The world of decentralized finance (DeFi) is evolving rapidly, and at the heart of this transformation stands the Dai stablecoin — a groundbreaking innovation by MakerDAO. Nearly three years after its initial announcement as eDollar, Dai is poised for a major milestone: its official launch on the Ethereum Mainnet. As we approach this pivotal moment, MakerDAO has released an updated whitepaper outlining the design, mechanics, and future roadmap of the Dai ecosystem.
This comprehensive document not only details the features of the upcoming launch but also sets the stage for long-term advancements in stability, scalability, and decentralization.
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The 1:1 USD Soft Peg Strategy
When Dai was first conceptualized, it was designed to maintain a strict 1:1 peg with the U.S. dollar — originally under the name eDollar. However, the vision evolved. Recognizing the potential vulnerabilities of relying on any single fiat currency, especially amid global economic uncertainty, MakerDAO made a strategic shift.
Dai will initially launch with a soft peg to the USD. This temporary measure ensures market familiarity and liquidity while allowing time for the development of a more resilient, long-term solution. In extreme scenarios — such as prolonged imbalances between Dai holders and Collateralized Debt Position (CDP) creators — the system can activate the Target Rate Feedback Mechanism (TRFM). This mechanism adjusts Dai’s exchange rate dynamically, helping stabilize demand and supply without destabilizing the broader system.
Looking ahead, MakerDAO is actively researching a dynamic currency basket — a diversified index of low-volatility assets that outperforms both the USD and the IMF’s Special Drawing Rights (SDR) in global stability. Once implemented, Dai will transition away from its USD anchor, becoming a truly autonomous, globally resilient digital currency.
Importantly, when that shift occurs, USD-pegged functionality won’t disappear. Instead, it will be preserved through second-layer stablecoins, backed entirely by Dai and pegged to major fiat currencies like the Euro, British Pound, and Japanese Yen. These layered instruments ensure continued access to familiar valuations while supporting a decentralized monetary standard.
Single-Collateral vs Multi-Collateral Dai
The version launching on December 17 is known as Single-Collateral Dai (SCD) — a secure, streamlined iteration built on the foundation of the Sai prototype. Leveraging proven code reduces risk and accelerates deployment, enabling rapid scaling with confidence in security.
However, SCD is just the beginning. It supports only one type of collateral: Ether (ETH), wrapped into a special token called Pooled Ether (PETH). In contrast, the future Multi-Collateral Dai (MCD) system will support multiple asset types — including various cryptocurrencies and potentially tokenized real-world assets — vastly increasing flexibility and adoption potential.
This phased rollout allows MakerDAO to test core mechanisms in a controlled environment before expanding into a more complex, multi-asset framework.
Understanding Pooled Ether (PETH)
PETH plays a crucial role in the SCD phase but is designed as a temporary mechanism. It functions as both collateral and the system’s recapitalization buffer, meaning that if CDPs are liquidated with insufficient value to cover debt, losses are absorbed by PETH holders through proportional dilution of their ETH claims — not MKR token holders.
This introduces unique risks: during sharp ETH price drops, PETH holders may face significant value erosion. Conversely, there are rewards. When liquidations generate surplus value — due to penalties applied to undercollateralized positions — those gains are distributed equally among PETH holders.
This dynamic creates strategic opportunities for Keepers (automated actors who monitor and execute liquidations). By converting ETH to PETH during a liquidation event and reverting afterward, they can capture a share of penalty proceeds, aligning incentives across participants.
With the transition to MCD, PETH will be retired. Standard ETH will become a direct collateral option, and MKR tokens will resume their intended role as the primary backstop for system solvency.
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Liquidity Providing Contract: Boom and Bust Mechanics
Unlike MCD, which uses auction-based models for collateral and debt management, SCD employs a Liquidity Providing Contract (LPC). This smart contract enables instant trading between Dai and PETH based on real-time price feeds — provided funds are available.
During CDP liquidations, PETH is immediately offered for sale via the LPC. A risk parameter called the boom/bust spread adjusts the sale price. If negative, it creates arbitrage opportunities by pricing PETH below market value. Keepers are incentivized to act quickly, buying undervalued PETH and profiting from the spread — ensuring rapid response times and enhanced system resilience.
Global Settlement: A Critical Safety Net
One of Dai’s most powerful security features is Global Settlement. First tested with Sai deployments, this mechanism allows all outstanding CDPs to be settled simultaneously at their current collateral ratios.
Global Settlement serves three vital purposes:
- Facilitating smooth upgrades from SCD to MCD
- Responding to extreme market irrationality
- Acting as a frontline defense against hackers or oracle manipulation attacks
In essence, it provides a circuit breaker — enabling orderly shutdown and exit if systemic threats emerge.
Price Feed Sensitivity: Mitigating Oracle Risks
Oracles — data feeds that inform smart contracts about external prices — represent one of DeFi’s most critical vulnerabilities. To address this, MakerDAO has introduced Price Feed Sensitivity, a feature that limits how quickly oracle-reported prices can influence internal system values.
While not active at launch, this mechanism will be integrated post-deployment. It empowers MKR token holders to set thresholds on price update speeds. Even if an attacker compromises most oracle nodes, damage can be minimized by triggering Global Settlement before internal prices drift significantly.
Together with Global Settlement, Price Feed Sensitivity dramatically strengthens Dai’s resistance to crypto-economic attacks.
Frequently Asked Questions
Q: What is the difference between Single-Collateral and Multi-Collateral Dai?
A: Single-Collateral Dai supports only one asset (PETH) as collateral and uses temporary mechanisms for stability. Multi-Collateral Dai will support multiple assets directly (like ETH and others) and restore MKR’s role as the main risk absorber.
Q: Will Dai always be pegged to the US dollar?
A: Initially yes, but long-term plans involve moving to a dynamic currency basket for greater global stability. USD-pegged versions will still exist as second-layer tokens backed by Dai.
Q: What happens to PETH after the upgrade to Multi-Collateral Dai?
A: PETH will be phased out. Users will be able to convert their holdings into ETH or other supported assets before or during the migration process.
Q: How does Dai protect against price manipulation or oracle attacks?
A: Through dual safeguards — Global Settlement and Price Feed Sensitivity — which allow rapid response and limit how fast corrupted data can impact the system.
Q: Who benefits from liquidation penalties in Single-Collateral Dai?
A: Surplus from penalties is distributed to PETH holders. Keepers can optimize gains by temporarily converting ETH to PETH during liquidations.
Q: When will Multi-Collateral Dai launch?
A: While no official date is confirmed yet, preparations are underway. A dedicated whitepaper focusing solely on MCD will be released closer to launch.
The new whitepaper marks a foundational step toward full decentralization. As development continues, expect further documentation — including the formal Purple Paper specification — to guide the transition to Multi-Collateral Dai.
Stay tuned for more updates in the week leading up to December 17. The future of open, trustless finance starts now.
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