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In a 2013 published work David Yernack, a Professor of Finance at New York University, writes that each currency should be useful for the society, you should be able to also be used as a medium of exchange, a store of value and as a unit. At the time, he took three of these criteria as an opportunity, Bitcoin as a useful currency for everyday use, to exclude.
Although well-known crypto-currency functioning as a medium of exchange on smaller levels, and in certain Ecosystems, the failure of the holder or as a stable unit of account. The reason for this is their instability. Possible price volatility of 20 percent or more at any time to ensure that crypto-currencies fulfill the last two requirements, which we provide at currencies.
in Order to fight back against price fluctuations, has formed a sub-group of crypto-currencies; stablecoins, which means about as much as the „stable-coins“. Brigitte Luginbühl, Director of SwissRealCoin describes this as follows:
„In contrast to crypto-currencies such as Bitcoin, which are highly volatile, offer stablecoins to the people the pragmatic, helpful advantages of a crypto-currency, without having to panic to price changes, they are anchored in the real world.“
the structure of The Coins ensures stable prices or values over a certain period of time and makes it less volatile.
The Coin is trying to the relative price stability of Fiat currencies to imitate and not to lose sight of the fundamental values of crypto-currencies such as decentralisation and security.
Why do we need Stable Coins?
Without a certain degree of price stability, crypto currencies never in for the mass adaption was good, never a larger Radius, developing, and ultimately never in everyday life can be used.
Even if price fluctuations are good for speculation, they are not useful for everyday payments. No one wants to put in his daily life, with such a risk apart. Imagine, they would receive their salary only in crypto. If the price of the said crypto currency collapses overnight by 20 percent, in the end, everything is a fifth more expensive, when you Wake up the next Morning.
Rafael Cosman, managing Director of the trust token says:
„Stable Coins are one of the ways to the everyday people of the benefits of crypto-currencies, both in terms of price stability, as well as the decentralisation of capital.“
It’s not just about payments. Price stability is a fundamental condition, when traditional financial products such as loans and reliable investment options are on the Blockchain. Therefore the ultimate goal of a functioning, Stable Coins, without it, the core characteristics of a crypto-currency to be injured – far-reaching adaptation in everyday users.
There are a number of so-called Stable Coins on the market that try with varying degrees of success all the. They all fall more or less into three categories:
Fiat-secured crypto-secured non-secured Fiat-hedged stablecoins
This is probably to implement easiest to use and works like an IOU System. Each individual Token is secured by the same amount of Fiat currency held by a Central administrator (such as a Bank). The holder will have the guarantee that you will be able to redeem their Token at any time to a fixed value in the denominated in local currency.
Tether is perhaps the best known example for such a process. For each output Tether-Token (USDT) is stored in a same amount of US dollars in the case of a Depositary, which Tether always 1:1 traded 1USDT = 1 USD) should be (. Despite its stable value Tether has been much criticized. Many are of the opinion that the Token is not sufficiently secured, and the expenditure of hundreds of millions of new tokens without the necessary official reserves makes for more doubt as to the validity of the Token.
TrueUSD – on the Tokenization platform trust token is created Coin – is another, Local currency (USD) hedged Token, similar to Tether. As such, he was met by the crypto-community skeptical.
the transparency are stored the reserves in the trust accounts, the offer to the holders of the daily checks and the protection of the law. The establishment of the platform trust token has developed in cooperation with different law firms (Cooley, WilmerHale) a legal framework for TrueUSD.
offers A similar concept with a different digital store of Value to hedge Digix. In order to stabilize the Coin, has a secured Token with Gold. Each of the DGX-Token corresponds to one gram of 99.99 percent verified Gold. In this respect, it is stable in relation to one gram of Gold, but since gold fluctuates in value, is also bound to the value of the Coins to the US Dollar or Fiat currency is not necessarily stable.
in addition, the gold standard of an outdated monetary system that was created in the early seventies in the USA, and only had until the government realized that the gold production could not keep up with the pace of growth of the economies step comes.
There is also the very first national, ölgestützte currency called the Petro, which was introduced by the Venezuelan government. Each Petro is tied to a barrel of Venezuelan crude oil. In total, the output value of the monetary amounts to over 5 billion euros.
Some, however, believe that the Petro is nothing but an arrant fraud. Even the Congress of Venezuela, said the Petro-Token is considered illegal, and a government representative – Jorge Millan – commented: „This is not a crypto-currency; that is, a forward sale with Venezuelan Oil. This is tailor-made for corruption.“
Even if Fiat-secure Token (or other raw material secure Token) has a certain stability, they are from two main unsuitable for everyday life
benefits: firstly, they are not scalable, and would therefore require enormous sums of money as Collateral so as to have enough Coins for the mass adaptation can be provided (currently all money in circulation is estimated to have an Who of about 75 trillion. Euro).
And, secondly, a Central authority or administrator should be entrusted with the handling and storage of the Collateral. The possibility of Central interference is not contrary to the basic principles of crypto-currencies, however, in the strongest possible terms.
crypto-secure stablecoins
crypto-secure Stable Coins will be hedged by the reserves of a other crypto-currency. This is done to the centralization aspect of a Fiat-backed tokens to address and achieve price stability in a fully decentralized Ecosystem.
The biggest mistake here is obvious: The Coin is protected from a potentially equally unsafe crypto-currency. To counteract this phenomenon, crypto überbesichert-hedged Coins often to absorb the price fluctuations with the excess reserves.
The concept works through the issue of a 1-Dollar Coins for the Deposit of a $ 2-security tokens. This means that the Stable Coins is secured to 200 percent, which leaves a lot of room, should lose the Sicherheitscoin.
The depositors of the selected security currency are usually motivated by interest payments.
The first crypto currency to which such Form of security enabled, use BitShares, the native network-currency (bitshares) as collateral, to market-linked investments such as BitUSD, BitCNY and BitGold. This brand can be traded in values of assets like Futures (derivative contracts), in order to increase the collateral effectively.
another Coin with this mechanism, Dai and was developed by MakerDAO. Dai is on the Dollar but backed by Ethereum. A Dai-users could get a Stable Coin, by holding an excess amount of technology in a Smart Contract. Smart Contracts are completely Autonomous and trust-free environments. That is, if the user wants to access his collateral, he must pay back the Dai-debt (without third-party-dependent).
Alternatively, the reserves will be sold automatically if the security falls below a certain threshold.
Haven, on the other hand, a dual-Token-uses-System, in order to ensure stability. The Haven-tokens serve as security for the Haven platform, while the US Dollar secured Stable Coins will be issued in accordance with the value of the security. The stability is achieved by means of user incentives (network transaction fees).
crypto-secured Stable Coins are not decentralized and more liquid than their Fiat-backed counterparts, functioning as a stable, everyday Token .
The trust in crypto currencies as an underlying hedging this makes it less stable, and requires also a Form of over-hedging (really large amounts of capital) to inevitable fluctuations in the price intercept. Perhaps even more important is that the stabilisation mechanism is so complex that it might scare potential users.
Non-hedged stablecoins
Non-hedged stablecoins try local currency, extremely accurate imitate in that they are not supported by collateral, which a different value system is based on. Instead, price stability is achieved via a method, which is based on Seigniorage shares, and was designed by Robert Sams, the founder and managing Director of Clearmatics Technologies LTD.
With this method, Smart Contracts can be programmed in such a way that they resemble a reserve Bank. As a result, the money supply can be restricted or extended to the value as accurately as possible to the underlying base, for example, US Dollar.
The System is based on the fundamental economic principle of supply and demand. If the Coin is traded to high, the Smart Contract, the need to raise more tokens around the supply and reduce the value of the Coins.
The excess Profit in the Smart Contracts is called Seigniorage. If the Coin is traded below the underlying market, Asset, he is buying a part of the Coins in circulation, reduces their number and the offer, and increases its value due to increased demand.
If the Seigniorage is too low to buy enough Coins to increase in value to trigger on the desired level, then shares are issued, the promise to their owners the right to future Seigniorage (the difference profits in the Smart Contracts).
If the Token platform is growing with increasing users, there is the danger that it can’t keep up with the market-hedging. In addition, such a System can only tolerate a certain pressure to the bottom, before investors lose confidence in the ability of the Coins, that the future Seigniorage shares can be paid out.
A series of Coins applies this concept. The most well known are based (previously known as the Basecoin) and Saga.
Basis for short periods to the US Dollar bound, in the long run, it is based on a customer price index (CPI), if the owners use the Coin for the purchase and sale of Goods and services.
Saga on the other hand, is based on various fragmented reserves, which, in turn, are tied to the special drawing rights of the IMF.
Not-are secure, Stable Coins are the most useful Option for „everyday tokens“, since you will have to copy the stabilization mechanisms, the traditional reserve banks for local currencies, while it is decentralised in full and remain independent.
The concept is not perfect, since the stabilization mechanism only works if the platform is growing constantly. As a result, it is especially vulnerable to a market collapse in General, or to a lack of investor interest. To reach price stability, is a complicated process and safety parameters for Downward or upward trends are difficult to define with certainty.
How to work stablecoins in a perfect future?
such As Fran Strajnar, the Director of the analysis company Brave New Coin says:
„Stable Coins will rise as some of the most in-demand crypto-Assets, if the industry is more Mature and more institutional participants from entering the market.“
at the beginning, it was noted that price stability is a core feature in order for crypto currencies in everyday life are applicable, and the General public are used. Therefore, Stable Coins are considered to be the future of crypto-currencies and is the perfect Stable Coin will use a Variation of a non-secured Tokens.
in Order to achieve this, you need to develop platforms Token with the potential for global proportions, scalable, and yet privacy can ensure. A completely transparent Blockchain Ledger is not ideal, in order to protect business interests and relationships.
as a result, decentralized stablecoins really work, there must also be a System that can determine the exchange rate between the stable coin and the assets reliably, without having to manipulatable third party institutions.
at The moment, be considered to be Stable Coins as overzealous and extremely experimental. So far, there is no perfect Stable Coin that can boast a 100% perfect Implementation.
come On the way, to find a substitute for local currencies, which are prone to misdirected monetary policies are, we will inevitably stablecoins over. An ideal Stable Coin with robust stability mechanisms that can cope with any price fluctuation and effectively with the traditional Fiat currencies are equal, will undoubtedly signal the beginning of the end of the Hyperinflation, the interference of the Central government, the Fraud and failure of economies, in which most of the economies are currently suffering.
„value of assets with stable values? The face of the high interest in „Blockchain technology“, coupled with disinterest in „Bitcoin the currency“ in the General Public, is perhaps the time for a stable and Multi-currency system.“
This is the word of the Ethereum-founder Vitalik Buterin.