07 October 2020 | ZebPay Trade-Desk
The DAI vs USDT Comparison
The ZebPay team is proud to bring you DAI, yet another exciting token launch to add to our DeFi offerings.
Like USDT, DAI too is a Stablecoin. Essentially, a stablecoin attempts to offer price stability and is backed by a reserve underlying asset. It offers the best of both worlds—the instant processing and security or privacy of payments of cryptocurrencies, and the volatility-free stable valuations of fiat currencies.
DAI vs USDT – Summary:
|24 HR Volume||$81,932,400||$44,822,997,425|
|ROI (from ICO)||1.20%||0.04%|
|All Time High/Low||$1.14 / $0.95||$1.21 / $0|
|Circulating Supply||869,589,167 DAI||15,607,118,421 USDT|
Dai is decentralized and backed by collateral. It aims to empower, and facilitate greater security, transparency and trust towards the Maker Protocol, on which the DAI can be generated and traded. Dai (DAI) is a stablecoin built on the Ethereum (ETH) blockchain. It attempts to maintain a value of $1.00 USD. Unlike centralized stablecoins, Dai isn’t backed by US dollars in a bank account. Instead, it’s backed by collateral on the Maker platform, using the MKR token.
The idea behind Maker DAI is to create a rock solid, trust based stablecoin. The underlying asset in DAI’s case is the US Dollar. The purpose of a Stablecoin is to eliminate a crucial problem that cryptocurrencies tend to face – volatility. There is however a crucial difference between DAI, which is built on the maker platform and other stablecoins. Basically, DAI’s value proposition is that it combines the stability of a stablecoin with the truthfulness of the decentralized Ethereum blockchain.
Maker DAI allows any person to deposit their ETH as security and use the resulting new DAI tokens by creating a CDP. The user can trade these DAIs on the secondary market on various exchanges, against multiple cryptocurrencies and fiat currencies as well.
It’s simple: against a deposit of ETH as collateral, a CDP is issued as a financial instrument, the credit amount of which is issued in the Stablecoin DAI. The deposited ETH remains locked until the issued DAI is repaid.
Established in 2014, Tether (USDT) is one of the oldest Stablecoin in the marketplace.It was created to protect its stakeholders from the price volatility that cryptocurrencies experience, by preserving a one-to-one reserve ratio among the crypto token, i.e. tether and its associated fiat currency/real-world asset, in this case the US Dollar. It was devised as a solution for investors to transfer assets from one exchange to another for minimal fees.
Tether is built on top of an Omni layer protocol, which is formed on the BitCoin blockchain.
Once a Tether is issued, the user can store it, transfer it, or spend it just like any other cryptocurrency. The fiat currency held in reserve is then transformed, acquiring the properties of a cryptocurrency while having its price stabilized [tethered] to the price of the fiat. Tether tokens have zero transaction fee, can be easily traded on exchanges, and can also be held in Bitcoin wallets. Tether Limited, the custodian,does however, charge a small fee while issuing new tokens, to generate revenue.
At the time of writing, Tether maintains market leadership among stablecoins, both in terms of market capitalization as well as volumes.
The Comparison of Key Features – DAI vs USDT
|Asset Backed/Algorithmic||Asset Backed||Asset Backed|
|Collateral/Reserves Type||ETH||USD, EUR, Yen|
|Any Upward Participation||Yes, Stability Fee paid (MKR burned) when CDP is closed, thus reducing MKR supply and driving MKR price up.||No|
|# Fiat Pairs||3||4|
|# Crypto Pairs||67||396|
|Ownership||Maker (MKR token holders)||Several Major Exchanges|
|Platform||Ethereum||Omni Protocol, BitCoin|
|Open Source||Yes||Hybrid (on top on Omni Layer)|
|General Use||Trading Pairs on Decentralized Exchanges.||Synthetic US Dollar|
Key Advantages – DAI:
- Financial freedom with very low volatility – A price stable currency, that allows users to instantly generate DAI, on their own terms. Value is derived as one can obtain liquidity without having to forgo any of their ETH tokens.
- Decentralized Governance – MKR token holders community control and govern the Maker Protocol, the smart contracts that powers Dai.
- Rapidly expanding ecosystem – Currently 400+ applications have integrated Dai, including wallets, DeFi platforms, games and more.
- Limited supply, and growing demand – MKR is burned with each transaction, which means that the number of MKR coins in circulation will decrease over time. This could be a classic demand/supply issue, like the BitCoin, as it’s supply diminishes, the value of MKR and DAI, is likely to increase.
Key Advantages – USDT:
- Oldest in the Lot – Tether is a proven concept, and over time has shown the most great stability, and a strong track record, gaining the trust of traders.
- Market Capitalization and Leadership Position – Tether dominates the current stable coin trading volume landscape with a 93% market share among Stablecoins. In addition to that, it has availability among 396 crypto pairs, making it extremely liquid and popular.
- Exchange Support – Tether adoption forced exchanges that do not offer US dollar customer accounts, to adapt and re-design their offerings. As Tether is increasingly used as a hedging and risk management tool to counter cryptocurrency price volatility risks, exchanges have had to provide for this arrangement.
Traders Take – DAI vs USDT:
Dai is backed by ETH, and it does not have counterparty and credit risk when compared to centralized stablecoins like Tether. Since launch, Dai has managed to stay relative to its USD soft-peg. The introduction of multi-collateral CDP’s will assist in expanding the reach of the coin and allow Dai circulating supply to increase further.
For a few years now, traders fundamentally believed in Tether, and that is the main reason for its market dominance. However, the issues and concerns Tether is facing, in terms of counterparty and credit risk, lack of clarity with respect to legal rights, and its increased dependency on Tether Limited, offers an opportunity for other providers to issue alternative stable coins. This might be the reason for the market share of USDT has fallen from 93% to ~ 70% at present.
Snapshot – DAI vs USDT:
|Average UTC close||Std. Deviation YTD|
|60 Days||30 Days||(movement – $1 USD)|
Demand and supply factors seem to favor DAI as this year has been trading at a slight premium to USD, while USDT has been close to USD. USDT has been fluctuating between a very small premium or discount to USD. Although Deviation from USD is minuscule for both coins.
To sum up, both stablecoins really serve the same purpose, but they differ a lot in the way they operate with respect to the network they are built on, automation, complexity etc. Tether has the advantage of being the oldest, while DAI has an advantage of open-source, trusted and decentralized. Tether has counterparty and credit risk, but DAI has an issue with its complex design. With this in mind, one needs to decide what suits their needs the best. Tether is great for traders, as it can be used in a more comprehensive way on exchanges for trading, but if one is looking to shop on DApps, DAI is helpful.