Comprehensive overview of STABLECOINS — PART 3.


If we were to look into a much more decentralized approach, we arrive at crypto collateralized stablecoins wherein the stable coin is backed by cryptocurrency reserves. This is usually from a decentralized perspective. However, given the fact that cryptocurrencies are extremely volatile, this approach requires over-collateralizing which means that there is a huge rate of capital, and this sort of an approach can’t get through to the entire crypto audience and cannot satisfy the idea of a new form of money.

Instead of backing units of a stablecoin 1:1 with fiat, crypto-collateralized stablecoins hold a ratio greater than 1:1 of a cryptocurrency (or basket of cryptocurrencies) and issue units of a stablecoin supported by the cryptocurrency held.

Implementation: This method is conducted on-chain using a cryptocurrency, like Ethereum, as collateral and avoids the issue of trusting a third party involved in the fiat-collateralized method. The concern for crypto-collateralized offerings, however, is that the underlying collateral is highly volatile and, to be secure against significant price drops, a significant amount of collateral must be held — as much as 2:1 or even greater.

· Pros:
* Does not rely on third-party custody like fiat-collateralized
* Conducted on-chain which enables a faster increase/decrease of stable coin units and liquidity than fiat-collateralized
* Transparent to external parties without the need for auditors

· Cons:
* Not capital efficient
* Complex selection process if a basket of cryptocurrencies; questionable price stability/security if just one cryptocurrency

Projects with this structure:

1. Bitshares,

2. MakerDAO,

3. Aurora,

4. Havven,

5. Tesla CryptoCap,

Bitshares — BitShares (symbol BTS), formerly known as ProtoShares (PTS), is an industrial grade “crypto-equity”, peer to peer distributed ledger and network based on a Delegated Proof of Stake (DPoS) algorithm. BitShares is based on Graphene, an open source C++ blockchain implementation, which acts as a consensus mechanism.

MakerDAO — Maker is able to maintain the price stability of the Dai through the Dai Credit System, which backs the Dai with collateral stored in Ethereum smart contracts, while simultaneously functioning as an internet-based, p2p credit market that commoditizes credit by allowing anyone with valid collateral to take out loans that have low transaction costs and no middle man fees. Anyone can generate Dai on the Maker platform with a collateral value of twice Dai’s Pooled Ether (PETH).

Aurora — Boreal is the stablecoin of the Aurora network. Inspired by free banking, each boreal is backed by a combination of ether reserves, debt from loans, and dapp endorsement. Dapp support begins with IDEX, as Boreals will always be accepted at their target value as payment for trade fees. Guaranteed redemption on IDEX will help maintain the price as traders are incentivized to purchase boreals and lower their trading costs whenever the currency falls below target. Boreal will also serve as a base asset, allowing traders on IDEX to minimize risk by trading against a stable base currency.

Havven — Havven is a decentralised payment network where transaction fees are collected from users of the network. These fees are allocated to collateral token holders, which is where the collateral token derives its value. There are two tokens in the system: havvens, the collateral token; and nomins, the stablecoin. Nomins are backed by havven tokens, as nomins can only be issued by locking havvens into a smart contract. Against the value of havvens a fraction of nomins can be issued, which ensures the network is overcollateralized and is resistant to price shocks. They establish the initial value of the system through a token sale. Because there are no transactions yet, participants in the sale are predicting the value of the Havven network, factoring in some risk premium. Collateral tokens are purchased on the basis that if the network grows and transaction fees increase, the value of the collateral token will increase and users will be rewarded for collateralising the system.

Tesla CryptoCap — Tesla CryptoCap will go beyond all of the above mentioned projects in order to achieve a higher goal — “world’s single coin” with a global open payment protocol (GOPP). Also, Tesla CryptoCap by default integrated almost all process and functions that we can find here. The most interesting thing is that this project will link missing parts and use a sinergy to create a new dimension of global payments, and the Stable Token System is just the first stage of that road. Tesla CryptoCap uses stable token system with personal loan & conversion. STABLE TOKENS = ETH & ERC20 TOKENS COLLATERAL + (ETH & ERC20 TOKENS CONVERSION + SUPPLY-DEMAND ADJUSTMENT BY SUPPLEMENTS)

Dear readers, hope you enjoyed reading the THIRD part of COMPREHENSIVE OVERVIEW OF STABLECOINS. Part 4 will soon be published! Stay tuned :)

For those of you who missed it, here are links to Part 1 and Part 2:)