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Stablecoins and Polkadot Standard Protocol's

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Written by   53
7 months ago

Stablecoins are probably the second pillar of the cryptocurrency circle besides Bitcoin. Readers can imagine how troublesome and unstable transactions in the cryptocurrency circle would be without USDT and other stable currencies. The stable coins we commonly use are those with a value of 1:1 anchored to the US dollar , but everyone knows that this type of stable currency has its own problems, that is , centralized, opaque, and stability is also affected by the US dollar exchange rate . If you put it for a long time One point, it is difficult to say how stable it is. For example, last year, the exchange price of USDT to JPY even exceeded 7 , but now it is only about 6.5 , a drop of about 8% . To say that it is stable, it can only be said that it depends on how you look at it . And now the most widely used TEDA USDT , most people know its potential risks . Does TEDA really have so many 1:1 U.S. dollars in the bank? If it is over-issued, how much is it really over-issued? Is TEDA's compliance risk really lifted now? What if the US SEC settles the case against TEDA?

Because of the above-mentioned weaknesses, we know that a second category of stablecoins has emerged, that is , algorithmic stablecoins that do not need to be anchored to legal currency and assets . Starting from AMPL , algorithmic stablecoins have sprung up like mushrooms after a rain, appearing and practiced in large numbers. As the name suggests, algorithmic stablecoins mainly rely on algorithms to achieve target anchoring value , for example, the USDC of the Great Harvest is a typical algorithmic stable currency. The issuance of USDC will be accelerated during inflation . If the price drops above the anchor point, then the deflation process begins, and the overall attempt is to use the algorithm to control the stablecoin coin value near the anchor point. However, the algorithmic stable coin so far not stable, even to demonstrate that their practical applications are still in doubt, because it is too unstable, the harvest of USDC has certainly let a lot of people suffer, even AMPL is the largest algorithmic stablecoin , is still not come out, and its practical application is also lacklustre . You can't think that AMPL has succeeded because the FORTH airdrop has allowed a group of people who have held and interacted with AMPL and users can earn a lot of airdrops . Whether algorithmic stablecoins can truly develop successfully or not but it is still unknown.

The weakness of algorithmic stablecoins is very obvious, that is, the lack of real assets or legal currency collateral . It is difficult to convince users to recognize that it has substantial value by using algorithms alone to issue coins, and it is even considered "air" by many people. So until now, explorers are still looking for a better path to stablecoins. Now, the third option appeared. The most typical one is a stablecoin project introduced in this article: Polkadot's Standard Protocol.Its stablecoin definition is based on Polkadot ecology 's hybrid mortgage elasticity based on synthetic assets.

This definition seems to be awkward. To put it simply and bluntly,the main 3 points are as follows:

1. It has asset collateral to provide stable currency value . The reason why Polkadot is chosen is because Polkadot is a cross-chain. Standard supports the use of cross-chain digital assets (synthetic assets) as a guarantee, and mortgage assets to avoid the price instability caused by the lack of collateral for the algorithmic stable currency . USDT anchors the US dollar fiat currency, while Standard pledges synthetic assets .

2 . The value of assets provided by the synthesis of a number of authoritative oracle . The price information comes from different oracle clients (for example , big exchanges such as Binance and Coinbase ) , so that the price cannot be manipulated by a single entity. For example, if you mortgage Bitcoin, the value of Bitcoin is finally determined by multiple oracle clients. This ensures that the value of the mortgaged synthetic asset is the fair value of the market .

3 . As you all know, the risk of asset mortgage lies in the price drop . The asset you mortgage produces a number of stable coins, but if the value of the mortgage asset falls below the value corresponding to the specified stable currency, you will face asset liquidation. Standard 's solution is to build in AMM . If the price falls below the clearing set price, the mortgaged assets (synthetic asset tokens) will be directly transferred to its built-in AMM asset clearing pool and listed for trading . In this case, the actual clearing price will be under the AMM market auction. Almost in line with the external market, there is no need to worry about additional discount losses.

Therefore, with such a system of " collateralized assets-oracle pricing-automatic market clearing ", it is easy to see that this is indeed the third option, which is very different from both the USD anchored stable currency and the algorithmic stable currency . As for the success of this new model of stablecoins, it is naturally up to the readers to judge by themselves.

Standard Protocol is a South Korean project. Importantly, this project is the Polkadot Substrate ecological project ,a favorite of the Web3 Fund which is established by the founder of Polkadot , Dr. Gavin Wood. There are 3 kinds of tokens in this project . The first one is of course the main stable currency MTR . Through the above innovative mechanism, Standard is similar to the USD anchored stable currency, and the corresponding anchor point is still 1 USD . The second token, LTR, is its platform currency with built-in AMM , just like Uniswap 's token UNI . The third is its governance token STND , the main interest is the handling fee of the Standard system . The rights and interests of producing and minting stable coins and withdrawing and destroying stable coins belong to STND .

In addition to algorithmic stablecoins, can the new stablecoin system challenge and create new, more practical, safer and more stable stablecoin applications? This will be an interesting point in the history of the development of blockchain stablecoins.

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Avatar for ekrem
Written by   53
7 months ago
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