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What are the main risks of holding DAI?

DAI can lose its dollar peg, be hacked, or face USDC issuer risk. Sky governance can change rules or trigger a shutdown that leaves holders exposed.

Vahe HakobyanEditor-in-chief Updated Oct 6, 20263 min readFact-checked

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What are the main DAI risks?What backs DAI and what can break?Who controls DAI and can rules change?How do US rules treat DAI?FAQ

Short answer

DAI can lose its peg, be hacked, or face USDC and real-world asset exposure. Sky governance can change rules or trigger a shutdown, and US stablecoin rules are still evolving.

DAI is a stablecoin designed to hold one US dollar. People use it to keep a dollar balance in crypto, to trade, and to earn yield in DeFi. It is the legacy stablecoin of the Sky protocol, formerly MakerDAO, and can be migrated to USDS.

What are the main DAI risks?

DAI can lose its peg when collateral prices crash. If a vault's collateral falls, it is liquidated and auctioned. In a sharp crash, auctions can fail, leaving bad debt. A bug or bridge exploit can also lock funds or create unbacked DAI.

Depeg: a collateral crash can leave bad debt and push DAI off its peg.
Liquidation failure: auctions may not attract buyers, leaving the system undercollateralized.
Smart contract or bridge exploit: a bug or hack can lock funds or create unbacked DAI.

What backs DAI and what can break?

DAI is backed by crypto and other assets in Sky vaults. Since 2020, USDC has been a major collateral type, and since 2021 the protocol has added real-world assets. That adds exposure to USDC issuer Circle and to banks holding reserves.

DAI backing and failure points
Backing	What can break
Crypto collateral	A crash can cause bad debt if liquidations fail.
USDC and real-world assets	Issuer or bank failures can freeze or delay value.
Emergency shutdown	DAI may not be redeemable at one dollar.

Who controls DAI and can rules change?

Sky, formerly MakerDAO, is governed by SKY token holders, and MKR can be migrated to SKY. They vote on which collateral DAI accepts, how much DAI can be created, and what fees borrowers pay. A large enough group can change those rules or trigger an emergency shutdown.

Large holders can have more voting influence than small ones.

How do US rules treat DAI?

US stablecoin rules are still evolving. The IRS treats crypto, including DAI, as property, and buying DAI with US dollars is not a taxable event. Regulators differ on when a stablecoin is a security or a payment token.

Frequently asked questions

It can. DAI has recovered from past depegs after collateral auctions or new backing. Recovery is not guaranteed and can take time.

No. DAI is not a bank deposit, so FDIC insurance does not cover it. If the protocol or an issuer fails, you do not get bank deposit protection.

The IRS treats DAI as property. You report gain or loss when you sell, trade, or pay with it, and income when you receive it as payment.

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Written byVahe HakobyanVahe Hakobyan is the editor-in-chief of World-Crypt. He covers bitcoin, markets and regulation, and leads the newsroom that fact-checks every story before it goes live.