What is the difference between Tether and DAI?
September 27, 2023
USDT or Tether and DAI or MakerDAO are two of the most popular cryptocurrencies in the market. both have been designed to have a stable value so investors can participate in the market without worrying about high volatility.
Although they are similar in many ways, there are also distinct differences. In this article, we will discuss the advantages and disadvantages of each of them to help you choose the best one. Stay tuned with Aron Groups to find more on the top stablecoins differences.
Table of Contents
The history of Tether and DAI
DAI and Tether have a challenging history with so many controversies. They faced difficulties that shaped them in many aspects. Tether has been questioned for not having a precise audit about reserving dollars. Tether claims to keep the value of USDT with a 1:1 ratio to the dollar, but reserving the dollar and issuing new tokens are not transparent. Let’s study DAI and Tether’s history in detail.
read more: What is the difference between USDT and USDC?
DAI history
MakerDAO is the organization that introduced DAI to the market in 2014. Run Christensen is the founder who built the protocol on the Ethereum blockchain. The Dai was introduced to the market in 2017.
Soon, it was recognized by investors and became so popular. DIA holders have the advantage of voting about possible changes in the protocol.
The government system of DAI is centralized in many aspects because, in the end, Christensen and its team of developers decide about any protocol changes. These people hold most of the MKR tokens and have more influence.
In 2022, Christensen announced that the organization wants to invest DAI reserve in different assets to create a diversified portfolio. Christensen wants to use the reserve to invest in other crypto projects and real-world assets; this will change the very nature of the project because it was built based on providing collaterals. On the other hand, Christensen offered to change DAI to a digital currency, not a stablecoin.
Tether history
Tether, on the other hand, is considered to be the most powerful stablecoin in the market. It was launched in 2024 by Tether Holding Ltd. It was first created to function within the Bitfinex exchange. But in the following, it became the most popular stablecoin to buy and sell cryptocurrencies. Critics accused Tether of issuing fake tokens to increase cryptocurrency prices.
This accusation resulted in a $60 billion fine in 2021. Tether was lying about the reserve, and touch was not issued at the rate of 1:1. So for every Tether it issues, there was never a dollar in reserve.
Despite challenges and controversies, Tether is still the most popular stablecoin in the crypto market.
Understanding DAI and Tether
If you’re familiar with stablecoins, you know how DAI and Tether operate. This organization provides stablecoins, an exchange of crypto or fiat collateral.
Tether is a private company that aims to profit by issuing stablecoins. This company releases stablecoins in exchange for the dollar. Investors can sell USDT in exchange for $4 or use it to purchase cryptocurrencies on different exchanges. Tether organization ensures to keep dollar loans in a safe reserve to back Tethers, and it will maintain the ratio of 1:1 and keep Tether stable.
DAI, on the other hand, works differently. This stablecoin Has been launched on the Ethereum blockchain. The MakerDAO is a private company that aims to make a profit by introducing DAI using a unique algorithm.
Investors who buy DAI provide a loan of 150% to the protocol. For example, if you want to buy DAI worth $100, you must provide $150 worth of Ethereum to the protocol.
This process is designed to protect DAI from Market volatility and keep the prices stable. So, even if the price of Ethereum decreases, it won’t reduce the DAI price. Collaterals are provided using smart contracts called CPDs.
The DAO Algorithm keeps a record of every loan and collateral to prevent the possibility of decreasing the price of DAI. Investors can return DAI to the protocol and unlock their collateral by paying a fee.
Tether and DAI use cases
Tether and DAI have many different use cases. Stablecoins are the perfect tool to exchange cryptos without being worried about volatility. You can trade Tether and DAI on decentralized and centralized exchanges.
Merchants use Tether and DAI to pay for expenses as these stablecoins are less volatile than Bitcoin and other cryptocurrencies, making them a better choice for conducting international transactions. International transactions are managed faster and cheaper using this type of currency.
Tether and DAI are also used in the Defi industry on a large scale, allowing people to participate in borrowing and landing protocols. Users can make a profit by lending Tether and DAI as well, and they can also use Tether and DAI as collaterals in exchange for other cryptocurrencies.
Every investor receives 1% when buying DAI, so you can also make money by holding Dai.
Dig deeper into Tether.
As of January 2023, Tether has been the biggest stablecoin in the market capital and is the third most popular cryptocurrency after Bitcoin and Ethereum. There are more than 60 billion Tether orange circulation and no fixed supply, so the supply is determined based on the demand for the stablecoin.
You can sell Tether or exchange it with other cryptocurrencies. Tether the company with a burn token to maintain a fixed value. Different blockchains, including Ethereum, Hedera, Algorand, and Solana, support Tether.
Given that Tether is still accused of not providing a transparent governance system. Releasing too many Tethers will result in a price and demand decline.
Dig deeper into Dai
As of January 2023, DAI is the 4th stablecoin with $5.8 billion in the market. It is the 16th crypto in the market in terms of market capitalization.
The network governance is decentralized and autonomous. The founders participate in the decision pool to decide the future of the Dia. Dai benefits from smart contracts to maintain stability.
Differences between DAi and Tether
Tether and Dai are different in many ways:
Backing Mechanism
Fiat currencies back Tether, while Dai accepts cryptocurrencies as collateral; this big difference influences the issuance of new tokens in each company. Releasing Tether is not transparent, but Dai took advantage of smart contracts and provided a more transparent process.
Reserve
Tether has been under question since 2015 for not providing a transparent process or storing dollars. On the other hand, Dai uses crypto collaterals, so the process is more transparent and clearer. However, DAI does not accept every cryptocurrency as collateral.
Market capitalization
Tether is the 1st, and Dai is the 4th stablecoin in terms of market capitalization. So, Tether is more popular than DAI, and it is easier to use. In comparison, Dai has use cases in the Defi industry.
Different stablecoins
Dai and Tether are two of the most popular stablecoins in the market with different use cases. Tether is the biggest centralized stablecoin in the market. The process of issuing new tokens in the Tether network is not transparent, although it has already used the popularity of USDT.
Dia is a decentralized stablecoin with a transparent process of releasing new coins. It uses smart contracts and accepts cryptos as collaterals. Tether has performed better in market capitalization than Dai, while Dai has been more popular in the Defi industry.
You can benefit from stablecoins when trading cryptocurrencies; there are different types of Stablecoins In the market, and we have introduced the most popular. it is up to you to choose the perfect Stabelcoin according to your needs and trading style.
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