IOST Sets to Launch a Decentralized Algorithmic Stablecoin
Stablecoins play a vital role in the crypto ecosystem. Not only do they open up cryptocurrencies as a medium of exchange, but they also provide investors with a safer option to store assets during times of market volatility without switching to fiat currencies.
As an important asset class in the crypto market, stablecoins have also experienced impressive growth recently.
Out of many pioneers in the algorithm stablecoin field, UST can be considered a mainstream algorithmic stablecoin. The success of algorithmic stablecoins is contributed by three following elements:
- The suitable scarcity via inflation and deflation;
- A two-way arbitrage design (economic exploit);
- A secondary token model with a secondary token to absorb the volatility of the stablecoin.
Algorithmic stablecoins are seen truly promising yet still face many challenges in term of stability and long-term value-add to the users.
IOST aims to solve three core problems:
- To ensure the authenticity of oracle price feeds,
- To manage scarcity to ensure price stability and deal with deflationary costs,
- To design a short-term price arbitrage model to reduce short-term price volatility.
IOST will leverage its strong community with hundreds of thousands of users, underlying solid technical support, and the increasingly mature multi-chain ecosystem, which lays the upcoming decentralized algorithm stablecoin a solid foundation. We believe that our stablecoin will effectively expand the real-world use cases of algorithmic stablecoins and further strengthen the IOST ecosystem.
The IOST Foundation will put in more funding and resources focusing on gaining wider attention to IOST’s multi-chain ecosystem and making IOST’s algorithmic stablecoin well-known as a higher annualized interest rates and lower-risk coin against its competitors.
Stablecoins on IOST
First cross-chain stablecoin on IOST — The iUSD
On March 9, 2019, IOST announced the launch of its first cross-chain stablecoin iUSD. The iUSD stablecoin was launched by Rate3 Network and aimed to help seamlessly transfer digital assets between the IOST network and other blockchains.
Although the iUSD project was finally halted, it is a piece of evidence of how early IOST started to lay out stablecoins on its network.
Xigua Finance functional stablecoin — The XUSD
On October 28, 2020, Xigua Finance was officially launched. Xigua adopted a dual token governance model based on XG and XUSD.
- XG is the platform token to participate in the decentralized governance and rewards division on the platform.
- XUSD is the stablecoin used to pay listing fees, participate in XG liquidity mining, etc.
Read more here
Compliant stablecoin — The HUSD
On January 22, 2021, upon completion of extensive, detailed, careful review and testing, the highly anticipated HUSD stablecoin IRC21 token was officially integrated into the IOST blockchain.
Japanese Yen stablecoin — The JPYA
On May 19, 2021, the Platinum Egg team — IOST Partner Node and Game Developer announced the issuance of IRC-20 JPYA (JPY Stablecoin) based on the IOST blockchain. The JPYA stablecoin is pegged 1:1 to the Japanese Yen and can be purchased with Japanese Yen, BTC, ETH, and IOST.
USD stablecoin — The USDA
On May 26, 2021, the Platinum Egg team — IOST Partner Node and Game Developer announced the issuance of IRC-20 USDA (USD Stablecoin) based on the IOST blockchain. The USA stablecoin is pegged 1:1 to the US Dollar and can be purchased with Japanese Yen, BTC, ETH, and IOST.
Additional Reading: Stablecoins Categories
Stablecoins are digital assets pegged to fiat currencies or other asset prices. Currently, there are three main types of stablecoins: USD-collateralized stablecoins, assets-collateralized stablecoins, and algorithmic stablecoins.
USD-collateralized stablecoins:
- USDT & USDC, but also stablecoins issued by exchanges, such as BUSD, HUSD, etc.;
- Centrally managed, backed by U.S. dollars, and exchangeable at a 1:1 rate;
- Ensure pegs and high capital efficiency. The exchange rate peg itself depends on the trusted behavior of centralized entities.
Assets-collateralized stablecoins
- MakerDAO’s DAI and others;
- Collateralized by crypto-assets and rely on price oracles to maintain their peg to the US dollar;
- Unlike centralized stablecoins, minting this kind of token does not require permission;
- The over-collateralization mechanism makes this kind of token too capital intensive. Also, due to the highly volatile value of crypto assets, such stablecoins are vulnerable to market shocks.
Pros of the centralized stablecoins:
- The market is adapted to centralized stablecoins as a price-stable digital asset trading medium
- They have greatly improved the convenience of transactions between different tokens
- They have pushed the total market cap of cryptocurrencies toward new highs, breaking trillions of USD valuation.
Cons of the centralized stablecoins:
- The vulnerability of centralized stablecoins when facing extreme situations and emergencies
- The issuance/minting rights are still in the hands of centralized institutions, which have the highest authority
- Assets can be confiscated and frozen
- The risk of “token runs”
- Lack of decentralization — trade-offs such as sovereignty and the inviolability of private assets.
All this leads us to start paying more attention to decentralized algorithmic stablecoins. Algorithmic stablecoins are tokens whose supply is adjusted by a deterministic mechanism designed to adjust the token’s price in the direction of its price target.
Decentralized Algorithmic Stablecoins
- Algorithmic stablecoin expands its supply above the target price and shrinks its supply below the target price.
- Algorithmic stablecoins are neither 1:1 convertible to USD nor have other crypto assets as collateral as of now.
- Algorithmic stablecoins are often highly reflexive: demand is primarily driven by market sentiment and momentum. These demand-side forces are transferred into the token supply, generating further directional momentum, which could eventually create a violent feedback loop.
- Algorithmic stablecoins are the most similar to native stablecoins in the crypto industry. They do not need to be generated through collaterals and ultimately depend on users’ needs.
- There is a lot of gambling, speculation, arbitrage, and other behaviors behind algorithmic stablecoins.
Although “the death spiral” (Hyperinflation) and instability have always been major problems that plagued algorithmic stablecoins, it is undeniable that algorithmic stablecoins, as well as collateral-based on other public chains, are gaining momentum. This kind of stablecoins has a unique advantage: they are crypto-native and have the opportunity to become truly decentralized stablecoins for the first time.
About IOST
Backed by major financial and VC firms such as Sequoia, Matrix, and ZhenFund, IOST is a pioneering decentralized, high-throughput, gas-efficient Proof-of-Believability-powered smart contract platform built to tackle the scalability trilemma.
IOST has gained widespread recognition due to its innovative features and superior blockchain technology. It has also outpaced 37 top competitors, including Ethereum and EOS, multiple consecutive times in the ranking by China’s Ministry of Industry and Information Technology.
IOST network has more than 624,000 unique wallets and is currently processing over 648 million transactions. The network hasn’t also had a single security incident since its mainnet launched in 2019.
Notably, in April 2022, IOST announced the launch of Project Entroverse to become an EVM-compatible multi-chain. This move, coupled with the kickoff of IOSTSwap and IOSTSwap Farm, has become a highlight in IOST’s 2022 development roadmap.
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