Comprehensive overview of STABLECOINS — PART 4
Non collateralized Stablecoins
Non collateralized stablecoins are price stable cryptocurrencies that aren’t backed by any collateral. It is the most complex, but potentially the most impactful for the ecosystem. To maintain the price level, a “central bank” is created that algorithmically maintains the supply of currency, increasing it when price goes up and decreasing it when price goes down.
This is based on the Quantity Theory of Money which states that ’the general price level of goods and services is directly proportional to the amount of money in circulation, or money in supply’. Within the context of non-collateralized stablecoins such as Basecoin and Carbon, it means that the supply of the coin will be dictated by the price of the stable coin. If the price is above $1.00 the supply increases, and when the price is less than $1.00 the supply decreases. This sort of mechanism exists in hopes of creating upward and downward pressure on the price, as required.
Pros:
-Does not require collateral
-Theoretically risk-independent of other currencies (though if there is a general decline in cryptocurrencies as an asset class there would likely be a decline in demand for seigniorage shares)
Cons:
-Not as intuitive or easily explained as other structures
-Input of future expectations for seigniorage shares means that it cannot be known how resilient a coin is to downward pressure
-Require always increasing future demand
Projects that implement this method are:
- Basecoin
- Carbon
- Kowala
- Fragments
- Minexcoin
- CP Processor
Basecoin — Basecoin uses a three-token model, which includes Base Share, Basecoin and Base Bond. The supply of Basecoin is elastic while the supply of Base Share is fixed. When the supply of Basecoin contracts, it triggers the Base Bonds to recycle and destroy the Basecoin. When the Basecoin supply expands, the new Basecoin repays the Base Bonds and the rest is assigned to the Base Shareholders. Three-token models present complex problems when traded on exchanges and implement network effect so they are not in public use yet. http://www.basis.io/
Carbon — Carbon is a trustless stable cryptocurrency which closely correlates with the US Dollar. This is achieved through algorithmically adjusting coin supply based on the demand. https://www.carbon.money/
Kowala — kUSD is a stable cryptocurrency pegged to the US dollar. For the first time, you can run real life and real businesses in cryptocurrency. All with a stable value you can rely on. https://www.kowala.tech/
Fragments — Fragments is an algorithmic reserve and monetary supply policy for creating low volatility Ethereum Standard tokens, and our mission is to produce a fair and stable money for the world. The protocol offers downside protection using a dynamic reserve, while maintaining upside interest through currency splits. Our first token will be the USD Fragment, a cryptocurrency targeted to the US dollar. https://www.fragments.org/about/
Minexcoin — MinexCoin (MNX) is a global payments system based on a low volatility cryptocurrency which is a part of Minex ecosystem. Thanks to its stable exchange rate, MinexCoin is a reliable means of payment, while controllable growth of coin price makes it an attractive means of value storage. Containment of volatility and price growth are maintained by the system’s autonomous algorithm acting like a central bank, hence the name MinexBank. https://minexcoin.com/
CP Processor — CP Processor will go beyond all of the above mentioned projects in order to achieve a higher goal — “world’s single coin” with a global open payment protocol (GOPP). Also, CP Processor by default integrated almost all process and functions that we can find here. The most interesting thing is that this project will link missing parts and use a sinergy to create a new dimension of global payments, and the Stable Token System is just the first stage of that road. CP Processor uses stable token system with personal loan & conversion. STABLE TOKENS = ETH & ERC20 TOKENS COLLATERAL + (ETH & ERC20 TOKENS CONVERSION + SUPPLY-DEMAND ADJUSTMENT BY SUPPLEMENTS) www.coinpaymentprocessor.org
Dear readers, hope you enjoyed reading fourth part of Comprehensive overview of STABLECOINS :) Fifth and final part will soon follow! Stay tuned, and remember…
