The recent disastrous accident of Terra Classic (LUNC; formerly LUNA) resulted in the bankruptcy of several people. This was announced by South Korean officials. 8 confirmed suicides because of this blow.
Stablecoins emerged as a way for cryptocurrency investors to park their funds to avoid volatility. USTTS (formerly TSTS) was one of the largest stablecoins by market capitalization and the largest stablecoin on the Cosmos blockchain.
it not the first time algorithmic stablecoin fell below the recovery point. So much so that head of the IMF it has even been suggested that stablecoins not backed by physical assets are like pyramid schemes.
However, a biblical crash like UST was the first for a stablecoin. While history seemed to indicate that this was the obvious result, the usefulness of UST and the communities around LUNC-UST indicated otherwise.
Death spiral – that’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 and not backed by it.
LUNC maintained the USTC price algorithmically using a mint and burn mechanism. When USTC demand for supply the ratio was high, more LUNC were burned. Conversely, more LUNC were minted when the USTC supply to demand the ratio was high. This created an arbitrage opportunity for traders that helped keep the USTC price at around $1.00.
However, when the selling pressure became too high for the algorithm, LUNC began hyperinflation. Thus, the entire ecosystem fell into a death spiral, which eventually led to a point of no return. Today, USTC is worth less than $0.01, while LUNC is over 99% below its all-time high.
Decentralized alternatives are the way forward
The failure of algorithmic stablecoins does not mean the end of all possibilities. Instead, they give us important lessons. One is to avoid centralization at all costs. So, here is a list of non-algorithmic decentralized stablecoins that you should consider when entering the world of crypto.
1. US dollar
US dollars is a fiat-backed stable token derived from METL, the first decentralized crypto solution built into the Avalanche blockchain.
FROM US dollar METL the receipt of the stable token is secured at a 1:1 ratio using US dollars, and will not be affected by unexpected selling pressure, as is the case with LUNC and other algorithmic stablecoins.
The USDr token issuance mechanism is designed to ensure that users are the actual issuers of the token so that they interact with the DeFI ecosystem. This allowed METL to bypass any MTL (Money Transfer Licensing) requirements and obtain exemptions in all US states except New York.
METL does not host any wallets and therefore does not take user funds to their balance, which again protects them from bank forfeiture. METL is currently building an SDK that will allow any developer to build a FIAT gateway using METL microservices and connect it to any DeFI platform that needs a custom gateway. METL owns a 20-year USPTO patent for this technology.
Unlike USDC and USDT, DAI is an over-collateralized stablecoin and cryptocurrency. This means that this stablecoin is backed by other cryptocurrencies. Moreover, its “over-collateralized” nature implies that the value of DAI collateral is higher than the value of DAI. For example, $1.5 ETH (ERC-20) based tokens replace DAI with $1.
Instead of any centralized, corrupt organization, immutable and tamper-proof smart contracts keep DAI pegged to $1, increasing or decreasing the amount of collateral based on market dynamics.
Users can borrow EOSDT by pledging their digital assets in a smart contract at a low interest rate of 1% per annum.
The stablecoin also has an insurance mechanism called the Stability Fund that protects EOSDT and its holders from extreme market volatility.
In addition, the price of EOSDT is maintained at $1 by arbitrator incentives. This is similar to the USTC mechanism. However, unlike USTC, EOSDT is not algorithmic and currently has a collateral factor 281%.
4. US dollar
USD USA is a cryptocurrency-backed stablecoin with overcollateralization from Synthetics, an ETH-based protocol facilitating DeFi derivatives trading. sUSD acts as a bridge to trade these synthetic assets on the Ethereum network.
All synthetic assets on Synthetix are called “Synths” and are identified by the letter “s” in the prefix. sBTC, sETH and sSOL are some examples. Similarly, sUSD is a synthetic stablecoin asset.
RSV is a secured stablecoin. However, unlike the other tokens mentioned here, RSV uses a hybrid collateral method. Thus, the combination of fiat and cryptocurrencies supports this stablecoin.
RSV is a product of the Reserve, a protocol working to offer the citizens of countries with high inflation a reliable insurance against inflation. The Reserve Dollar (RSV) is a stablecoin that facilitates this.
Caution is wisdom
It is clear that you have several alternatives to stablecoins like UST. They are more reliable, secure and, above all, more decentralized. But, in spite of everything, the importance of due diligence in these matters cannot be underscored.
You should do thorough research before investing in any stablecoin. Look closely at the project team, their track record, and most importantly, the architecture of the protocol. Sometimes this is difficult, but absolutely necessary. Particularly because the crypto domain is still in its infancy, with a lot of volatility and uncertainty.
New changes are happening every day and you should always be careful about negative consequences. However, the storm will soon calm down, and the future of finance will shine brightly. Stablecoins will define this future, and so will you.
Credit : www.newsbtc.com