What is the difference between DAI and other stablecoins?
In contrast to most stablecoins currently on the market, DAI is not backed by fiat money on a bank account (like Paxos, USDC, True USD or Tether). Instead, DAI is a decentralized stablecoin backed by the use of Collateral Debt Positions (CDP) through smart contracts implemented by the Maker Foundation.The scalability of the DAI algorithm has been questioned by critics because, unlike fiat-collateral stablecoin, it may not lead to a virtuous cycle of stablecoin arbitrage where professional arbitrageurs react to market signals and keep supply and demand in a constant balance. For more information about the scalability of the DAI algorithm, you can read this article
How does it work?
You can lock crypto assets (only Ethers for the moment) into CDP and you will get a loan of DAI tokens (approximately half of the deposited amount). To get back the locked ETH, you just have to pay back the DAI tokens you borrowed.
What is the point of the DAI stablecoin?
DAI can be useful if you need fiat money and you do not want to sell your Ethers. Moreover, DAI can also be traded on crypto exchanges. If you are on a crypto to crypto exchange like Blockchain.io (with no fiat money), DAI may be used to protect your portfolio from the market price volatility.
Why DAI is a decentralized stablecoin?
A centralized stablecoin like Tether can only be created or destroyed by Tether Limited. On the contrary, DAI tokens can be created or destroyed independently by individual users.Also, unlike centralized stablecoins like Stasis EURS, DAI tokens can be transferred freely from wallets to wallets.