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Comment by TacticalCoder | Hacker News Reader

Yet, somehow, DAI (an algorithmic stable coin running on top of Ethereum as I understand it) has apparently managed to keep its peg since 2017. I read on it yesterday and I'm very intrigued. It's a gigantic target for dark hats and yet so far nobody found a way to attack it.

And it's not small: $6bn of DAI worth 1 USD each circulating.

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As I understand, Dai is an overcollaterized stablecoin. People mint Dai by locking up cryptocurrency into its smart contracts worth more than the Dai they get. I believe that collateral can be automatically liquidated in the case of a crash of those assets. This is different from an "algorithmic stablecoin" as the term is commonly used, since by that people usually mean a coin which doesn't utilize collateral.

The question is why is one cryptocoin "collateral" and the other "not collateral?" What's preventing whatever coins DAI depends on from a death spiral?

In my opinion the difference is that value of the collateral is mostly independent from the value of DAI. DAI going below $1 doesn't cause the price of USDC or ETH to go down.

DAI is overcollateralized ($10B of collateral for $6B of DAI). Generally the definition of "algorithmic stablecoins" is that they're undercollateralized.

this is a semantics issue. people primarily call overcollateralized stablecoins their own thing. most/all have some sort of automation involved, which allows of the word algorithm to be used. but algorithmic ones are the ones that have no collateral, or as Do Kwon pioneered - last ditch effort of partial collateral.

How is it a dark hat target?

People love trying to take down big fish. Even better if they can make money doing it. Not saying it's vulnerable, just that it's quite a big fish.

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