Tether is a significant element of the cryptocurrency market. Numerous exchanges stock it and also give it the status of being a trading pair. Its market cap is so high that it has managed to make it as a top ten coin. It also receives large quantities of news coverage, even from mainstream outlets such as Bloomberg. While these sound like good things, so far they have only led to people getting more and more concerned with the way it works. While Tether is clearly the leader of the stablecoin industry, a significant amount of traders are extremely wary of it.
Dai and the stablecoin industry
For the most part of its existence, Tether has had no competition, but now that Dai has been released by MakerDAO, they have one clear rival. While Dai is nowhere near Tether in terms of market cap or adoption, it appears to have a solid product and developer team— perhaps most importantly, it has not been subject to any scandal yet. Dai is only ranked at number 94 for its market cap, but considering how it is a stablecoin and not a standard cryptocurrency, it can be argued that it does not need to be higher for it to work. The main reason Tether is higher is simply because more day-traders rely on it regularly. The stablecoin industry does not need to fight for top positions like most cryptocurrencies because they are simply tools used to ease the dangers of trading crypto. They are meant to run alongside other cryptocurrencies, rather than compete with them.
How stable is Dai?
The main difference between Dai and Tether is that Dai provides its stability via the use of specialized Ethereum smart contracts which use trader’s finances as collateral. There is a small fee which is incurred for traders who use Dai, which is used to prop up the value of the stablecoin when it needs it. This system allows for scalability, in that even if large groups of people were to flock to Dai it would technically be able to handle it because of how it would utilize the money from the fees being incurred. However, Dai is untested on such a large scale, so it cannot be confirmed whether such a thing would run smoothly. Tether, however, has been tested with large quantities of people, and for the duration of its existence, it has managed to handle them well.
It might be worth asking why exactly people are so wary of Tether when it has been performing so well. The answer derives from its lack of transparency. Tether’s market cap may be listed as $55,225,838 but for many, it has never provided enough information to verify that. This is where Dai truly shines, as it is attempting to be the most transparent asset in the stablecoin industry. Dai’s market cap can be attributed to its smart contracts, which are visible to any interested parties at the MakerDAO dashboard.
Transparency is arguably cryptocurrency and blockchain’s primary ethos, so even though Tether has never failed yet, the fact that it is so opaque in regards to its finances raises too many red flags for some traders. Dai, on the other hand, has taken an opposite approach and has chosen to provide all the necessary information to all interested parties. This has been enough to instill confidence in the minds of numerous crypto enthusiasts. If Dai continues to be transparent in its actions, it could one day become the leader of the stablecoin industry.
Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.