As Ethereum Price Drops, DAI Holds Well Against USD
After the Bitcoin rally subsided back in 2018, there was a lot of talk that the world’s second-biggest cryptocurrency, Ethereum, had the potential to eventually upstage BTC. It did not seem like the most unrealistic claim at the time, but over the past months, it has become abundantly clear that this is unlikely to happen anytime soon.
Over the course of the past few days, ETH has had a disappointing time, and the price of the token has continued dropping. However, it was the weakness shown by the stablecoin DAI that was the true revelation during the ETH drop.
Unlike other stablecoins, which are backed up by fiat currencies in some ration, DAI is a decentralized stablecoin that is collateralized with Ethereum and developed by MakerDAO. As the price of ETH continued to slip, DAI managed to hold its own against the United States Dollar for some time. The slip in ETH has been quite dramatic over the course of the week so far, and at one point on Tuesday, it lost as much as 18% within a matter of two hours. The price slumped to $152 from a high of $199. Eventually, it seemed to have settled at a price point of $171.
There has been a lot of issues with regards to the Ethereum network over the past few days, and that also resulted in trouble with executing Collateralized Debt Position (CDP) on the DeFi Saver. It is another indication of the sort of disruption that can hit any stablecoin network if the collateral in question is in any kind of trouble. At this point in time, MakerDAO has no other option but to depend on the Ethereum network.
However, the company has stated that it is going to go for other assets to serve as collateral in the future. Until that happens, DAI will continue to have to depend on the Ethereum network for its stability and well being.
Featured image: DepositPhotos © Primakov