Tether or USDC, whose backing with real US dollars has drawn the scrutiny of regulators, some of whom believe that the coins should be regulated like banks, money market funds, or investment trusts. Centralized stablecoins, most notably Tether, have come under fire for patchy disclosures about the backings of their coins.
Tether, for instance, holds a huge amount of its $70 billion odd backing in high-grade commercial paper—short-term debt issued by companies—but it won’t say whose commercial paper it has bought, and commercial paper bigwigs often say that they haven’t even heard of Tether, leading skeptics to speculate that its commercial paper backing isn’t as secure and diversified as they might hope.
The DAI coin is an ERC-20 token, meaning it lives on the Ethereum blockchain. Indeed, ETH is one of the coins that backs DAI, along with USDC (a centralized stablecoin) and a smattering of others that help the DAI crypto price remain a constant $1.
Because the DAI cryptocurrency is based on Ethereum, traders can earn healthy yields by staking DAI into decentralized finance protocols that are also based on Ethereum, or by exiting trades from volatile trades.
How to buy DAI
There are three main methods to buy DAI. The first is to buy it on a centralized crypto exchange, the second is to buy it from the open market on a decentralized crypto exchange, and the third is to mint DAI yourself by depositing cryptocurrencies.
Through a centralized cryptocurrency exchange
The easiest and most popular way to buy DAI is through a centralized cryptocurrency exchange. Centralized cryptocurrency exchanges are companies that run crypto marketplaces—think of them as the stock exchanges of the crypto world. However, each exchange comes with varying fees, payment methods and risk profiles.
They’re great places to buy DAI with fiat currency—regular money, like the Canadian or US dollar. Centralized exchanges can be cheap, too, so long as you know where to look.
If you’re a Canadian customer, you’ll need to check which exchanges operate in your area. Some exchanges do not operate in Canada, while others, such as Wealthismple Crypto, are only available to Canadian customers. Before you can buy crypto from an exchange, you’ll have to sign up for an account. This requires you to comply with local know-your-customer (KYC) and anti-money laundering requirements, so you’ll probably have to hand over a picture of your ID—like your driver’s license or passport—and provide your name and address.
Generally, there are two ways of buying DAI from an exchange. The first is through a brokerage service, the kind of service that Wealthsimple Crypto offers. Brokerages allow you to buy crypto from vast pools of crypto owned by the exchange—you’re not buying from other traders.
To buy DAI from a brokerage, head to a major exchange and click some variant of the “buy crypto” button. Clicking that button takes you to a page where you have to add your debit card. Then you select DAI and enter in the amount.
Exchanges will charge a fee, and each has its own fee structure. These fees can certainly eat into your purchase, but the process is easy. Brokerage services are best suited for people who want a no-fuss experience while investing in DAI. However, they will pay for the convenience, as fees can compound over time.
The second way of buying DAI from an exchange is to buy directly from the open market via a peer-to-peer trading engine. This is likely to be the cheapest way to buy DAI in Canada. To do this, you’ll need to find the part of the exchange that lets you access the matching engine. Often, this is called the “pro” version of the exchange. It looks complicated, but it’s remarkably easy to understand, and the fees are far lower.
First, look for DAI within the search function of the exchange. This will list all the coins that are paired with DAI. Different exchanges will offer different pairings for DAI, but USDT, Bitcoin and ETH are common pairings. You might notice that some of the pairings are for fiat currencies, which means that you won’t need to buy a cryptocurrency first. Some exchanges only offer DAI pairings with other cryptocurrencies. You can check which markets are offered by an exchange by checking variants of this page on different cryptocurrencies, or by checking the “markets” tab for DAI on aggregator sites like CoinMarketCap or Coin Gecko.
In order to buy DAI with one of these pairings, you need to have deposited the appropriate cryptocurrency into the exchange account. Say you’d like to buy DAI with Bitcoin, you’ll hit the DAI-BTC button and click “sell” on Bitcoin. To buy DAI (or sell Bitcoin) at the market price, you’re looking for a “market” or “spot” trade. You can choose how much Bitcoin you’d like to sell and the exchange will tell you how much DAI you’ll get in return.
Popular exchanges will often offer low or no slippage—meaning that you won’t lose any money due to price changes in the time it takes to process the trade. Crypto exchanges are quick and fast.
Centralized exchanges are often considered risky—regulation remains scarce and there’s no telling what could happen in the event of a bank run—but they are cheap, fast, and allow you to trade across blockchains.
You wouldn’t be able to sell Bitcoin for DAI on a decentralized exchange, for instance, given that they operate on different blockchains; Bitcoin runs on the Bitcoin blockchain and DAI runs on Ethereum. You could, however, trade WBTC, or Wrapped Bitcoin, an Ethereum-based stablecoin that’s pegged to the price of Bitcoin, on an Ethereum-based decentralized exchange).
Through a decentralized exchange
You can also buy DAI in Canada on a decentralized exchange. These are exchanges that run on code and operate without intermediaries. You don’t need to sign up for an account on these exchanges; you access them through an in-browser cryptocurrency wallet, such as MetaMask. These wallets are non-custodial, meaning that only those with access to the private keys to that wallet (ideally just you) can control the funds. Web wallets are usually free to use, and some have staking services built into them—you can check the news and wallet reviews to find the best one suited to your needs, but MetaMask is a popular solution.
The most popular decentralized exchanges operate very differently than centralized exchanges. Instead of a peer-to-peer matching engine that links up buyers with sellers, decentralized exchanges operate vast reserves of pairings that traders can swap in and out of. They’re crypto-native, meaning all trades here happen on the blockchain, so they only support cryptocurrencies and do not support fiat currencies.
Because DAI is an ERC-20 token, you’re limited to Ethereum-based decentralized exchanges. The most popular decentralized exchange on Ethereum is called Uniswap. To buy DAI on Uniswap, the first thing you’ll need to do is to create a Web3 wallet and load it up with Ethereum-based tokens. You’ll need to leave some extra ETH in the wallet to pay for transaction fees on the Ethereum network.
Then you’ll need to connect your wallet to the exchange by hitting the “connect wallet” button and then confirming access within your wallet. Ensuring that you’re in the “swap tab,” from the first box select the token you’d like to sell and in the bottom select DAI. Enter how much you’d like to sell for DAI and hit “swap.” Then confirm the transaction.
With a network fee of $10.91, this is the most expensive option so far. However, because anyone can create a liquidity pool on a decentralized exchange, they support trading pairs for obscure tokens, and are the lifeblood of the burgeoning altcoin industry.
Through minting it
Minting DAI is the most advanced way of acquiring DAI. It involves staking another cryptocurrency as collateral—due to the way DAI is structured, far more than you will receive in return—and taking DAI out as a loan. To do this, head to Oasis, MakerDAO’s protocol. You can borrow DAI using several different tokens, including ETH, Wrapped Bitcoin and GUSD.
You can mint DAI by creating a vault within Oasis, but you’ll need to generate a certain amount of DAI to do so. Given that all coins require an overcollateralized deposit—for ETH you need to deposit between 130% and 170%—this can be expensive. For one ETH vault, which requires a minimum collateralization ratio of 170% and charges a fee of 0.5%, you’ll have to stake enough ETH to generate $5,000 worth of DAI. For a vault that requires 130% of ETH, you’ll have to deposit enough to generate $40,000 worth of DAI.
Although this process is reserved for serious investors and is far from the easiest way of getting DAI, it’s an effective way to understand the protocol. Oasis isn’t the only way you can borrow DAI—you can also use other decentralized lending protocols to take out DAI loans. All decentralized options are available to Canadian users.
Frequently Asked Questions
DAI is a cryptocurrency pegged to the value of the US dollar. It’s what’s known as a stablecoin. Unlike other stablecoins, which back the value of the coin through vast reserves of cash and debt, DAI is backed by other cryptocurrencies. Because cryptocurrencies are volatile, depositors have to “overcollateralize” their position by depositing more cryptocurrencies than they withdraw in DAI.
You can buy DAI from a centralized or decentralized cryptocurrency exchange, or mint it through Oasis, MakerDAO’s lending platform. Centralized crypto exchanges are likely to be the cheapest option and allow you to use cash or credit cards.
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