How To Stake DAI?

DAI is a stable Ethereum-based coin that equates to the US dollar value. How to stake it? The answer to this question is given in this article.

Can You Stake DAI?

DAI does not support staking because it is not linked to its own blockchain. Moreover, DAI runs on a Proof of Work (PoW) mechanism instead of the familiar Proof of Stake (PoS). Therefore, you cannot stake DAI, but you can lend it.

DAI is linked to the DeFi protocol MakerDAO, which is powered by Ethereum. MakerDAO allows users to earn additional DAI coins, but the process differs from the usual staking. In this case, cryptocurrency must be deposited as collateral in exchange for DAI credits. For each credit created, new tokens are issued. When the loan is repaid, the DAI is debited and the collateral is released.

It is essential to note that there are stability fees for generating new DAI tokens, which can vary in their size. It is necessary for the fixed cost of DAI to be equal to the US dollar.

Ways To Stake DAI

As we’ve already said, DAI can't be staked in the usual way, but there are other methods to do it. There are 3 in total: through the MakerDao system, using an exchange, and the DeFi lending method. Let's take a closer look at each of them.

Staking Through The MakerDAO

You can stake DAI using your own DSR (Dai Savings Rate) smart contract hosted in MakerDAO. To do it, you need to link the DAI to the DSR, which will generate income at the current savings rate. It works like a classic bank savings account, but has a few important advantages: there is the ability to withdraw DAI at any time, and no minimum deposit amount is needed.

To put DAI in MakerDAO, you need to use the DAI interface application called Oasis. There, you need to open your wallet, select the "Start Saving" option, then set up your wallet under the "DAI Savings Rate" tab and make a deposit. After that, your DAI tokens will start bringing you income.

Staking On An Exchange

You can also stake DAI on cryptocurrency exchanges such as Binance, Coinbase or Cryptomus. On such platforms, the process is simple and fast, because the interface is initially prepared for workflows. Moreover, the exchanges have no collateral, and the annual percentage yield (APY) does not differ from the staking in the MakerDAO protocol.

On Cryptomus, for example, the APY for DAI lending is 3%. Just like in the MakerDAO system, you can withdraw your funds at any time here. Therefore, this platform will be a convenient solution if you don't want to take a lot of risk.

To start staking DAI on a crypto exchange, you need to create an account and purchase DAI coins — for example, on a P2P platform. Then go to the "Staking" or "Lending" section, enter the number of coins, and confirm the action.

DeFi Lending

DeFi applications, such as decentralized exchanges (DEXs) or lending protocols, are based on liquidity. It often generates liquidity pools, which are collections of cryptocurrency assets that users can trade or exchange. For contributing assets to a liquidity pool, providers (i.e. users) receive a share of all fees collected. Such a pool has an APY associated with it, which varies depending on the demand for tokens within the pool.

To start earning DAI tokens from DeFi lending, a user must find a DAI liquidity pool in one of the DEX or lending protocols. The user there has to deposit tokens into the pool, after which he or she will be able to receive rewards in the form of DAI or the app's own DeFi cryptocurrency token.

Benefits And Risks Of DAI Lending

Lending DAI provides an opportunity to earn additional income from your investments. At the same time, this process also involves some risks associated with the crypto market in general.

The advantages of DAI lending are related to the process's profitability and convenience. Let's learn them in detail:

• Generating passive income. Owners of DAI coins receive rewards from lending by multiplying their cryptocurrency assets and without engaging in active trading.

• High security. In the process of lending as well as in classic staking, the contribution to the network forms its integrity and security, which means that transactions and the assets of users are protected.

• Network management. The decentralized nature of the DeFi system implies that each participant can influence protocol changes, thereby ensuring the most comfortable working conditions.

Speaking about the risks of DAI lending, we are mainly talking about the negative impact of the cryptocurrency market. Here are the disadvantages:

• Market volatility. Although DAI is stable, its value can fluctuate depending on the dollar exchange rate to which it is pegged.

• Vulnerability of smart contracts. There can be bugs in the code of a smart contract, leading to system access problems or hacker attacks.

• Fraud risks. As with any digital system, there is a risk of fraud when lending DAI. Therefore, it is important to choose a reliable platform to operate on.

DAI staking is a great way to increase your cryptocurrency assets. Considering that it is not about classic staking but about lending, you should study all the ways to do it beforehand to understand which will be the most optimal for you. The main thing is to think not only about the profitability of your investments but also about safety.

Thank you for reading! We hope this guide has helped you understand the essence of DAI staking, and now you know whether this way of growing your assets is suitable for you or not. If you still have questions, you can ask them in the comments below.