DAI Emerges As King Of Decentralized Stablecoins After Terra's Collapse

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DAI is king of decentralized stablecoins after Terra collapses

Just when you thought the world of cryptocurrency stablecoins couldn't get more complicated, it does. 

A so-called governance token named MKR, which is used to help run the decentralized DAI stablecoin, has surged about 40% in value over the past week in the wake of the collapse of the algorithmic stablecoin TerraUSD that shook cryptocurrency markets. 

DAI is part of the ecosystem of the MakerDAO, one of the first decentralized autonomous organizations in crypto, which in theory acts like a community of pooled interests with no central control.

The idea of decentralized decision making, while long a theme in crypto, is particularly attractive given the amount of sway over TerraUSD, or UST, by Terraform Labs co-founder Do Kwon. 

UST was also billed as a decentralized coin, though it attempted to use algorithms to balance supply to maintain a 1-to-1 peg to the dollar. That failed when the built-in arbitrage mechanism no longer worked as demand for Terra's Luna token tumbled. Maybe more importantly, DAI seeks to overcollateralize assets. 

"This is directly related to UST blowing up," said Henry Elder, head of decentralized finance at asset manager Wave Financial. "UST imploded pretty much the moment demand flattened out, leaving Maker as the undisputed king of decentralized stablecoins for the time being."

Stablecoins can be a bridge between two worlds that weren't designed with mixing in mind -- cryptocurrencies and traditional finance. 

That makes them useful as a way to lock in gains from crypto trading or as a safe harbor if investors think a downturn is coming. They also make it easier to move funds onto crypto exchanges and have become a key component of the world