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DAI is not $1 - A New Perspective for DAI's Role in Ethereum - David Hoffnan

DAI is not 1 Dollar I present a new perspective for the role DAI has in its relation to Ether. General Relativity

Stability is relative. Something cannot be stable in isolation, it requires an external reference to measure stability against.

To humans, the Earth is extremely stable, and there is this big star that spins around us every 24 hours. From an outsiders reference, the Earth is actually zipping around a big central sphere. Which itself turns out to be zooming around a massive galaxy, and so on.

DAI is Ethereum’s Sun

DAI is Ethereum’s external reference point. DAI grounds Ethereum to the rest of the universe. It provides context. Wherever Ether goes, DAI is in the same spot.

Today, most people view DAI as stable, or unstable, relative to the Dollar. And it definitely is stable to the Dollar, in comparison to Ether. In reference to the Dollar, however, DAI is extremely volatile.

DAI vs USD

Just looking at DAI vs USD, DAI is -5% away from the dollar. In the stock market, you expect 7% YoY. In stock market terms, DAI is 8.5 months away from recouping a negative 5% loss vs the Dollar.

ETH vs DAI vs USD

Bring Ethereum into the picture. Ethereum moved 5% twice in the last week (I won’t ever need to update that sentence, lol). Inside of DeFi, where DAI dominates and USD is nowhere to be seen, the 5% discrepancy between DAI/USD is effectively invisible, as Ether’s volatility dwarfs DAI’s by orders of magnitude.

Stability Over Peg

Say Ether is at $100, DAI is at $0.95, and 1$ = 1$. If Ether doubles to $200, it went from being worth 105 DAI to worth 210 DAI, and from $100 to $200. In both scenarios, Ether is now worth double the original amount of either currency. The amount of relative change is exactly the same, regardless of whether DAI is $1 or not. DAI not equaling $1 has no implications to it’s suitability as a stable reference point to Ethereum.

Every Action has a Reaction Bear market = More DAI...
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