A platform akin to Local Bitcoins but for the Dai stablecoin, DAIHard, announced its beta launch on the Ethereum mainnet on April 15th. The upstart is aimed at providing a censorship-resistant venue for fiat-Dai trading, though it appears its contracts were quickly drained by a whitehat hacker and the project has been temporarily disabled accordingly.
Before we get to the hack, let’s get the context. Per the since-removed announcement, DAIHard is designed to let users leverage the Ethereum dapp browser MetaMask and collateral (at a 1:3 ratio) to begin making buys or sells of Dai.
Trades are to be facilitated at traders’ discretion via bank transfers, cash drops, or the like.
Fiat on-ramps are critical for giving cryptocurrencies real-world utility, so today's Dai Hard announcement is a big one.
It's like Local Bitcoins for Dai except it runs on open & verifiable smart contracts, meaning it can't ever be killed. pic.twitter.com/x42RF26sEW
— Spencer Noon (@spencernoon) April 15, 2019
The DAIHard model is meant to deter theft with a burn function: if fiat payment is never received, sellers would have the option to burn Dai as opposed to releasing it so that the scammers don’t receive payment either.
The platform is structured to be open to anyone, its creators said:
“It simply doesn’t matter where you are, because DAIHard doesn’t need to interface with any particular jurisdiction or payment system to work. DIAHard works by incentivizing people (or robots? Organizations?) to navigate the particular real-world hurdles of bank transfers, cash drops, or other fiat transfer methods. These incentives work whether you’re in America, Zimbabwe, or the Atlantic; and they would work whether the ‘fiat’ is USD, seashells, or Rai Stones.”
Yet the beta fiat-crypto gateway has already seemingly gotten off to a rough start. Reddit user adamaid_321 identified several critical bugs in the platform’s code and allegedly swept all of its funds before a blackhat hacker could do the same.
The Redditor has promised to return the funds and cautioned anyone against using DAIHard “until the exploits have been fixed, the code audited, and the contracts redeployed.” The project’s developers have “disabled the interface” and have committed to a post-mortem report.
The launch day incident highlights once more just how crucial auditing smart contracts is in the Ethereum ecosystem.
Addressing the Fiat Problem
Zooming out, a current lack of fiat onramps for purchasing Dai has forced many users to purchase ether (ETH) to trade into the stablecoin, a slightly burdensome middle step that can have subtle tax implications depending on the jurisdiction.
Coinbase announced in 2018 that it was considering listing Dai along with 30 other cryptocurrencies on its platforms. If actualized, the listing would make the crypto exchange the highest-profile fiat onramp yet to embrace the stablecoin. The company already supports crypto-only Dai trades on its advancing trading platform Coinbase Pro, but no such listing has come to date on the consumer-focused Coinbase.com or the enterprise’s mobile apps.
The Dai’s associated governance token, MKR, recently entered transfer-only mode on Coinbase Pro in jurisdictions beyond the U.S. America’s early exclusion undoubtedly pertains to an abundance of caution over whether MKR meets the legal threshold for being an unregistered security offering o the U.S. Securitites and Exchange Commission (SEC).
Whether that’s the case, and how that designation would affect the Dai, remains to be seen.
But these nuances also provide a good point of comparison between what a large centralized exchange and what a smaller and decentralized challenger like DAIHard (at its theoretical best) could offer. The former can perhaps compliantly offer fiat purchases of Dai someday per regulators’ rulings, which can be changed; the latter, if audited properly, could facilitate such purchases now and evermore via censorship-resistant smart contracts.
Both have their pros and cons. And both now have their place at the table of decentralized finance. In the mean time, the Maker community is continuing to eye a higher Dai Stability Rate in a campaign to stabilize the Dai price back at its $1 USD peg.