A Stablecoin Like DAI On Hive Would Be Really Useful

The multi-collateral crypto-backed stablecoin DAI issued by MakerDAO on Ethereum

Introduction

The Hive Backed Dollar is much better than nothing because if a Hive user wants to pay another user for a service, it is much more convenient to make the payment in HBD than HIVE owing to the volatility of the latter. Also, HBD can be useful as a way to protect one's position against volatility. But the pegging mechanism of HBD has serious flaws. While there is a downside peg which helps protect it from plummeting far below 1 USD there is no upside peg. When HBD becomes an object of speculation, there is no limit to how far its value can go owing to its small liquidity. Most of the time it does work as intended, though.

What Is DAI?

DAI is a stablecoin on Ethereum. It is issued by MakerDAO, which is a decentralized system based on smart contracts that allow for the issuance of loans in DAI using multiple different cryptocurrencies as collateral. A borrower of DAI deposits a cryptocurrency, typically ETH as collateral on MakerDAO's Oasis platform against which new DAI is minted and sent to him/her. When a borrower pays back his/her loan, the borrowed DAI tokens are burned.

How is the stability of DAI maintained?

The MakerDAO contracts only issue as much DAI as can be backed by the deposited collateral. Any DAI paid back is burned. DAI loans are over-collateralized due to the volatile nature of cryptocurrency. If the value of a collateralized cryptocurrency dives too quickly, MakerDAO issues more of its governance token MKR to be sold as a way to raise more collateral. If that fails, the collateral is liquidated and the borrower loses it. Holders of MKR are responsible for setting the rate of collateralization required of the borrowers. They get paid in MKR in exchange for participating in the governance of MakerDAO. Fees are paid in MKR by the borrowers.

Conclusion

A multi-Hive-Engine token or multi-cryptocurrency backed stablecoin like DAI would be very useful for Hive. Some of Hive's second-layer tokens are going up in value. I'm pretty sure many holders of those tokens might want to take out loans in a stablecoin native to Hive to diversify their investment in a few other projects on Hive as well. Perhaps more importantly, it could lend more flexibility to trading assets on Hive-Engine. A wrapped version of DAI (the one on Ethereum) on Hive-Engine is another possibility.

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