Stablecoins are cryptocurrencies with a value attached to a currency or to the exchange of traded goods. Many projects today are researching and developing this technology. Issuers distribute stablecoin to customers in exchange for fiat currency such as the dollar at a fixed exchange rate of 1: 1. The USD is a desirable trading medium and a unit of account accepted globally, making it a good choice for a stablecoin. Stablecoins often take the following forms.
- Fiat-collateralized: reserves in a national currency guarantee the creation and issue of these tokens. The goal is price stability by adding the value of a token to a reserved fiat value.
- Crypto-collateralized: Cryptocurrencies that support cryptocurrencies. It might seem far-fetched or futuristic, but it is possible today. Forget the Gold Standard. Now you can hold a cryptocurrency supported by a basket of cryptocurrencies.
- Seigniorage: these tokens are not guaranteed. The software maintains price stability.
- Hybrid: When you combine the three basic approaches above – or some of these – you get a hybrid stablecoin.
Let's go deeper.
Fully backed by fiat money in a 1: 1 ratio, you could get $ 1 of stiatecoin supported by fiat in exchange for $ 1 of fiat money. The custodians (third parties) typically manage the fiat in this agreement. In order to maintain a stable price, tokens with forced settlement can be issued or destroyed as necessary. For example, when the holders redeem cash with tokens, the company could transfer money to a bank account, thereby destroying or otherwise removing tokens from circulation in order to maintain the pledge of the legal tender.
The daily volume of Tether on January 18th was $ 189.134,405. Traders use cable as a way to cover and convert holdings in USD equivalent value without having to cash out. The detractors claim that Tether lacks transparency when it comes to reserves, although the company claims that all USDT tokens issued are supported on a one-to-one basis. The CEO of Bitfinex is also the CEO of Tether Limited, which releases Tether.
TrueUSD claims to be more transparent than Tether, while allowing TUSD customers to exchange USD through a escrow account in which the TUSD team claims they have no control. The company uses smart contracts to ensure 1: 1 parity between the real USD reserves in escrow accounts and the issued TUSD tokens.
Gemini took a different approach to most stablecoins, receiving permission from the New York Department of Financial Services (NYDFS) before creating a stablecoin based on the USD. Designed to provide traders and institutions with a "regulated" tether (USDT) version, Gemini states that their stablecoin establishes trust through cryptographic evidence and regulatory oversight.
Gemini's ERC20 stablecoin includes an "update function, an offline approval mechanism for high risk actions and a hybrid online-offline approval mechanism for high risk and token issuance actions that provides the desired level of security and flexibility" .
Gemini connects financial institutions and authorized examiners. They form a trust network that supports the Gemini dollar. This regulated stablecoin must act as a medium of exchange and unit of account for centralized and decentralized applications. Gemini is committed to creating a network of reliable and authorized financial institutions and examiners. These combined implementations form the Gemini dollar, a regulated stablecoin that can act as a means of vital exchange and unit of account for centralized and decentralized applications.
Gemini's solvency test is also a single point of sale that requires a reliable third party. It envisages that the Auditing Committee of the Gemini Board of Directors will engage with an independent public accounting firm to attest the balance of the underlying US dollar.
Paxos Standard is based on the Ethereum blockchain as ERC-20 token. Rather than issuing new money to maintain price stability, as past coins have tried, Paxos Standard offers a more stable representation of existing money with an accepted and trusted value. The company provides cases of early use for technology as a means of payment; coverage against volatility; contracts for more complicated transactions and more. Longer-term use cases include resource mobility and establishment and ecosystem development.
CENTER is creating a network scheme to manage the creation, redemption and mechanisms that allow issuers to modify and burn / redeem fiat asset-backed tokens, ensuring price stability. The collateralized approach of the FAT of the CENTER implies that a unit of fiat tokenised money is backed by a reserved fiat unit. According to CENTER, Circle will become an "authorized member of the CENTER network", but an & # 39; independent entity will govern and develop CENTER protocols separated by Circle.
Stablecoins supported by raw materials are anchored to a specific value, say, gold. A token, for example, could represent an ounce of gold. Physical gold is often claimed to be stored in a trusted third-party repository. BitShares was one of the first projects to introduce a raw material-supported stablecoin. Backed by real assets and redeemable at the conversion rate of the real asset, the stablecoin backed by raw materials seek to maintain the stable value of gold, while being easily transferable.
Token Gold Tokx (DGX)
Digix has two tokens. Token Gold Tokens (DGX) and DigixDAO Tokens (DGD). DGD tokens are used for the DigixDAO governance model. DGX tokens are used as collateral and a trading pair from other cryptographic projects such as MakerDAO, Kryptono Exchange, Kyber Network, WeTrust, Monolith and others.
A Digix customer can buy gold through the Digix platform. The seller then provides gold and a custodian stores the customer's gold. The relevant details (seller, caretaker, customer, etc.) are stored on a digital card and sent to smart contracts so that the new gold reverse coins can be minted.
DGX, created by DigixGlobal, is an ERC-20 token supported by physical gold. Completely controlled and stored in a Singapore vault, the Safe House, the value of each token is fully redeemable and pegged to the price of gold. Digix Proof-of-Provenance algorithm insures that the custody status of each gold bar is traced on the Ethereum blockchain. The reserves are checked every quarter.
Stablecoin supported by cryptocurrency
Supported by other cryptocurrencies, crypto-collateralized cryptographies may be less stable than fiat stablecoin and supported by commodities because the underlying asset is less stable. Stablecoins supported by cryptocurrency could sometimes be over-guaranteed to account for volatility. While a US-supported stablecoin could be anchored 1: 1, a stablecoin supported by Ethereum could be worth 2: 1. (The value of $ 2 for a value of US $ 1 of stablecoin). However, stablecoins supported by cryptocurrency are more volatile than stablecoins supported by other assets such as commodities and legal tender.
Usually supported by a basket of cryptocurrencies instead of a single currency, some stablecoins require users to stake out and block the cryptocurrency via an intelligent contract to create a fixed relationship of stablecoins. Considered a more decentralized alternative to fiat and stablecoin supported by raw materials, stablecoins supported by cryptocurrency offer rapid clearance from one cryptocurrency to another.
Maker, a platform of intelligent contract based on the Ethereum platform, stabilizes the value of Dai, a cryptostate supported by guarantees, through a dynamic system of collateralized debt positions (CDP), autonomous feedback mechanisms and appropriately incentivized external actors.
The collateralized debt position are smart contracts on the Maker system. CDPs keep track of the resources deposited by users so that users can generate Dai. The value of an active CDP guarantee is higher than the value of the debt. The ether is used as a guarantee for new coins and must be sent to a CDP, which blocks the ETH aimed at the new DAIs being coined. Dai is designed to be sent to others, used as payment for goods and services and kept as savings. MakerDAO also issues MKR tokens.
Stablecoin style seigniorage
Strife-style stablecoin are non-collateralized and stabilized by algorithms. Algorithms could maintain the value and stability of a currency by controlling the supply of non-collateralized stablecoin, reducing it and increasing it based on certain indicators.
Approach algorithmically governed by Seignoriage-style coins to expand and contract the stablecoin's money supply. The new stablecoins are coined to keep prices stable, when, for example, demand increases or decreases.
Technologists argue that the stability offered in stablecoin would be an advantage for cryptocurrency while minimizing value fluctuations. A stablecoin is theoretically a stable and commercial means of payment, making it attractive for everyday use and perhaps more appealing to the general public. However, the technology of stablecoin is still nascent and questions such as how to manage supply and demand in such a way as to create a stable value have yet to be fully met and understood. Among the coins listed here, Digix, Gemini, MakerDAO and Paxos are little advertised products to watch out for.
Image: Artem Beli