Stablecoins — do we really need them?
The idea of crypto coin with a stable price was brought up shortly after bitcoin volatility started to rise. Usage of such coin would be a solid storage of value and easier international transfers, which is actually the original purpose of blockchain. As idea was growing, different projects took their own approach of making the perfect stablecoin. But before diving into those project, one may ask an important question:
Why would I like the stablecoin, when I can have Bitcoin and get zillion money?
Many ask themself the same question and from the investing/gambling point of view it can be hard to understand the immediate benefit from using stablecoins. But there are some uses of what some call holy grail of cryptocurrencies, that makes it desirable. Blockchain is not limited by borders, that is why transaction from China to USA can be cheaper , but when transferring coin, that can lost percentage of its value in matter of hours, it can get expensive. Also if the receiver doesn’t sell received assets immediately they can gain or lose some of their value in that time. To put it simple, normal cryptocurrencies are not a great value storage concept. This is where stablecoin would shine.
Stablecoins projects
The easiest way to create stablecoin is to have a cryptocurrency that is backed by real money. Realcoin started in July 2014 and renamed two months later into Tether. The idea was simple, every token backed by one real USD. The first exchange to adopt this new token was Bitfinex, one of the largest of its kind, based in Hong Kong. As dealing with fiat money requires strict KYC/AML requirements, when dealing with crypto tokens is a bit easier and less regulated, that is why some crypto exchanges are using stablecoins as alternative. Tether wanted to be the money no one could regulate. While Tether team provided some information about their dollar reserves official audit is still waiting to be written. Up to this point we are forced to believe that there is an actual money behind every Tether, which is not an ideal solution in the trustless blockchain world.
There is a new project, that eliminates the necessity of audits and fiat reserves, called eFiat. Instead of backing the token by real money, it uses the Proof of Burn concept, where some amount of Ether must be burned to receive their stablecoin — eUSD token. Burning is actually just sending Ether to provably unspendable address, and the number of tokens received is calculated based on the current price of Ether on exchanges at this moment. While there is no way to get your burned tokens back, author argues that by minting new tokens, where 1 USD burned gives you 1 eUSD, price stability is guaranteed.
Other projects, with different approaches to price stability are also in progress. Basis, startup that promises to bring stablecoin based on The Quantity Theory of Money, gathered 133 million dollars for their ICO. Their idea is to expand the token supply in case of price higher than 1 USD and vica versa. Supply will be regulated by issuing Seigniorage Shares in case of price volatility, which will be bought back by the system and though maintain price stability.
