Altcoins Talks - Cryptocurrency Forum
Cryptocurrency Ecosystem => Stable Coins Forum => Topic started by: Peter90 on August 27, 2019, 07:22:11 PM
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There are three different types of stable-coins, each with a different ecosystem.
Type 1 is a Fiat-collateralised coin,
Type 2 is a Crypto-collateralised coin
Type 3 is a non-collateralised coin that works on an algorithmically controlled ecosystem.
- The first type, are Fiat-collateralized stable-coins.
They are backed by real assets such as fiat currency or gold.
There has been a substantial increase in stable coins in 2018, below there are several examples of fiat pegged currencies. One that stands out is Tether. For every Tether coin there is 1 USD. This keeps the digital coin stable but comes at a cost. The project must have enough money in the bank to cover the circulating supply and must stay centralized to work. This however creates a scaling issue and must be audited to ensure that the coin is backed by the said amount.
- Type 2 ecosystems consist of the Crypto-collateralized stable-coins.
These coins are backed by a pool of crypto assets, possibly the top 10 performing coins (depending on the coins ecosystem preferences).
An example of a successful type 2 stable-coin is Dai. This coin is controlled by MakerDAO, a decentralized organization. The downside to this type of coin is that users are still in a vulnerable position as if the market goes down so will the stable coin. However, there are coins which have been adapted to prevent this from happening. They peg their coin to a pool of cryptocurrencies and fiat currencies. This innovative hedging technique eliminates market exposure in this volatile industry. This ecosystem falls in line with the decentralized architecture seen in the most promising projects to date.
- Lastly is type 3, the algorithmically controlled stable-coin.
The most innovative and newest ecosystem model. Its stability comes from the adjustments made based on the supply and demand. It’s an ecosystem that does not have collateral to back it up, but trust. The key criteria needed in a decentralized ecosystem. One promising project that puts trust in this innovative technology is Basis and only time will be able to tell whether this ecosystem will gain the trust needed to succeed.
https://www.dam.gi/wp-content/uploads/2018/11/Stable-coin-Report.pdf
This was an extract from: Stable-coins Report, October 2018.
By: Digital Asset Management Ltd (Gibraltar)
The linked document offers many examples for the three types of Stablecoins.
So, in your opinion, which kind of Stablecoins is more promising?
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I personally see the Fiat-collateralized stable-coins as more promising compared to the other stable coins. At any time, if the amount in the bank is equivalent to the circulating supply, the Tether backed Fiat-collateralized stable-coins (USDT) is more promising.
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I found an article today (see some extracts quoted below) containing some interesting explanations about how stablecoins work.
(These explanations don't apply to all stablecoins - for example, they don't apply to precious metals 1:1 backed stablecoins - but that's another story.)
The author's point is that "stablecoins" is the wrong word, as they are not stable in general but only in relation to their underlying asset-reserve.
That's why, he says, they shouldn't be called stable-coins but pegged-to-coins.
"First of all, stability is a feature rather than a category. Generally speaking, most stablecoins belong to the category of asset-backed tokens. In most cases, the assets are held in a reserve, and if the market value of the coin were to drop, the reserve assets are used to buy back the coin until it regains the target price level.
Similarly, more coins can be released from a reserve if the demand for the coin warrants. A reserve ratio determines how much of an asset is needed in order to support the stability of the price of a coin. Obviously, a 100% (or greater) reserve ratio should preserve a 1:1 ratio of the coin to the underlying asset, thereby theoretically allowing a coin to maintain stability.
The reason why “stablecoin” is a bad name is that there are literally no assets in history that have been known to exhibit a stable value over time — they are only stable relative to the value of another asset. Because of this, there isn’t any universal way to establish a stable threshold of value that is long-lasting.
The U.S. dollar, for example, isn’t itself stable over time, as the purchasing power of USD has dropped by 95% since 1913.
This decline accelerated in 1971, when the dollar ceased to be backed by gold and silver. Because of this, a cryptographic asset tied to the price of the U.S. dollar (or any other asset) should not be considered a “stable” coin but rather a “pegged coin” — meaning that its value is pegged to the value of something else."
https://www.zerohedge.com/news/2019-09-01/us-china-trade-war-and-its-effect-cryptocurrencies
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I personally see the Fiat-collateralized stable-coins as more promising compared to the other stable coins. At any time, if the amount in the bank is equivalent to the circulating supply, the Tether backed Fiat-collateralized stable-coins (USDT) is more promising.
@Bob,
I think gold and silver are better money than central banks produces currencies (fiat).
Fiatmoney loses purchasing power. Inflation.
Precious metals keep purchasing power.
Many people in the world are interested in cryptocurrencies because their national currencies are losing purchasing power.
In fact, the countries where cryptocurrencies are most popular are those with weaker national currencies.
Tomorrow Kinesis goes live
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- The first type, are Fiat-collateralized stable-coins.
They are backed by real assets such as fiat currency or gold.
:D
Fiat-collateralized means to be backed by fiat, not by gold!
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In my favourite stabled coin list USDT and pax is my favourite coins. I support and trade in USDT pair in different exchanges.