Not long ago, at a round table on the Mercurius Crypto channel, the following question was raised: If the blockchain were to disappear today (just like Thanos with the Infinity Gauntlet), what practical impact would it have on each of our lives?
Curiously, one of the members of the table even said that, in practice, saving his work together with investors in the sector, his day to day would be little affected.
Those who would be affected are the users of stablecoins.
Among the main advantages of Stablecoins over traditional systems, we have:
-Better exchange rate in countries where the banking system is complicated.
-They allow an exchange of crypto assets analogous to the traditional exchange.
-It is a market that operates 24 hours a day, 7 days a week, achieving faster, cheaper and more efficient transactions.
-They are and should be the preferred instrument when investing in more advanced investment products such as DeFi, NFTs, dApps and any other instrument to come.
Types of stablecoins
Stablecoins aim for 1:1 parity with the target asset and can be paired with all types of assets: gold, dollars, euros, reais (BRZ, the most used stablecoin in Brazil and the most used stablecoin that is not paired to the dollar), Argentine pesos, and there are even stablecoins that are matched to the price of bitcoin.
There are 3 types:
1. Collateralized by assets (or collateralized by fiat)
These make up the most used, and therefore, enjoy greater acceptance and trust by the market – USDT, USDC and BUSD (in order of use and popularity)–. To say that they are collateralized means that they are backed by assets that match the number of tokens issued, which are held as collateral.
Here it is worth noting that as of the writing of this article, the only stablecoin approved by the NYDFS (New York Department of Financial Services), is the least popular of the triad, BUSD, from the Paxos/Binance group.
From BUSD they affirm that they have money, in United States treasury notes or bonds that support the amount of circulating tokens, from an institutional point of view.
For a long time, the USDT, owned by Tether Inc -owner of the Bitfinex exchange- was the subject of controversy, even being described as the cause of the high prices of cryptocurrencies, as if it were the “air” inside the bubble, and was accused of have no assets to justify the issuance, which has not been proven true during this price decline.
Tether does not confirm this, but many claim that part of its guarantee would also include bitcoin and other currencies purchased with its own digital currency.
Circle Consortium’s USDC should follow Paxos/Binance’s example and open their vaults to NYFDS to gain institutional trust. This position has been reflected in an increase in popularity for those who follow this path.
USDT as older (and having inspired others) has moved from a position of complete dominance in 2018 for a still leading 43% share, but closely followed by USDC at 35% and BUSD at 12%, and the latter two has been growing rapidly, taking over these spaces previously dominated by USDT. We are talking about a total market of 160 billion dollars.
2. Backed by cryptocurrencies
Although less used or known, those backed by cryptocurrencies are no less reliable for this reason. Many are serious projects that do not have big banks and financial conglomerates behind them. This is the case of DAI, of MakerDAO, and of CUSD – of Fundación Celo. Both circulate at a significantly lower volume than the top 3, but nonetheless, they are important, as they seek to empower communities with difficult access to money and a more up-to-date form of custody and management (applications and digital money ).
They are projects that are worth learning about and which we will undoubtedly delve into later. DAI ranks in the top 10 and CUSD ranks in the top 20. Projects that have already proven to be overcollateralized and adjusted with their cash and issues.
The so-called “Algorithmic” ones have this name because they work entirely on the basis of the algorithm created on top of the coin. Two examples are Nirvana –made with Solana– and UST, made by Terraluna. These two examples share something in common: a tragic ending.
Both projects fell victim to hacks, taking investor money to near zero. A clear indication that this type of technology is far from being worked on enough to trust its operation.
The DAI itself, mentioned above, is something of a hybrid between crypto-backed and algorithmic-backed.
Other interesting projects are USDD, linked to Tron, and Neutrino USD, of the same.
It is obvious that this article is far from exhausting all the content and potential of stablecoins. However, the idea here was to bring an update on who is leading the world of Bitcoin-inspired apps, and also using the development base in terms of usage, reach, and commercial presence.
Sometimes thinking and talking with friends in the area, the question arises as to whether we could use only bitcoin instead of all these solutions. But maybe you’re not ready for this conversation yet.
Fabian Dias he is an international business developer for Bitwage and has been working with cryptocurrencies since 2015.
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