Trouble is, I don't see how smart contracts validate the actual presence of assets like stocks, bonds and gold underneath. There's obviously going to be centralization and trust necessary, in which case I might as well rely on regulated financial intermediaries exchanging real dollars rather than hold a synthetic dollar with the downside counterparty and residual value risk associated with holding derivatives linked to a basket of goods but no upside.
I'm also struggling to understand the incentive for people to overcollateralize to receive tokens notionally equivalent to dollars and how that's convenient
To your first point, the vision is to use other Ethereum tokens tied to various assets and securities. How those asset-backed tokens are set up and how trustworthy they are depends on the individual token. I know there are a few asset-backed tokens (gold, real estate) but I have no knowledge as to how legit they all are.
To your second point, the collateralized loan allows for very very low interest margin investing. You can use the DAI to invest in something, sell it at a higher price, repay your loan, and make money on the difference.
DigixDAO works on tokenized gold.
If there is demand, we will see every possible good as a token. It shouldn't be that difficult to make an virtual product like an ETF into a token on a blockchain.
There are financial incentives to create and destroy DAI.
A user of DAI doesn't need to collateralize, he just buys DAI.
DAI demand will grow, if the use cases grow. It is also a good safe heaven for crypto traders.
I'm also struggling to understand the incentive for people to overcollateralize to receive tokens notionally equivalent to dollars and how that's convenient