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Learn about Dai Staking

How to lend DAI

There are several ways to earn a return on your DAI, including lending them out to custodial providers or via a Defi lending protocol. We suggest using a Ledger Hardware Wallet to maintain complete control over your funds. Follow the steps below to start earning:

Step 1: Go to the Aave Staking Dashboard and connect to your wallet.

Step 2: Click ‘Supply’ on the right-hand side of the page. Note that the first time you supply USDC will require an additional approval transaction.

Step 3: Enter the amount of DAI you would like to supply and then sign the transaction.

How do I choose a lending platform? 

Distinguish between Custodial and Non-Custodial Lending:

  • Custodial lending refers to lending your crypto through a centralised entity such as Binance, Kraken, Coinbase.
  • Non-custodial lending means that you have sole control of your private keys, and therefore control and custody of your own assets

Do not fall for high APR %: When you stake your crypto, you will usually be quoted an APR for your investment. Some lending platforms may offer very high APRs as a way to attract investors, but these high APRs may be unrealistic and involve additional risk. A safe DAI lending protocol typically offers yields of less than 2%.

Stick to well-known DeFi protocols: Look for protocols that have liquid markets and choose protocols that have been audited by reputable auditors for added security.

What are the risks to lending DAI?

We strive to make lending as safe and transparent as possible, however, it’s important to consider factors that may influence whether a particular lending option is appropriate for you.

Smart contract risks: Defi platforms like AAVE, have inherent risks associated with smart contracts. These contracts can be exploited or hacked by a malicious actor

Counterparty risks: If you use a centralized lending platform, you may be exposed to counterparty risk. This is the risk that the other party in the transaction may not fulfill their obligations and default on the contract.

Protocol security risks: The collateral for DAI may include loans and receivables from third parties, which implies a collateral risk. There is also a risk of unknown bugs in the protocol or smart contract.

Keep in mind that this is not a comprehensive list of all potential risks associated with lending.

How are the lending rewards generated?

The lending yield on DAI is generated from:

Lending and Borrowing: On platforms such as AAVE, DAI token holders can contribute their DAI to liquidity pools, which can then be accessed by borrowers who provide collateral assets. These borrowers take out loans by borrowing against the collateral assets they have deposited. In exchange for the loan, borrowers pay an annual percentage rate (APR) to the token holders (i.e. lenders) who have added their DAI to the liquidity pools.

What is DAI?

DAI is a Crypto-Backed Stablecoin issued by the Maker Protocol. 

Instead of using dollars or another currency as reserves, DAI has cryptocurrencies acting as collateral. As the crypto market is highly volatile, crypto-backed stablecoins usually over-collateralize the reserves as a measure against price swings.

The Maker Protocol, also known as the Multi-Collateral Dai (MCD) system, allows users to generate Dai by leveraging collateral assets approved by “Maker Governance.” Maker Governance is the community organized and operated process of managing the various aspects of the Maker Protocol. Through a system of scientific governance involving Executive Voting and Governance Polling, MKR holders govern the Protocol and the financial risks of Dai to ensure its stability, transparency, and efficiency.

How is DAI minted?

DAI is created whenever someone takes out a loan on MakerDAO. DAI is destroyed when loans are paid back.

What are the tokenomics of DAI?

For every $1 of DAI in circulation, it is directly backed by excess collateral, meaning that the value of the collateral is higher than the value of the DAI debt.  

There will be times when the quoted price on exchanges may trade above or below $1, but this is usually speculation based on market volatility and does not mean that DAI is not backed by excess collateral. All DAI transactions and balances are publicly viewable on the Ethereum blockchain.

Please see DAI’s Proof of Reserves here

Dai is a decentralized, algorithmic stablecoin pegged to the US Dollar through a system of collateralized debt positions and smart contracts governed by MakerDAO