Stablecoin

A stablecoin is any cryptocurrency pegged to a stable asset, such as gold or fiat currencies.[1] Often times stablecoins are linked to a DAO which controls issuance and pricing.

Issuance

A traditional stablecoin is backed by a reserve which corresponds with the coins in circulation. The collateral can be fiat currency, a cryptocurrency or another asset like gold. In theory, a stablecoin will remain constant in price, as it is a representation of a known amount of an asset.

Stablecoins are typically issued either by a central authority or a Decentralized Autonomous Organization. The central authority issues new coins based on the collateral provided, allowing for more to enter circulation if the reserve grows, this is how stablecoins like Tether operate.[2] The benefits of using a DAO rather than a traditional central issuer is in that DAOs allow for more transparency if done in a decentralized manner. A DAO can be fully implemented, like in the case of Dai, a stablecoin running on the Ethereum network, or NuBits, which operates partially through a DAO but is also controlled by a central authority.[3]

Problems

Tether, the largest stablecoin by market capitalization, has faced accusations of being unable to provide audits for their reserves while continually printing millions; many have attributed their unverifiable creation of new coins to Bitcoin's rise in price in 2017.[4] Stablecoins can be prone to failure as well due to volatility and upkeep required in many cases; NuBits is one example of a stablecoin which has failed in keeping its peg.[3]

References

  1. ↑ Lee, Sherman. "Explaining Stable Coins, The Holy Grail Of Cryptocurrency". Forbes. Retrieved 17 May 2018.
  2. ↑ "Everything you need to know about Tether, the cryptocurrency that people worry could crash bitcoin and that regulators are investigating". Business Insider. Retrieved 2018-06-11.
  3. 1 2 "Stablecoin NuBits Loses $1 Peg, No Recovery in Sight - Chainstate". Chainstate. 2018-05-12. Retrieved 2018-06-11.
  4. ↑ "'Without this bitcoin price would collapse'". NewsComAu. Retrieved 2018-06-11.


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