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Chapter I

Lending Platforms pay 8% Interest on Dai and Tether

The least you could do with your stablecoins; Dai, Tether, etc. is locking some up in lending platforms like Compound, Nexo, etc. and earn yourself some handsome interest.

They work like traditional banks. They receive deposits in stablecoins and then lend out what they gain. Except for a small part of the bank’s revenue, whatever interest the borrowers pay, forms the interest that the depositors receive.

There is high demand for loans in these lending platforms, mostly because they typically do not require a credit assessment, KYC, or other hassles. That is mostly because the loans are risk free. …


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Crypto-collateralized stablecoins lock crypto-assets such as ETH as collateral — with a significantly higher value — to back their stable tokens. This way, whenever the backing crypto-asset loses value to lower levels than the value of stable tokens, the peg is broken and the system collapses as a consequence. Accordingly, many people believe stablecoins of the kind are like ticking bombs and can be detonated at any moment.

However, a brief review of market prices during the last year reveals that the most prominent crypto-collateralized stablecoin, DAI, has firmly maintained its peg even at times when Ether — the crypto-asset backing it — lost value to one-tenth comparing to its peak price. …


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Ether bank claims that it is implementing a platform providing zero-interest loans with no due time for Ether holders. Now, while most prominent decentralized lending platforms like SALT, NEXO, etc. ask for at least 6% interest on their loans, it is understandably suspicious that such platform fulfills what it promises.

Firstly, one might wonder how a bank offering zero-interest loans would pay for expenses. In fact, in the decentralized world, the banks have no bureaucracy and no staff. They do not pay any rent, nor do they deal with legal matters. …


Why first-generation cryptocurrencies, like Bitcoin or Ether, can not be widespread among people, but, stablecoins can.

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Cryptocurrencies, unlike government money, are currently mere assets with a constant risk of gaining or losing their value; as a result, they can not be a sound, trustworthy way to store value or to be exchanged for other goods and services. For instance, one might sell a number of goods and receive some coins in return only to find out that prices have fallen in just a couple of minutes, and feel fooled. …


Why Stablecoins Matters to Ether HODLers!

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ICOs raised $5.6 billion in 2017 and this was enough for Ether’s price to explode and experience a 100x growth in this year. ICOs were the first killer application of Ethereum. The huge demand for Ether, by investors who wanted to participate in ICOs, drove up Ether’s price exponentially. But where will the next huge demand for Ether come from? What will be the next killer application of Ethereum? In my opinion, stablecoins will be the next killer application pushing for an explosion in Ether price. Let’s see why.

Three Types: One Viable Option

There are three types of stablecoins today: Fiat-collateralized, crypto-collateralized, and non-collateralized. The only ones proven to be reliable and fully decentralized are crypto-collateralized stablecoins. Fiat-collateralized stablecoins aren’t decentralized at all, allowing governments to easily destroy them by blocking their bank accounts. Non-collateralized stablecoins, on the other hand, aren’t reliable because of their design. Their creation creates a non-negligible economic problem beyond the scope of this text. As a result, crypto-collateralized stablecoins make the only viable decentralized approach to creating stability in the blockchain world. In the discussion to follow, whenever I use stablecoins, I mean crypto-collaterized stablecoins. …


Common Sense; Addressed to 99% of Inhabitants of America!

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During the American revolution, when Thomas Paine wrote the “Common Sense; Addressed to the Inhabitants of America”, to change the minds of people who wanted to peacefully settle their differences with the British government and encourage them to fight for independence instead, he clearly stated that:

“In America the law is king. For as in absolute governments the King is law, so in free countries the law ought to be king; and there ought to be no other.”

“The rule of law” was undoubtedly one of the most important properties of the government we wanted to build after winning the independence in the Revolutionary War. In 1780, John Adams enshrined this principle in the Massachusetts Constitution by seeking to establish: “A government of laws and not of men.”


How Ethereum Smart Contracts Can Replace Central Banks!

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Minneapolis Fed President Neel Kashkari said a few weeks ago:

If you live in any modern advanced economy I would stick with the dollar and leave bitcoin for the, you know, toy collectors.

But why do central bankers call us toy collectors? Why are they confident that we can never challenge their monopoly and sovereignty in the money market? Why can not cryptocurrencies compete with government-issued money? What is money that cryptocurrencies are not? Let’s see what the Deputy Governor of the Bank of Israel says about that:

[A money] fulfills the functions ascribed to it in the economic literature — a unit of account, a mean of payment, and stability that enables it serve as a store of value. None of these exist with Bitcoin or similar currencies.

About

Mahdi Heydari

Monetary Reformist Economist Ethereum Smart Contracts blankdao.org

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