Stablecoins like Tether (USDT) and USD Coin (USDC) have become mainstays in the Web3 and cryptocurrency market. Stablecoins are used to efficiently make global remittances and payments, supplement crypto trading, and yield farm in DeFi. Due to their stability and backing, these stablecoins have achieved serious adoption in Web3, allowing them to become stable internet money and competitors to fiat currency.
The nature of these stablecoins, however, is centralized and prone to government censorship. The SEC lawsuit against Paxos for the issuance of BUSD has made users realize the importance of having a stable store of value that is not easily censored. One such invention would be Dai, a crypto-native stablecoin built by open-source project MakerDAO, an ethereum-based protocol founded by Rune Christensen.
Dai is a decentralized crypto-collateralized stablecoin created on the Ethereum blockchain. To mint the DAI stablecoin, users must first deposit collateral such as ETH or WBTC onto the Maker protocol. The smart contract will then calculate the value of the collateral posted and allow the user to mint a percentage of that value in Dai. The contract essentially lends an amount of Dai to the user, charging a variable interest rate set by voters of the protocol.
The DeFi protocol ensures that it stays solvent by liquidating collateral if it goes under a certain loan-to-value threshold. For example, a user would deposit $1500 worth of ETH to mint 1000 DAI when the contract requires a loan-to-value ratio up to 80%. If the collateral value drops to $1250, the protocol would start liquidating the ETH for Dai, giving the user back any leftover ETH and charging a liquidation fee.
The smart contract’s liquidation system and code security have been proven to be robust, weathering crypto’s infamous market volatility and adversarial environment.
MakerDAO provides a Dai savings vault that allows holders to earn yield from interest paid by borrowers. Introduced as a mechanic to stabilize Dai’s peg to the US Dollar, the protocol is based on supply and demand. It increases interest rates when Dai is under $1 to encourage users to buy Dai, and it decreases interest rates when demand for Dai is too high.
Since Dai is an ERC-20 token, it can be used on numerous different protocols built on Ethereum and Ethereum Virtual Machine blockchains like Avalanche and Polygon. There are limitless strategies and protocols that offer yields on crypto assets, giving Dai token holders the freedom to customize their portfolio according to their goals and risk profiles.
High yield strategies are generally recommended for more advanced Web3 investors, as they are generally associated with elevated risks. The majority of capital is currently deployed on Ethereum, on DeFi blue-chips that are regarded as the safest platforms to earn interest on digital assets. Some of these blue-chips include Aave, Compound, Convex, and Curve.
As explained before, the savings account or savings vault is a smart contract that distributes yield to Dai stakers earning interest from borrowers. MakerDAO has currently set the savings rate to 1%, but has historically ranged between 0.25% to 8%.
Aave and Compound are DeFi lending platforms that allow users to lend and borrow digital assets without fixed terms. Similar to Maker, borrowers on these platforms would have to post collateral before borrowing other assets.
The interest rate received on stablecoins and other assets is determined algorithmically, mainly based on the ratio of borrowed vs lent capital in the liquidity pool.
Curve is a decentralized crypto exchange that facilitates trading of digital assets. Investors can stake capital on Curve, allowing it to use its market making algorithm to quote prices for traders. Whenever a trade occurs, Curve charges a fee which is split between stakers and the protocol. Stakers also receive CRV rewards from Curve.
Convex is another application built on top of Curve that helps stakers optimize earning rewards from their CRV.
Origin Dollar (OUSD) is a yield-bearing stablecoin protocol that utilizes Compound, Curve, Aave, and Convex to historically earn over 9% APY on its stablecoin reserves. OUSD greatly enhances yield for holders by using its proprietary strategies built on top of the DeFi blue-chips listed above, allowing them to earn market-beating yields in TradFi and DeFi.
Retail and beginner Web3 investors may be attracted by centralized platforms that allow you to stake your crypto for double digit yields. Though Celsius and Voyager have shown these platforms may potentially end up insolvent, certain individuals with high risk tolerance may find them useful. Risk-averse investors should ponder how these platforms generate such yield, when many stocks and equities fail to achieve such performance.
For such investors, OUSD is highly recommended due to its transparency, market-neutral strategies, and competitive interest rates. OUSD’s stablecoin reserves and strategies can be actively monitored 24/7, as the protocol is built on Ethereum. Unlike platforms which may take advantage of their opacity to defraud users, OUSD is built with radical transparency and the users’ wellbeing in mind.
OUSD holders can enjoy passive income while the protocol actively rebalances and creates new strategies to ensure yields stay competitive and safe.
To start earning interest with OUSD, users simply hold it in their Web3 wallets to directly receive daily interest accruals. Simply obtain OUSD via exchanges such as Uniswap, Kucoin, or Gate, or directly via the Origin dapp. No staking or lock ups required.
What makes DAI different from other stablecoins like USDT or USDC?
DAI is unique as it is a decentralized crypto-collateralized stablecoin, maintaining its price stability through the Ethereum blockchain, not centralized reserves. This method secures its value against the price of DAI without relying on traditional financial systems.
Where can I earn the highest interest on DAI staking?
For the best yields, consider DeFi platforms like Aave, Compound, and Origin Dollar (OUSD). OUSD is especially noteworthy in decentralized finance (DeFi) for leveraging multiple strategies to offer competitive and safe returns on DAI investments.
Is staking DAI safe, and how can I minimize risks?
Staking DAI on reputable platforms such as Aave, Compound, and MakerDAO's DAI Savings Vault is generally safe. To minimize risks, diversify your investments across various protocols and stay updated on the security practices and performance of these DeFi platforms.
