The cryptocurrency industry is on a quest to make a completely authentic algorithmic stablecoin work. To know what this process is all you have to do is look at the U.S dollar. According to Lisa Jy Tan, founder of Economics Design, a crypto-economics research company the dollar used to be a stablecoin tied to gold and that worked on a good level while the greenback was establishing itself as an asset.
The cryptocurrency industry is on a quest to make a completely authentic algorithmic stablecoin work. To know what this process is all you have to do is look at the U.S dollar. According to Lisa Jy Tan, founder of Economics Design, a crypto-economics research company the dollar used to be a stablecoin tied to gold and that worked on a good level while the greenback was establishing itself as an asset. The U.S left behind the gold standard seemingly due to an ongoing war, but on the other hand the American economy got expanded with need for much more flexibility that the gold standard afforded. “It doesn’t work in the long run because the economy is still expanding faster than the number of materials available,” Tan said.
Tan believes the crypto economy will surmount a collateral need in the future without expecting a war as a result. An algorithmic stablecoin is something that can keep itself hooked only with the support of software and rules and if any one of these techniques work It could rise to a level which could grow into any size beneficial for an economy. “to create USDC you need USD in the bank, and that works well if you’re just starting out,” Tan said. “What comes after, it’s the right kind of monetary policy that allows stability and low volatility to allow people to trade…if we can do that with math and we can do that monetary policy, that’s more efficient.” Tan recently completed a very substantial study of stablecoin which are either fully algorithmic or could possibly grow in that direction over the course of time. As a conclusion Tan believes the work isn’t ready yet, but its going fine.
“The reason algorithmic stablecoins keep getting tried is because it feels like the Holy grail. It’s like bitcoin and settled on-chain, but actually stable and with purchasing power,” said Sam Kazemian, co-founder of the decentralized encyclopedia, Everpedia, and just recently of a very financially promising stablecoin called Frax. Stablecoins have many uses of their own without their existence there won’t be no decentralized finance (DeFi) booms, which also indicates that there probably won’t be no non-fungible token (NFT) boom. Stablecoins have been seen as fundamental expectations for a long while with what the industry has achieved and to this the crypto industry seems to be in accordance that stablecoins will have a very bright future.
“I think stablecoins will replace the Eurodollar market completely,” said Tushar Jain of Multicoin capital. A stablecoin that can extent infinitely seems like a very interesting issue to solve but since last year this whole approach has been treated really unkindly people are trying, entrepreneurs haven’t given up yet. There have been many projects which look sort off similar and gave off the impression that they were games and due to that not much effort was put forward to solving crypto’s volatility problem. All these attempts made Jain think, “Risk cannot be created or destroyed, it can only be transformed,” he sees economic designers attempt to create a game that erases algorithmic stablecoin risk but at the present he has doubts regarding its possibility.
Robert leshner, compound Labs founder, who made DeFi money market protocol compound, said entrepreneurs were looking in the wrong place. Leshner thinks if there is a future where an all-code token is able to hold a stable value then it will mostly be “an unbelievable amount of agreement that this asset works.” As for “most actual assets, it’s not a rapid journey to adoption, it’s a slow consensus-building journey to adoption,” said Leshner. The history of stablecoin starts with Tether, which runs USDT also known by its original name Realcoin. Tether promised that with every USDT there will be a retrievable dollar in the bank somewhere. Tether has been moved to its collateral mix but it is still fully sponsored, tether stands by as the dominant stablecoin in the market its also the third-largest cryptocurrency with a market cap of $64 billion. One last thing to consider is how the sentiment around tether has changed in crypto as it was treated with much skepticism earlier but now it is seen as an unbreakable pillar of strength of crypto economy.
“The culture definitely has shifted, mainly due to continuous existence of tether and the support of Tether by Large institutional traders,” said Kory Hoang, CEO of stably, an asset tokenization startup. Stablecoins are considered very important in DeFi history, if tether’s USDT and MakerDAO’s DAI hadn’t worked it would be relatively very difficult to imagine if there would be billions of dollars locked up in all these financial smart contracts today. There are many others as well such as Binance USD (BUSD), True (TUSD) and Hoangs over collateralized but more decentralized stablecoins, such as MakerDAO’DAI.