STABLECOINS — Theories and comparation
Is USD a stable currency? NO, neither internally, nor externally.
USD is not a stable currency and that is confirmed on a daily basis. Internally, USD is consolidated constantly through a changeable benchmark interest rate set by the FED and it generally loses value over time due to inflation. Externally, it has a floating currency exchange rate against other international currencies. From time to time, it gives us greater than expected shocks and there is one simple reason for that — people manage USD money supply centrally and subjectively.
Is BAM a stable currency? Yes, externally it has a fixed proportion against EUR and that proportion has been unchanged for a long period. But internally, it is not stable because it applies variable basic interest rate set by the Central bank of Bosnia and Herzegovina. Also, its external stability is a derived value of EUR, that also has a floating currency exchange rate against other currencies.
Obvious and general conclusion is that current global currencies generally have no stability neither externally, nor internally. One of the reasons for this is that people manage them centrally and subjectively, and by removing that state, there is a possibility for the increase in stability.
BUILDING A “STABLECOIN”
In this section we will deal with the name “Holy Grail of Crypto”, a name that was coined by the news portal Coindesk, and the community readily accepted. This term relates to the “Mission impossible” in the field of cryptocoin development — creating a STABLECOIN.
One of the main problems with Bitcoin for ordinary users is that, while the network may be a great way of sending payments, with lower transaction costs, much more expansive global reach, and a very high level of censorship resistance, Bitcoin as the currency is a very volatile means of storing value. This volatility results from its built-in quantity commitment: because the number of Bitcoins in existence stays on a programmed path, variations in the real demand to hold Bitcoin must be accommodated entirely by variations in its unit value. When demand goes up, there is no quantity increase to dampen the rise in price; and vice-versa for a fall in demand. So, the currency has an established reputation for extreme volatility and Bitcoin holders can lose their wealth and quite often the price moves up or down by as much as 10–20% in a single day.
Can we have the full decentralization that a cryptographic payment network offers, but at the same time have a higher level of price stability, without such extreme upward and downward swings? YES, we can!
But the stability problem is still there and we must do something better.
There are three types of stablecoins:
- fiat-collateralized coins
- crypto-collateralized coins
- non-collateralized coins
Also we have seen “the evolution of stablecoin in three generation” :
- collateral backed IOU
- collateral backed on blockchain
- elastic monetary supply based
Tether (USDT) — fiat collateral
Market cap = more than 2 bil.USD
Claiming that every USDT has one USD as reserve stored in Tether’s bank account. This guarantees Tether’s ability to redeem the legal currency at any time. Yet the model is 100% centralized because the company is in full control of the money supply and reserves. Because its US dollar reserve must be stored in regulated bank accounts, it is subject to government regulations. The most interesting thing is that the Bitfinex exchange, which, incidentally, controls the work of the company Tether Ltd, after the termination of cooperation with banks has incorporated and introduced the use of USDT, and managed to impose the dominance of USDT as the only stable coin for all other crypto exchanges.
MakerDAO & DAI — crypto collateral
Market cap = about 500 mil.USD
Maker is able to maintain the price stability of the Dai through the Dai Credit System, which backs the Dai with collateral stored in Ethereum smart contracts, while simultaneously functioning as an internet-based, p2p credit market that commoditizes credit by allowing anyone with valid collateral to take out loans that have low transaction costs and no middle man fees. Anyone can generate Dai on the Maker platform with a collateral value of twice Dai’s Pooled Ether (PETH). The most interesting thing is that the stable token DAI in practice has the role of ETH LONG leverage and in other words serves as some kind of ETH CALL Option.
Basecoin — non collateral adjustment
Market cap = private funds 125mil.USD
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. The most interesting thing is that this project was first to include the supply-demand adjustment in the price stabilization process as well as “signorated share” principles.
Havven (HAV) & nomin — crypto collateral
Market cap = about 30 mil.USD
Havven is a decentralised payment network where transaction fees are collected from users of the network. These fees are allocated to collateral token holders, which is where the collateral token derives its value. There are two tokens in the system: havvens, the collateral token; and nomins, the stablecoin. Nomins are backed by havven tokens, as nomins can only be issued by locking havvens into a smart contract. Against the value of havvens a fraction of nomins can be issued, which ensures the network is overcollateralized and is resistant to price shocks. They establish the initial value of the system through a token sale. Because there are no transactions yet, participants in the sale are predicting the value of the Havven network, factoring in some risk premium. Collateral tokens are purchased on the basis that if the network grows and transaction fees increase, the value of the collateral token will increase and users will be rewarded for collateralising the system. The most interesting thing is that this project will create a stable token exclusively with the supply and collateral of its own token that builds value based on the transaction fees.
USDX — crypto collateral adjustment
Market cap = not active
The project will roll out in two phases by Q2.2019. Phase 1) Tokens will be produced as Ethereum ERC20 tokens called USDX. Anyone can join USDX’s ecosystem to contribute to the ICO. Phase 2) An independent public chain will be called USDY. Previous USDX token holders will be awarded USDY equal to their USDX, then enjoy “the ultimate stabilization reached by its self-balancing mechanism. After phase 2, USDX will implement intelligent algorithmic monetary control. The algorithm will adjust the total quantity of money in the economy (M). It will also adjust the velocity of money (V). Diversified mechanisms will adjust M and V. Those diversified mechanisms include a variable block reward, a mining lock, and a variable transaction fee. USDX is finite and does not have the self-balancing mechanism of a Stablecoin. USDX will be traded on the open market and the price will be free to rise and fall to reflect market expectations.The most interesting thing is that this project will create own public blockchain based on proof of stake with high transaction speeds.
CP Processor (cPRO) & Stable Tokens+Supplements — crypto collateral adjustment
Market cap = activating in Q2.2018 ???
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.
If you enjoyed this read, follow us for more exciting articles :)