Mars Session | Building a Decentralized Stablecoin: Dai

Mars Session | Building a Decentralized Stablecoin: Dai

Nov 22nd 2018| Investment By:Max
how did Dai build to be a decentralized stablecoin?

First question-

Max: Let us welcome today’s guest Rune Christensen: He is the co-founder and CEO of MakerDAO, the organization that brought Dai, the first fully decentralized stablecoin on the Ethereum. I am curious about what is the meaning of the stablecoin name “Dai”?

Rune: It’s an interesting story behind the name actually, as it relates to the development of the project over the past 4 years. First when maker was announced the stablecoin was called eDollar because it was going to be an “Ethereum dollar”. However as we evolved the concept, we realized it was so powerful that it could go beyond just trying to emulate the dollar, and become a proper replacement for it on a global scale. This means that it wouldn’t necessarily be the best to have it always tied to the dollar, so we decided to peg it to something more international - initially the SDR - and then we needed a new name for it. My wife, who’s Chinese, came up with the name Dai from Loan in chinese, because it is based on a credit system. It also has some other interesting aspects, such as Wei Dai being the inventor of the concept of digital currency. In the end we ended up changing the peg for Dai back to USD, because it is important to use USD as a starting point for adoption, because everyone is familiar with it

Second question-

Max: That's really interesting! Let us move to the second question- In the bear market, in particular, people need a defensive stability of stablecoin, please simply introduce the principle of Dai. There are three types of stablecoin(Fiat-Backed Stablecoin, Commodity-Backed Stablecoin, Cryptocurrency-Backed Stablecoin and  Seignorage-Style Stablecoin) which type dose Dai belong?

Rune: Dai is a crypto-backed stablecoin, but it is a special variant of it because it is multi-collateralized. So rather than just one type of crypto as collateral, which is what e.g. BitCNY uses, it can support hundreds or thousands of different assets in the long run. Right now the current version of the system is still just a beta release that only supports ETH as collateral, but early next year we will release the full version of the system that supports multiple collateral types, and will support assets like REP, OMG, DGX and other stablecoins like GUSD, USDC, TUSD as collateral. It’s very important to have different collateral types that are as uncorrelated from each other as possible, because this way the stablecoin is still protected if one of them crashes.

Third question-

Max:In contrast to USDT, Dai offers new value to users and institutions such as open auditing, full transparency and decentralization. Could you tell us the difference betweent Dai and USDT, how did Dai be decentralized?

Rune: the way we protect the codebase from hacks is through formal verification, this means using mathematical proofs to ensure there are no exploits. Our team has pioneered this technology in the smart contract space and the current testnet version of Dai is the first ever formally verified major dapp. So Dai is very different from USDT because there is no authority or counterparty you trust to protect your assets. Instead the value backing Dai is held in the autonomous smart contract system. No one, not even the foundation or developers, have special access to the system or able to take the collateral in some way. All users can verify at all times that all the backing collateral is there, and that Dai is still solvent and stable. You can check it out on MKR.tools.

Fourth question-

Max: The stabilization is not really stable as it has a steady exchange rate for offshore dollars. In Aug 14, 2018, MakerDAO and Wyre provide stablecoin exchange of compliance to more than 30 countries around the world. When will the stablecoin could be truly stable not only with the dollar but also with the legal tender of any country?

Rune: We recently announced a partnership with ripio.com which is the biggest wallet and exchange in South America. They now support easy storage and access to Dai. This means that people in countries like Argentina, which has 40% inflation, and other countries like Brazil and Venezuela which has similar problems, now have very easy access to a digital dollar. We are also going to roll out integrations with major European partners early next year. Later in 2019 there will be a Dai for each local currency, so EuroDai, YuanDai, RupeeDai and so on.

Sakura: Does Dai has a stable currency pegged to the RMB now?

Rune: YuanDai (CNYD) will come hopefully in 2019.

Max: How about Dai pegged to Hong Kong dollars?

Rune: HKDD will also come either 2019 or 2020. Also one day in the far future we will have US dollar Dai, and the “standard Dai” will be pegged to a global basket of currencies over the next 3 years. CPI that makes it truly globally stable against all local currencies - like a better version of the SDR.

Fiveth question-

Max: My fifth question is  what is the strengths and weaknesses of Dai?

Rune: The major strengths of Dai is that it is decentralized so maintains the spirit of bitcoin, but also stable and sound because it uses real assets to back it - so you get the best of both worlds compared to other stablecoins like IOUs that don’t have decentralization, or uncollateralized stablecoins that don’t have the sound backing of real assets. Another major advantage is the Dai Savings Rate - in the full release of the system you hold Dai you earn an interest rate over time sent directly to your wallet. So it will be like a bank savings account that automatically earns you a return on the money you save.

The weakness of Dai is that it is a very advanced and very new type of technology. This doesnt mean it is unsafe because we use formal verification and have been very patient in spending almost 4 years researching and developing the system. But it means that it takes a lot of explanation to make new people understand how it works.

Max: How long did you thought the time will spent on market education to make new people understand how it works ?

Rune: I think it will be rapidly adopted by users who get a specific benefit from it, enterprise and institutional users who need it to make their businesses more efficient and who want cheaper credit, and the unbanked who can use it as a way to finally get connected to the global financial system.

Sixth question-

Max: The community have sentiment surveys effect. What is your Community Strategy?

Rune: Community plays a major role in the Maker system, because the Maker community is responsible for governing Dai and keeping it stable - so we are probably the most community focused project in crypto, but we also have a different approach.

Max: What is the different approach?

Rune: For us community isnt about hype or marketing, its about creating a highly engaged and educated base of governors who are able to make intelligent and informed decisions and contributions that can help with securing the stability of Dai. Because MKR holders vote directly on the risk parameters of the system - determining how collateral can be used in the system and what collateral types are risky, which ones are safe, which ones are correlated etc. We have a big community team and governance team that focuses on teaching the core community financial and risk management skills to help participate in the governance process. We have a big community team and governance team that focuses on teaching the core community financial and risk management skills to help participate in the governance process. Instead of having 9 central bankers deciding the fate of the financial system behind closed doors, we want all people in the world to have open and direct access to coordinate the global economy.

Seventh question-

Max: Dai has been stable since the launch of 2017, maintaining a 1:1 anchoring to the dollar. As is known to all Dai has not even been affected by several slumps in 2018. Once in the interview, you said that you want to make it become the decentralized bank of the blockchain,and you're trying to do something about it, could you talk about the efforts you trying to reach the target?

Rune: I would say we have already achieved that to some extent, but the real exciting thing is when we get real world assets on the Blockchain. Once we have tokenized real estate, users will be able to take a mortgage loan directly from the Blockchain by using Dai, and it will be cheaper, faster and more secure than current banking solutions. Companies will also be able to operate entirely without a bank account, relying solely on Dai to store their value, but will still be able to interact with the traditional system and e.g. send money to bank accounts of their business partners and suppliers.

Eighth question-

Max: I have read some document about your  Risk Management, but I still not quite understand, lots of formula , could you explain it?

Rune: The key principle of our risk governance approach is that it is based on the scientific method - so while MKR holders vote in what the risk parameters of the system will be, its not just a popularity contest where people vote for whatever they want, it is a scientific debate process where we look at data and models and try to apply them as objectively as possible while remaining fully open to input from anyone who has a legitimate argument, data or models they can contribute. So e.g. when the liquidation ratio for ETH is set, it is based on how volatile we can measure ETH to be - this way we can be sure that there is enough of a collateral buffer to protect against sudden swings in price.

Nineth question-

Max: What’s the transfer speed of Dai? Dai's transfer speed currently depends on Ethereum's network speed, Vitalik is also in our group, if any possible that the transfer speed of Dai will be faster?

Rune: We focus on having Dai available in many different networks, so we are not held back by ETH scale, or any other Blockchain. Right now we already have a two way peg to a new sidechain called the xDai chain. This Blockchain has more than 100 TPS and a transaction fees are paid in Dai and cost less than 0.00001 USD per transfer. What’s important is that it is still real Dai backed with ETH, and it is also interoperable with Dai that is transferred to other Blockchains that we support in the future, such as polkadot or dfinity.

Max: Is it to increase the compatibility of Dai?

Rune: Yes, our philosophy is that Dai should be available to users and developers regardless of what Blockchain, app, wallet that they want to use. So it will be fully Blockchain agnostic and compatible with any system in the long run.

Tenth question-

Max: A new form of financing, DAICO, is emerging amid the ICO's woes. The concept was proposed by the Founder of Ethereum Vitalik in January 2018. DAICO is a combination of DAO and ICO, means Decentralized Autonomous ICO. At present, DAICO is still in its infancy and has not been widely popularized. What is your opinion toward to DAICO?

Rune: I think ICOs and DAICOs as well are going to not be very popular for a while, because there have been so many bad ICOs and regulators are increasingly looking to clean up the space - I think once theres some more regulatory clarity in the space ICOs could come back, and I definitely think that the DAICO model is a very interesting use of the strengths of Blockchain technology to make public fundraising a lot more powerful.

Max: All right, my questions are over and thank you for your sharing, I really learn a lot about stablecoin Dai and its highlights.