The Dai Stablecoin System

The five-minute read

One action, walked through

1. A user opens a vault, locks an accepted collateral, and draws Dai up to the liquidation ratio.
2. A stability fee accrues on the drawn amount. The user must repay Dai plus the fee to unlock collateral.
3. Oracles update the collateral price. If the ratio breaks, the vault is sent to auction.
4. Keepers bid Dai or the collateral, under the auction rules of the version being cited, to cover the debt.
5. If governance triggers shutdown, further minting stops and Dai is settled against the remaining collateral at the settlement price.

The argument, unpacked

What has to be true

• The oracle price is close enough to a market where keepers can actually sell.
• Auctions complete. A stalled auction during a crash is how a surplus becomes a shortfall.
• Debt ceilings and governance delay are set so one collateral cannot swallow the system unnoticed.
• Shutdown settlement is implementable. A settlement price that cannot be redeemed is a paragraph, not a backstop.

What happened after the paper

Maker moved from single-collateral Sai to multi-collateral Dai, added new auction mechanics after the March 2020 event, and later added real-world collateral that behaves nothing like ether in a crash. The 2017 paper is still the right anatomy: vault, fee, oracle, auction, shutdown. It is not a description of every later collateral type, and it is not a promise that the peg holds.

What to check before you use the idea

• Which collateral, which ratio, and which oracle?
• What do keepers bid in a liquidation, and did that mechanism change after 2020?
• Who sets the stability fee, and how fast can it change?
• What does a Dai holder receive in shutdown, in the version being cited?

Terms

Vault

The position that locks collateral and mints Dai. It is a debt, not a deposit account.

Stability fee

Interest on the minted Dai, used as a peg tool.

Liquidation ratio

The collateral multiple below which the vault is auctioned.

Emergency shutdown

The stop that settles Dai against collateral and ends further minting.

The problem the paper names

A token that simply promises a dollar is a claim on a bank account. A token that is minted when someone locks a volatile asset is a claim on that collateral and on the liquidation process. Maker's paper specifies the second object.

What the design proposes

• A vault locks collateral and mints Dai up to a limit set by a collateralisation ratio.
• A stability fee accrues on the debt. That fee is a monetary tool in the paper, not a service charge hidden in a terms document.
• If collateral value falls through the ratio, the position is liquidated through an auction.

How the mechanism is specified

• Keepers and price oracles are part of the safety system. The paper does not work without a price.
• Emergency shutdown settles the system to collateral. It is the 'stop' the design is willing to name.
• Multi-collateral Dai and later modules extend the 2017 single-collateral story. Name the version.

What this page does not treat as proven

• Overcollateralisation only protects the peg while the collateral can be sold for something near the oracle price.
• Governance parameters can change the risk after a user opened a vault. That power is part of the system, not an embarrassment to be omitted.
• This is not a claim that Dai has held or will hold a peg. Pegs are empirical.

Why a venture studio still reads it

The studio test for a 'decentralised dollar' is the Maker paper's inventory of moving parts: collateral, ratio, fee, oracle, auction, shutdown. A pitch that has a token and none of those parts is a different, weaker object.