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What is a stable coin backed by a stable asset? Explanation of features and applications

What is a stable coin backed by a stable asset? Explanation of features and applications

Hello, this is kaz (@ kazukino11111).

How much do you understand the word “stable coin” that has increased opportunities to hear something recently? In this article I would like to introduce what is stable coin and what kind of stable coin exists.

What is stable coin? Why is it important?

Stable coin (Stable Coin) refers to the currency in which the cryptocurrency and value are pegged (linked) with stable assets . Assets whose value is stable are not necessarily legal tender currencies such as dollar and yen, and even assets such as gold can be pegged.

It is a story about why this is important, but as you all know, the volatility (price change rate) of the cryptocurrency is very high. When looking at the cryptocurrency as an investment product, trade becomes difficult if too much volatility is high. So stable coins were developed to avoid holding highly volatile currencies when trading virtual currencies .

Explanation of five kinds of stable coins and features of each

Stable coins are already on the market and are trading. Here we will take up five kinds of stable coins.

Tether (USDT)

tether

Tether (USDT) probably has the highest name among the stable coins. Tether is pegged with the US dollar and is handled by many major exchanges. The concept is very simple, and for all issued USDT tokens Tether has a one-on-one share of the US dollar .

However, Tether has never proved the existence of this reserve, and has frequently raised discussions in the vicinity of the cryptocurrency. Friedman LLP, who was in charge of Tether’s accounting audit, ended the contract with the company and became such news as to bring down the market price of the cryptocurrency market at a stroke.

TrueUSD (TUSD)

TUSD

Like the USDT, TUSD is an ERC 20 token backed by value in the US dollar and exists on the Trust Token Platform. As a main difference in security between TUSD and TUSD , TUSD keeps US dollar in multiple escrow accounts, reducing the risks, regular audits are carried out . The asset is kept in the trust bank, and the operation source does not have access to the asset.

The Trust Token Platform plans to develop stable coins besides TUSD, and it seems that gold, TrueYen, TrueEUR etc are listed as candidates.

On the other hand, there are facts that it is worried about pegging the cryptocurrency focused on being decentralized and the legal currency controlled by centralization.

There is an explanation article about TrueUSD below, so please read it

What is the new hard / dollpeg currency “USD Coin”? A thorough explanation of the difference with similar currency! – CRYPTO TIMES

Havven (HAV)

havven

In contrast to the above mentioned USDT and TUSD, Havven is not pegged with the statutory currency because it was developed with the purpose of making a fully distributed stable coin . The Haven network consists of the following two tokens.

  • The Haven Token

It aims to provide collateral and its value arises from the fee of the network.

  • Nomins (stable coin)

The value is backed by the collateral of The Haven Token. Investors need to lock The Haven Token in a Smart Contract in order to have them issue Nomins. Nomins’ transaction fee will be returned as a reward to The Haven Token holder.

This concept, which has not been directly pegged with the legal currency at the present time, has not been proved yet. However, if Havven can stabilize distributed tokens it will be a major advance.

MakerDao (DAI)

Makerdao

Dai is pegged with the US dollar, and is a token that is backed with value by assets. Investors need to lock up their valuable assets in order to issue and hold Dai. (Example: Loop up ETH to Maker’s system) Stability is reserved by dynamic and autonomous interest rates to respond to emerging market conditions and to change fees and incentives for using the system.

Dai’s system employs a Smart Contract called CDP (Collateralized Debt Position). In order to receive Dai, the user first needs to create CDP. And, the user who receives Dai needs to return with the same amount of Dai and fee added to receive the collateralized asset.

If the value of assets deposited as CDP falls significantly, we will liquidate the CDP to maintain system integrity and a one-to-one rate between Dai and USD .

Basis

basis

Basis recently raised $ 133 million (about 14.6 billion yen) through a private investment round. They are planning to use the economic principle that the central bank uses to be an algorithmic central bank.

As with currently adopted systems, users can purchase Basis bonds when the value of the token falls below 1 USD. In this case, the Basis token sold by the user will be burned to decrease the supply number and raise the value of Basis . If the situation is opposite, if the value of Basis greatly exceeds 1 USD, a new token will be issued.

They emphasize that the principle of these parts is done not by the central bank but by the algorithm. This system is similar to what is currently adopted, but trust in algorithms is required for practical application.

Which is the best after all?

As mentioned in this article, there are some stable coins which adopt various different protocols, assets to be pegged, algorithms etc, each with their own characteristics and concerns. What I can say for sure at the moment is that in a stable coin, investors will have to accept disadvantages in exchange for the benefits they want.

As an example, centralized exchanges like stable coins such as USDT with similar characteristics, currencies that are not pegged in statutory currencies such as Havven are preferred in decentralized exchanges Let’s see.

Whether these stable coins truly preserve value or serve as a true exchange medium will become clear now. Meanwhile, the decline in the latest cryptocurrency market may have been a great appeal opportunity for stable coins, is not it?

Linked with legal currency! What? What is the peg currency in the cryptocurrency? – CRYPTO TIMES

Author: kaz 【Coin Desk News】 – Source Post: https://crypto-times.jp/what-is-stable-coin/

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