No more “tothemoon” for crypto. The only way out of this mess — stablecoins
The prophecy has come to reality — crypto market is going into oblivion. No more “lambo” or “tothemoon” talk, only sadness, despair and total frustration. As of now, price of the main cryptocurrency BTC is plummeting to hell, making most of the investors experience substantial losses and undeniably tough decisions while looking at their portfolios melt in front of their eyes. Panic — that’s how it is called.
Panic sales drive the market into a deeper abyss, and it seems like there is no turning back. But that was expected — assets with no underlying backing cannot show any stability, it is all a mere speculation, so rich get richer and poor get poorer. Everybody was warned, but only few believed and managed to exit and save their funds. Others are left with coins and dead tokens with the value closing to zero. Thanks God — it can’t go below zero, at least.
In this situation stablecoins look more and more appealing as they have something valuable to back them. Their price or value stay stable or at least the fluctuations are not critical. On the other hand — they are stable, meaning that no growth is possible.
So, what is the catch? How can we profit from stable coins? Do we really need them?
And the answer is definitely — yes! There is just no other way out. Look at values of stablecoins compared to volatile coins — they are growing. Meaning that if you hold stablecoins — you don’t lose, and in some cases you even get additional revenue.
And that raises a question — what is the stablecoin that can grow without falling? Let’s compare some of the examples of stablecoins to answer that question.
There are 3 large groups of stablecoins:
- backed by fiat currencies or valuable assets,
- backed by cryptocurrency
- without collateral
Coins of the first group secured with fiat currency or valuable assets and a centralized approach. Usually, it involves an independent custodian that stores fiat currencies serving as a collateral and issues the tokens representing them. In simple words, while your stablecoins are in circulation, the fiat currency is stored in the central structure.
Most common examples are coins pegged to USD, such Tether, TrueUSD, USDC, Gemini.
Tether is a cryptocurrency, which is pegged exclusively to the US dollar at the rate of 1:1 and has the designation USDT. The creators of Tether worked as follows: the amount corresponding to the number of coins issued was kept on a reserve bank account.
As the industry evolves with the emergence of security tokens, more coins are being developed with the backing by valuable assets, such as Gold, Silver, Diamonds, Real Estate.
Read more about security tokens in our previous article Attention, Investors! Security Tokens Entering the Market
Cryptocurrency DGX from DigixDAO company is backed by gold 999.9 (1 gram of gold to 1 coin). The entire gold fund, for which coins were issued, is kept in a bank safe in Singapore. The number of stablecoins on the account of the owner displays the real number of grams of gold in the bank. In addition, DigixDAO has DGD tokens that are paid for various operations with DGX. DGD allows DigixDAO to share its successes with those who helped achieve the goal.
But getting back to the question asked before — how can a stablecoin be profitable?
And the answer is TLR by Thaler.One, offering a real-estate-backed digital securities. TLR is backed by tangible Real Estate that generates recurring income.
Thaler.One uses up to 95% of the proceeds from fundraising rounds to acquire properties in the EU and UK, which will then be developed and sold or rented for a profit. A portion of this income will be paid out to TLR holders as dividends with a forecasted income rate at least 20% per annum. Such income comes from combined revenue of the whole platform operations, not only from the revenue of real estate properties but also from connecting property owners with retail investors by offering digital securitization of real estate assets.
Next, Thaler.One will issue special digital units, called Thaler.Blocks (TLRB), representing ownership over specific properties, essentially digitally securitizing them. A special marketplace will be created for real estate agents and sellers, on which each property will be converted into a digital assets — Thaler Blocks (digitally securitized). The company will charge real estate sellers a fee for securitizing their assets, as well as a commission on successful sales. Projected income for Thaler Block holders is expected to be around 5–15% per annum, depending on the revenue from the underlying property.
Main advantage of Thaler One stablecoins is that not only they are securely backed by one the most stable asset — Real Estate, but they also generate recurring income for the holders.
Other existing examples of stablecoins backed by valuable assets:
- Gold — DigixDAO, OneGram, Goldmint;
- Silver — SilverCoin, SilverBackCoin, Ethereum Link;
- Diamond — Kela, Carat, SparkleCoin;
- Oil — Bilur, OilCoin;
- Drinking water — Aqua Rights, Clear Water Coin.
- Real Estate — Proppy, Atlant, Alt.Estate, REAL, Thaler.One.
Coins of the second group have a more decentralized approach in relation to stablecoins provided by fiat. This is a stablecoin secured by cryptocurrencies. Such coins are tied to cryptocurrencies in a ratio greater than one to one. This is due to the high volatility of cryptocurrencies against the representatives of the first group. To ensure the coin of this group requires large amounts of digital currencies.
As a prominent representative of this group stands coin DAI by MakerDAO
MakerDAO’s product DAI is ethereum token system that is tied to the value of the dollar and uses Ethereum as a collateral. But, do not forget that Ethereum has a high volatility and may require significantly more collateral. The stable price of tokens is achieved through an autonomous system of smart contracts.
Unfortunately, this approach does not fit the basic idea of the “stability” of stablecoin.
Coins of the third group are stablecoins, using an algorithm or system, to increase or decrease the supply of coins, depending on its price. This model is based on the quantitative theory of money, which states that the general price level of goods and services is directly proportional to the volume of money in circulation. The main idea of providing such stablecoins based on the size of the supply of coins, which are determined by price. Suppose that the price limit is 1. If the price is higher than 1, the supply of coins increases, if less than 1, it decreases. Such a mechanism is designed to put pressure on the price upward and downward as necessary. Such stablecoins are very vulnerable to a number of factors, the main one of which is the lack of support of the coin. Negative news media or purposely invented rumors will have a dramatic impact on the course, which will be almost impossible to stop.
Examples of such stablecoins are Basecoin, Carbon and Saga.
As the market matures and cryptocurrencies get further development and adoption there seems to be no way in moving forward with the assets that are not backed by anything valuable, but merely supply and demand. In this respect, stablecoins are a uniquely interesting phenomenon that combines the advantages of global digital economy with stability, protecting holders from volatility. Certainly, it requires further development and improvements.
Unfortunately, the advantage of stability is eclipsed against dependence from centralized structures which, to some degree, contradicts the basic idea of decentralized digital currencies. But we see that there is no other way for development other than having a secure backing for an asset, same goes with cryptocurrencies — we see how the market is going down with nothing to stop it, rather than to shift to securitization and stability.
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