What are stabilcoins?
Popular stablecoins are a liquid asset: they are in large numbers on almost any platform.
Also, popular stablecoins are a universal unit of exchange and storage of capital among crypto investors and traders. It is easier to trade in pairs with other cryptocurrencies than with fiat currencies. Unlike fiat, stablecoins can be translated faster and easier between accounts and addresses.
In addition, stablecoins are a means of protection against volatility in a cryptocurrency portfolio and are actively used in Defi applications.
What are the popular stablecoins?
Hundreds of stable coins are presented on the cryptocurrency market. Here is a list of 10 main stabilcoins based on the size of capitalization (CoinmarketCap data for August 2022):
- Tether (USDT);
- USD Coin (USDC);
- Binance USD (Busd);
- DAI (DAI);
- Trueusd (TUSD);
- Pax Dollar (USDP);
- USDD (USDD);
- Neutrino USD (USDN);
- Fei USD (Fei);
- Gemini Dollar (Gusd).
What assets are tied to stabelcoins?
In the crypto industry, the most common are stablecoins tied to the price of the dollar. The most famous example of such a coin is Tether (USDT). 1 USDT is $ 1 and has the minimum deviations from this price. There are stable cryptocurrencies based on other currencies, for example, the euro – Stasis Euro (EURS), or based on the Singapore dollar – XSGD.
Some stablecoins can be tied to the price of a fiat currency, but at the same time use to provide cryptocurrency. In this case, token prices can be achieved due to excessive reservation or a cunning arbitration algorithm. The most famous example of stablecoin with cryptocurrency reserves is DAI from MakerDao.
You can also buy stablecoins tied to the price of gold – in particular, Pax Gold (Paxg) and Tether Gold (Xaut). Unlike traditional gold instruments – for example, ETF emitted stablecoins do not charge a control commission, also cryptocurrencies are faster and cheaper. However, such coins are not very popular.
How are stablecoins differ among themselves?
Each stablecoin has its own system, which provides its cost. There is no generally accepted classification of stable coins, but in general they can be distinguished from each other according to several basic criteria:
- Asset class in reserve – fiat or cryptocurrency.
- Reservation norm. Reserves can cover part of the value of all tokens of a certain stablecoin in circulation, but also correspond to or even exceed it;
- The method of maintaining the price – either only reserves (refers mainly to centralized projects), or reserves and algorithm (this approach is used in algorithmic stablecoins).
What are centralized stablecoins and who controls them?
Most popular stablecoins are produced by centralized issuers. Each of them controls the fund, which stores reserves from various assets and securities. The fund regularly passes an independent audit, designed to confirm the conformity of the declared size and composition of the fund real.
Tether, which runs the largest USDT stabilcoin capitalization, publishes the results of such reports on its website. According to the audit conducted in August 2022, Tether reserves consist of bills of US treasury, cash, commercial securities and foreign exchange markets.
Similarly, the issuer’s accounts are checked – a stable coin with a binding to the US dollar, which is released https://gagarin.news/news/what-is-a-market-depth-chart-and-how-to-read-it/ by Binance Exchange.
Stebblecoin operators are organizations registered in major jurisdiction. The second in capitalization by dollar stabblecoin, USDC, controls the consortium of American Circle and Coinbase Companies. He controls reserves mainly consisting of cash and short -term state bonds of the United States. The company managing the reserves of the BUSD coin operates in the state of New York.
It is exclusively responsible for the issue of centralized stablecoin – it increases or reduces the circulation of the coin depending on the volume of reserves in ensuring.
What are the advantages and disadvantages of centralized stablecoins?
On the one hand, centralized stablecoins are very stable, since their price is 100% provided with low volatility assets. In addition, they are liquid, that is, they are available on almost any cryptocurrency trading platform. Also, popular stablecoins are convenient for mutual settlements and storage of capital. It is convenient to place them as a basic currency in trading pairs on crypto -rhizas.
On the other hand, centralization is a weak point of such coins. Any difficulties in the organization that controls reserves, including claims from regulators and reporting, may entail problems of all state holders. In addition, it is not known exactly how the operator of a stable coin can use reserves.
A striking example – USDT. At the beginning of 2019, the New York prosecutor’s office charged the Bitfinex exchange that she used the capital of Tether affiliated with her to compensate for her own losses of user. It was about $ 850 million, the access to which the platform lost after their transfer to the Panama processing service Crypto Capital.
Bitfinex paid off the main debt to Tether only at the beginning of 2021 and soon resolved the conflict with the authorities. At the same time, investors sued Tether, accusing the company of “illegal and fraudulent” practices. In April 2022, the defendant from Crypto Capital pleaded guilty to all points, including the charges of “shadow banking”.
What are algorithmic stablecoins?
The stability of some stable coins is provided not by traditional tools, but by cryptocurrencies.
Since the value of digital assets can change dramatically, providing 100% of the value becomes a difficult task. One way to solve it is the introduction of a decentralized management system, as well as a special computer algorithm that supports the cost of an asset based on certain principles.
What are algorithmic stablecoins?
One way to ensure the stability of algorithmic stablecoin is excessive reservation, when the size of the pledge exceeds the cost of the entire token emission. The most popular such stablecoin is DAI. This cryptocurrency that any user can release using the MakerDao protocol.
At the same time, he is obliged to block his cryptocurrencies as a pledge, the value of which in dollar equivalent is more than 100% of the amount of DAI tokens produced instead of tokens. This is necessary in order to avoid loss of full security with a sharp drop in cryptocurrency prices. If the ratio of the pledge to the issued amount of coins falls below the norm, forced elimination of the user position occurs.
DAI is a truly stable coin, but its obvious disadvantage is low capital efficiency due to too high collateral.
The creators of some stablecoins do not control the emission – any user can release them. The price is regulated by the actions of economic agents, and not the actions of a centralized organization. Stability in this case is ensured using an additional crypto active, which guarantees the liquidity of stablecoin.
The most popular algorithmic stabelcoin was UST from the Terra project. Its price is held using arbitration operations of holders, that is, through the demand and demand mechanism. An asset that provided the price of UST, was a native coin of a project called Luna.
For a long time, UST was the largest algorithmic stablecoin, but in the spring of 2022, as a result of a series of events, he lost a binding to the dollar, after which the entire project actually ceased to exist.
Of the unusual models of price holding, you can also distinguish Ampleforth (AMPL), FEI USD (Fei), Frax Finance (Frax) and Magic Internet Money (MIM).
How stablecoins will develop?
After Terra’s failure, the cryptocurrency market, with rare exceptions, lost confidence in algorithmic stablecoin. The main successful project in this direction can be called DAI from MakerDao.
Centralized projects, such as Tether and USDC, remain the main players in the Stebblecoo segment. However, a number of states, including the United States and the European Union, plan to introduce extensive regulation of issuers of stable tokens, which may complicate their use.
Stebblecoins regularly criticize regulators and state departments. At the end of 2021, the US Treasury issued a report on the risks of stable coins, in which he noted the opacity of their reserves and appreciated them as a threat to investors. The Fed is confident that stablecoins are a risk due to possible problems with their converting to fiat.