Top Decentralized Stablecoin Alternatives to USTC (Formerly UST)
June 23 2022 - 1:10AM
NEWSBTC
The recent cataclysmic crash of the Terra Classic (LUNC; formerly
LUNA) left several people bankrupt. South Korean officials reported
8 confirmed suicides due to this blow. Stablecoins emerged as a way
for cryptocurrency investors to park their funds to escape from
volatility. USTC (formerly UST) was among the largest stablecoins
by market cap and the single largest stablecoin on the Cosmos
blockchain. This is not the first time an algorithmic stablecoin
fell below the point of recovery. So much so that the head of the
IMF even suggested that stablecoins that are not backed by physical
assets are similar to pyramid schemes. However, a crash as biblical
as that of UST was a first for a stablecoin. While history seemed
to have indicated this to be an obvious outcome, the utility of UST
and the communities around LUNC-UST indicated otherwise. The Death
Spiral – Here’s What Went Wrong Stablecoins are digital assets
whose value is pegged to a fiat currency or other asset. USTC is
one such stablecoin, pegged to the US dollar by not backed by it.
LUNC maintained USTC’s price algorithmically, using a mint and burn
mechanism. When USTC’s demand-to-supply ratio was high, more LUNC
was burnt. Contrariwise, more LUNC was minted when USTC’s
supply-to-demand ratio was high. This created an arbitrage
opportunity for traders which helped maintain USTC’s price at
approximately $1. However, when the selling pressure became too
high for the algorithm to keep up, LUNC began to hyperinflate. It
thus sent the entire ecosystem into a death spiral, eventually
leading to a point of no recovery. Today, USTC costs less than
$0.01 while LUNC is over 99% down from its all-time high.
Decentralized Alternatives – The Way Forward The failure of
algorithmic stablecoins doesn’t mean the end of all possibilities.
Instead, they provide us with crucial lessons. One of them is
avoiding centralization at all costs. So, here’s a list of
non-algorithmic, decentralized stablecoins for you to consider
while entering the world of crypto. 1. USDr USDr is a
collateralized, fiat-backed stable token receipt by METL, a first
decentralized crypto on-ramp solution native to the Avalanche
blockchain. Since METL’s USDr stable token receipt is
collateralized with a 1:1 ratio using USD, it will not be affected
by unexpected selling pressures like in the case of LUNC and other
algorithmic stablecoins. The USDr token’s issuance mechanism is
designed to have users be the actual issuers of the token, so that
they interact with the DeFI ecosystem. This allowed METL to bypass
any MTL (Money Transmitter Licensing) requirements and receive
exemptions in all the states in the US except NY. METL does not
host any wallets and therefore does not take user’s funds on their
balance sheet, which again protects them from a bank run. METL is
currently building an SDK to let any developer build a FIAT gateway
using METL microservices and plug/play it into any DeFI platform
that wants native gateway. METL holds a 20 year patent for
this technology issued by the USPTO office. 2. DAI DAI, a
decentralized stablecoin, is a product of MakerDAO, an
Ethereum-based peer-to-peer organization facilitating
collateralized loans. Unlike USDC and USDT, DAI is an
over-collateralized, crypto-backed stablecoin. This means that the
collateral backing this stablecoin is other cryptocurrencies.
Moreover, its “over collateralized” nature implies that the value
of the collateral backing DAI is greater than DAI’s value. For
instance, $1.5 worth of ETH-based (ERC-20) tokens back $1 worth of
DAI. Instead of any centralized, corruptible entity, immutable and
tamper-proof smart contracts maintain DAI’s peg to $1 by increasing
or decreasing the amount of collateral based on market dynamics. 3.
EOSDT EOSDT is an over-collateralized, decentralized crypto-backed
stablecoin by Equilibrium, a cross-chain money market project in
the Polkadot ecosystem. Users can borrow EOSDT by collateralizing
their digital assets in a smart contract with a small interest rate
of 1% APR. The stablecoin also has an insurance mechanism called
the “Stability Fund” to shield EOSDT and its holders from extreme
market volatility. Further, the price of EOSDT is maintained at $1
by incentivizing arbitrators. This is similar to USTC’s mechanism.
However, unlike USTC, EOSDT is not algorithmic and currently has a
collateralization ratio of 281%. 4. sUSD sUSD is a crypto-backed,
overcollateralized stablecoin by Synthetix, an ETH-based protocol
that facilitates DeFi derivatives trading. sUSD acts as the bridge
to trade these on-chain synthetic assets on the Ethereum network.
All synthetic assets on Synthetix are referred to as “Synths” and
are denoted by an “s” at the prefix. sBTC, sETH, and sSOL are some
examples. Similarly, sUSD is a synthetic stablecoin asset. 5. RSV
RSV is a collateralized stablecoin. However, unlike other tokens
mentioned here, RSV employs a hybrid collateralization method.
Thus, a combination of fiat and cryptocurrencies back this
stablecoin. RSV is a product of Reserve, a protocol working to
offer citizens of countries with high inflation rates a robust
inflationary hedge. The Reserve Dollar (RSV) is the stablecoin that
facilitates this. Caution is Wisdom It’s abundantly clear that you
have several alternatives to stablecoins like UST. They are more
robust, more reliable, and above all, more decentralized. But
despite everything, one can’t stress the importance of due
diligence enough in these matters. You must do your research,
thoroughly, before investing in any stablecoin whatsoever. Look
closely at the project’s team, their track record, and most
importantly, the protocol’s architecture. It’s difficult at times
but utterly necessary. Particularly because the crypto domain is
still nascent, with much volatility and uncertainty. New changes
are happening every day and you must always be cautious about
negative consequences. The storm will, however, be over soon, when
the future of finance will shine bright. Stablecoins will define
this future, and so can you. Image by succo from Pixabay
EOS (COIN:EOSUSD)
Historical Stock Chart
From Aug 2024 to Sep 2024
EOS (COIN:EOSUSD)
Historical Stock Chart
From Sep 2023 to Sep 2024