DAI is the first decentralized stablecoin that aims to maintain 1: 1 stability against the US dollar by using only other cryptocurrencies as collateral in DAI contracts.
This means that, unlike other asset-backed stablecoins that can be issued by for-profit companies, DAI is an open source software called Maker Protocol, which is a decentralized financial application running on the Ethereum blockchain.
As such, DAI maintains its value not by being secured in US dollars or other classic assets held by the company, but by secured debt denominated in the ETH cryptocurrency.
The Maker protocol, using smart contracts running on the Ethereum blockchain, enables borrowers to block ETH and other cryptocurrencies, and consequently use them as collateral, to then generate new DAI tokens in the form of loans.
If borrowers decide to withdraw the blocked ETH, they will have to return the DAI to the protocol as well as pay the fee. The mechanism of this system is such that if liquidation occurs, the Manufacturer's Protocol will take over the security and sell it using the internal market auction mechanism.
Due to its algorithm of operation, the DAI supply cannot be changed by any third party. This process is carried out by means of a smart contract architecture designed in such a way that they can dynamically and effectively respond to changes in the market price of the assets covered by the contracts.