“Stablecoins were envisioned as a tool to hedge against the high volatility of the cryptocurrency market. After an impressive rise in all stocks in 2017, followed by a sharp fall in 2018, some investors have indeed felt the need to incorporate more stablecoins into their portfolio.” — BPIfrance 2019
What is a Stablecoin?
It is a digital asset that replicates the face value of a fiat currency. So, an Ethereum blockchain is created, assets are put into circulation on it and the users of these assets agree on the price, here it will be the equivalent of a fiat (government currency).
What is the ERC-20 Token?
It is a token present on the Ethereum blockchain. Unlike Bitcoin, Ethereum operates with a much more accessible system, both in terms of infrastructure and cost. New projects have emerged with the ERC-20 token, enabling new applications of the blockchain in the real world. This is particularly the case with stablecoins, which give rise to virtual currencies indexed on the price of real currencies.
Let's take the dollar as an example. 💵
Numerous projects have emerged that offer a completely dematerialized $, but not completely decentralized. Let's take a closer look at the three main Ethereum token projects indexed on the $.
No need to go check its price, it's $1 = 1USDT 😜. Tether's USDT is now the fifth largest valuation in the cryptocurrency world, with a valuation of over $51 billion. This project has been around since 2014 and is the brainchild of Bitfinex, a very large cryptocurrency exchange. It is centralized, it is a single player regulating this blockchain. It was created with the purpose of providing access to Bitcoin for the platform's customers. It works very well as long as users have confidence in the existence of dollar reserves corresponding to the USDT units in circulation.
Note: there is a variant of the project, the Tether Gold, which is, as its name indicates, indexed to the price of gold. (XAUT)
Here is another token, the USDC. It is the result of the collaboration of two major players in Cryptocurrency: Circle, an online payment infrastructure for business and Coinbase, the largest facilitator of access to cryptocurrency. Its main asset is its connectivity. It is indeed possible to find, buy, store or sell USDC on almost any exchange platform! By facilitating access to its currency, the service is quickly ranking in the top 13 cryptos in terms of capitalization. Launched in 2018, USDC is already averaging $1.6 billion in value exchanged every 24 hours.
Visa announced support for USDC this March 29, 2021, which is a great signal for this already hyper-connected blockchain, which could perhaps already embody the future of payment systems for e-commerce.
A completely decentralized project. It is therefore totally different from the management of other stablecoins. MakerDAO is an organization that has set up two distinct tokens: the Dai (DAI) and the Maker (MKR). The DAI allows the indexing 1DAI = 1$ and the MKR allows the decentralized governance of the project. The more MKR you have, the more influence you will have in the choice of future actions for the continuity of the project. This foundation "MKR Governance 101" proposes the lowest risk for the users.
DAI is storable and pays stacker for storage. This allows for a loan system to other players. Smart-contracts should be used to generate DAI in exchange for a guarantee in Ether, and by paying back the DAI you get your Ethers back minus the fees.
There are other Ethereum tokens indexed to the dollar such as: Binance USD (BUSD), TrustToken (TUSD), Gemini (GUSD), TerraUSD (UST) and many others not exceeding one billion in capitalization.
Remember that these stablecoins were created to protect their holders from speculative fluctuations. They are therefore indexed to securities that are more regulated and less exposed to fluctuations, such as government securities or commodities.
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