What is DAI?
DAI is an algorithmic stablecoin pegged to the United States dollar that is collateralized by crypto assets. DAI runs on, and is secured by, the Ethereum blockchain as an ERC-20 token. DAI is minted through a process of collateralization, where wallet holders can deposit accepted crypto assets into “Vaults” in exchange for a DAI loan. The amount of DAI loaned is based on the collateralization rates that are set for each accepted crypto asset. For instance, if the collateralization rate is 175% for Bitcoin, users will receive 1 DAI for each $1.75 USD worth of Bitcoin they deposit. To get their crypto assets back, all they need to do is repay the loan by transferring the amount of DAI they borrowed, plus the interest, back to the Vault.
MakerDAO, the organization responsible for DAI, maintains DAI’s peg to USD by employing algorithmic mechanisms that control DAI’s supply and demand. All DAI loans are overcollateralized, which means that borrowers must deposit more than the value of their intended loan. If market volatility causes their collateral to become too risky, the Vault will automatically liquidate their collateral and pay off the debt. Each Vault has a unique risk profile based on the type of collateral crypto asset it accepts and will adjust its collateralization rate and interest rate accordingly. These controls are paramount to ensure that each DAI is fully backed by crypto assets such that the 1:1 DAI to USD peg can be maintained. Learn more about MakerDAO here.
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.
No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform.
Wealthsimple has performed an assessment of whether DAI can be supported by Wealthsimple’s platform, including whether DAI is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.
We evaluated DAI based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of DAI, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) or issuer(s) that first created DAI;
- The supply, demand, maturity, utility and liquidity of DAI;
- Material technical risks associated with DAI, including any code defects, security breaches and other threats concerning DAI and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with DAI, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of DAI;
- The stability, resilience, and structure of the stablecoin; and
- Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether DAI, or generally about whether the type of crypto asset, is a security and/or a derivative.
Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to DAI may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support DAI.
Like all other crypto assets, there are some general risks to investing in DAI. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.
Additional Risks / Information
Stablecoins also present risks distinct from other crypto assets. The mechanism by which a stablecoin seeks to maintain its value is not guaranteed and can present systemic market risk, capital risk, and security risk. DAI’s reserve assets are locked into Ethereum smart contracts and thus DAI holders do not have an insured claim to their DAI.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading DAI. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision).
The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Last updated: January 1, 2024