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Comment by RexetBlell | Hacker News Reader

The Dai stable coin. Many different smart contracts are constantly working together to keep the token worth very close to 1 USD: https://coinmarketcap.com/currencies/dai/

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I hadn’t heard of this, it’s an interesting concept

This isn't a dapp.

The core mechanisms are enforced by smart contract, dai issuance comes from multiple entities, it provides (or aims to provide) a large number of users some utility (stable purchasing power, whether to hold or spend) - why is it not a dapp?

Is every smart contract a dapp then?

Why is that good?

I assume because it allows you to trade in and out from crypto positions to something that tracks fiat.

This of course assumes that this coin can actually hold its value in the event of a market crash. I also assume it’s not backed by real dollars held in a bank but some kind of basket of other cryptoassets right?

No it is not backed by real dollars in a central location. It's a kind of a derivative. The way it works is very interesting. Recently Andreessen Horowitz and others invested 12M into the project.

It's currently backed by ETH but is moving towards multi-collateral assets. Today, they announced a partnership with Omisego [1], with one goal to allow OMG to be used as a type of collateral. There's also chatter about using DIGIX, which is another stablecoin pegged to the price of gold.

The mechanism by which they maintain stability is quite fascinating. From the whitepaper [2]:

> The Dai Target Price is used to determine the collateral-to-debt ratio of a CDP, and thus the Target Price represents the price at which Dai is backed by collateral in the long term. The Target Price is continuously adjusted according to the current Target Rate. Automatic Target Rate adjustments ensure that the Dai market price remains stabilized around the Target Price in the short term.

> When the market price of Dai is below the Target Price, the Target Rate increases. This causes the Target Price to increase at a higher rate, causing generation of Dai to become more expensive. This leads to CDP users covering their CDPs and leaving the ecosystem, causing the outstanding supply of Dai to decrease. At the same time, the increased Target Rate causes the capital gains from holding Dai to increase, leading to a corresponding increase in Dai demand. This combination of reduced supply and increased demand causes the Dai market price to increase, pushing it up towards the Target Price.

[1] https://medium.com/makerdao/makerdao-and-omisego-announcing-...

[2] https://github.com/makerdao/docs/blob/master/Dai.md#target-p...

How does the system gets information about its own price in relation to the US dollar?

They have a an oracle smart contract that takes the median of a variety of whitelisted price feeds.

https://developer.makerdao.com/feeds/

In general, it is better if the value of your money that you want to use to buy things does not fluctuate every minute like in the case of Bitcoin.

People are working on Dapps for insurance, lending, prediction markets. It is not practical to take out a loan that is denominated in a volatile currency. Also, If you want to bet on the next president in 2020 for example, it is not practical to make the bet using a volatile currency such as Bitcoin.

What about using the USD? And using insurance/lending/prediction markets that use the USD?

USD can't be sent over the wire without the approval of and fees paid to banking institutions, with which both parties must be previously related and approved by.

USD is not the ideal currency in terms of value stability. I know nothing about Dai, but if it works, its technology could be expanded to other, more material, more reliable assets than USD, and that would be great.

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