Cryptocurrencies can be a useful tool for investing, as a decentralised governance platform, and as a transactional currency. The global cryptocurrency market is volatile, however, especially when compared to traditional asset markets and fiat currency.

To use cryptocurrency as an effective transactional currency in the current market, you must use a token which is pegged to the value of a stable fiat currency. MakerDAO recently launched its tethered currency Dai, which is pegged to the US dollar.

The token is built on the Ethereum blockchain as an ERC-20 token and was implemented on the main network in December 2017. MakerDAO uses its Dai Stablecoin System to ensure the price of Dai does not vary outside of acceptable norms in relation to the dollar.

Each Dai token is backed by an amount of Ethereum, which varies depending on the value of Dai in relation to the dollar. This means that as the value of Dai increases in relation to the dollar, an increasing amount of downward pressure will be applied via the manipulation of its backing currency – returning it to normal.

This process is governed by MKR token holders. The MKR token (also built on Ethereum) is a governance token which allows holders to vote on the risk management and business logic of the Maker system. Read more from…

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