Top Decentralized Stablecoin Alternatives to USTC
Stablecoins emerged as a means for crypto investors to deposit their cash to avoid volatility. USTC (formerly UST) was one of the most valuable stablecoins by market cap and the most valuable stablecoin on the Cosmos network. Several people have gone bankrupt as a result of the recent devastating accident of the Terra Classic (LUNC; [...]
Stablecoins emerged as a means for crypto investors to deposit their cash to avoid volatility. USTC (formerly UST) was one of the most valuable stablecoins by market cap and the most valuable stablecoin on the Cosmos network.
Several people have gone bankrupt as a result of the recent devastating accident of the Terra Classic (LUNC; formerly LUNA). South Korean officials reported eight suicides as a result of this trauma.
This is not the first time that an algorithmic stablecoin has fell below the point of no return. So much so that the head of the IMF indicated that stablecoins that are not backed by tangible assets are akin to pyramid schemes.
However, an accident as historic as the UST accident was a first for a stablecoin. While history seemed to imply that this would be the case, the usefulness of UST and the communities surrounding LUNC-UST suggested otherwise.
The death spiral: here’s what went wrong
Stable coins are digital assets that have their value tied to a fiat currency or other assett. USTC is one of those stablecoins that is pegged to but not backed by the US dollar.
LUNC kept the price of USTC stable with an automated mint and burn method. More LUNCs were burned when the USTC bid-ask ratio was high. Conversely, when the USTC supply-demand ratio was strong, more LUNCs were issued. This created an arbitrage opportunity for traders, which helped keep the USTC price around $1.
When the selling pressure grew too high for the algorithm to handle, LUNC began to expand. As a result, the entire ecosystem entered a death spiral that ultimately brought it to the point of no return. Today, USTC costs less than $0.01, while LUNC is for more than 99% of your ATH.
The future of decentralized alternatives
The failure of algorithmic stablecoins does not mean that all possibilities have been examined. Instead, they teach us valuable lessons. One is to avoid centralization at all costs. So, here is a list of non-algorithmics, decentralized stablecoins to think about when you enter the crypto realm.
1. US dollar
USDr is a fiat-backed and collateralized stable token receipt issued by METL, Avalanche blockchain’s first decentralized crypto on-ramp solution.
Since METL’s USDr stable token receipt is collateralized by USD in a 1:1 ratio, not be influenced by unforeseen selling pressures as are LUNC and other algorithmic stablecoins.
The USDr token issuance process aims to make users the actual issuers of the token, allowing them to interact with the DeFI ecosystem. This allowed METL to avoid MTL (Money Transmitter Licensing) requirements and secure exemptions in all states except New York.
METL does not host any wallets and therefore does not include user funds in its balance sheet, thus protecting users against a bank run. METL is actively developing an SDK that will allow any developer to create a FIAT gateway using METL microservices and connect it to any DeFI platform that supports native gateways. METL owns a 20-year patent issued by the USPTO for this technique.
MakerDAO, an Ethereum-based peer-to-peer organization that facilitates collateralized loans, created DAI, a decentralized stablecoin.
DAI, unlike USDC and USDT, is an overcollateralized crypto-backed stablecoin. This indicates that the collateral for this stablecoin is made up of other cryptocurrencies. In addition, its “collateralized envelope” character indicates that the the guarantee that supports DAI is worth more than DAI itself. For example, $1.5 in ETH-based tokens (ERC-20) is equal to $1 in DAI.
Immutable and tamper-proof smart contracts, rather than any centralized and corruptible institution, keep the DAI pegged at $1 by increasing or decreasing the amount of collateral based on market dynamics.
EOSDT is an overcollateralized decentralized crypto-backed stablecoin developed by Equilibrium, a cross-chain money market project of the Polkadot ecosystem.
Users can borrow EOSDT by collateralizing their digital assets in a smart contract with an annual percentage rate of 1%.
In addition, the stablecoin contains an insurance mechanism known as the “Stability Fund” that protects EOSDT and its holders against significant market volatility.
Additionally, arbitrators are incentivized to keep the EOSDT price at $1. This is comparable to the mechanism used by the USTC. However, unlike USTC, EOSDT is not algorithmic and has a collateralization ratio of 281% at this time.
Synthetix sUSD stablecoin is an overcollateralized, cryptocurrency-backed stablecoin that supports DeFi derivatives trading. On the Ethereum network, sUSD serves as a bridge to trade these synthetic assets on-chain.
At Synthetix, all synthetic resources are referred to as “Synthesizers” and are designated by an “s” in the prefix. Some examples include sBTC, sETH, and sSOL. Similarly, sUSD is a fictitious stablecoin asset.
RSV is a stablecoin that has been collateralized. RSV, on the other hand, uses a hybrid collateralization technique, unlike the other tokens described here. As a result, this stablecoin is backed by a combination of fiat currency and cryptocurrencies.
RSV is a product of Reserve, a protocol that aims to provide residents of high-inflation countries with a strong inflation hedge. The Reserve Dollar (RSV) is the stable coin that makes it possible.
Caution is wisdom. It is quite evident that there are numerous alternatives to stablecoins like UST. They are more robust, reliable and, most importantly, decentralized. Still, the need for careful diligence in these areas cannot be overstated.
Before investing in any stablecoin, you should carry out a thorough investigation. Examine the project staff, their history, and most importantly, the protocol design. It is challenging at times, but it is very vital. Especially since the world of cryptocurrencies is still in its infancy, with significant volatility and unpredictability.
Every day, new developments happen, and you always beware of negative effects. However, the storm will pass quickly and the future of finance will shine brightly. Stablecoins will shape the future, and so can you.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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