DAI is over collateralized - you lock up as collateral more than the value of the DAI you get back when DAI is created. So let's say you deposit 20 eth at @ $1

DAI is over collateralized - you lock up as collateral more than the value of the DAI you get back when DAI is created. So let's say you deposit 20 eth at @ $1,000 USD per eth, which gives you a collateral value of $20,000. You create $10,000 DAI which you can then do what you want with. If the price of ETH goes down, and the value of your collateral drops to $14,500, less than 150% collateral, then DAI automatically holds an auction on your collateral, selling it to the highest bidder. Let's say it sells it for $14,000, that's a $500 profit for the purchaser, and a $4,000 profit to DAI. The looser here is you, who still has the $10,000 DAI, but has lost $14,500 in ETH. Next time, you'll either top up, or pay back your vault before it gets to this point.