Terra has stepped down from the altar, are the official algorithmic stablecoins of other public chains still credible?
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What are the benefits of public chain calculation stability?
Why are these public chains keen to issue algorithmic stablecoins? What opportunities and risks will algorithmic stablecoins bring to the public chain?
First of all, the issuance of algorithmic stable coins is conducive to short-term increase in currency prices. For example, after the news of USN came out, the price of NEAR rose to around $20; after USDD was officially released, as of May 11, TRX rose 9.6% in the past 7 days when BTC fell by 17%.
Algorithmic stablecoins supported by public chains are relatively more secure, and "Rug Pull" is less likely to occur, and the possibility of code loopholes is also lower. Having an official endorsement can also attract more funds and help the public chain lock a large number of native tokens. Taking the most representative Waves as an example, when the market value of WAVES is only 1.07 billion US dollars, the value of the reserves locked in Neutrino is about 582 million US dollars, accounting for 54% of the circulating market value of WAVES.
Most public chains do not have native stablecoins issued by powerful institutions such as Tether and Circle. They need to rely on cross-chains, and cross-chain bridges are a type of protocol with frequent security incidents. At this time, native stablecoins are more meaningful. On May 1, during the brief suspension of service of the Rainbow Bridge, it aroused the concerns of many users. Native stablecoins are helpful to improve this problem.
miningmining, Burrow opened USN deposits, and Trisolaris announced that it will launch 5pool including USN, WUST, FRAX, USDT, and USDC.
The calculation of multiple public chains is stable, and the mechanism is different from that of Terra
Since the economic model of the native tokens of the public chain has been determined, they can only maintain the peg between the stable currency and the US dollar by means of a method similar to Terra, but not the same.
Neutrino allows $1 WAVES to be swapped with USDN, but there is a delay in the process and the reserves may not be sufficient. When market changes cause the value of WAVES in the reserve to not match the issued USDN, it needs to be adjusted by auctioning Neutrino's governance token NSBT. USDN has the problem of insufficient collateral, and the main purpose of the public chain token is to mortgage USDN, which may lead to a death spiral.
The organization that manages USDN reserves in the NEAR ecosystem is called Decentral BankDAO, users can realize the exchange between 1 USD NEAR and 1 USDN without any delay. During the bootstrap phase, the project party mints coins with a mortgage rate of 200%, that is, minting 1 USDN requires 1 USD of NEAR plus 1 USDT, relying on the project party’s additional capital injection to counteract the lack of reserves that may be caused by market decline.
TRON’s USDD is relatively centralized, managed by TRON DAO Reserve and guarantees price stability. The project party has minted 999 billion USDD in advance, and the TRX used for coin minting is stored in a multi-signature wallet. The exchange between TRX and USDD needs to rely on whitelist institutions such as Alameda Research. Ordinary users can only buy or sell in the secondary market USDD.
Additionally, the IOST and Cardano teams have also announced plans to launch algorithmic stablecoins. IOST stated that the algorithmic stablecoin planned to be launched will solve three problems: authenticity of oracle prices, ensuring price stability, and reducing price volatility through arbitrage. IOST will invest more funds and resources, focusing on the IOST multi-chain ecosystem and the IOST algorithm stable currency.
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The stable design of the public chain should be more robust
The increase in the price of native tokens triggered by algorithmic stablecoins may be temporary. For example, after the news of USN on NEAR came out, the price of NEAR rose to more than $20. However, after the official launch of USN, the performance was not as good as expected. The annualized mining income of USDT/USDN fell to less than 8% on Ref. The price of NEAR has not performed well recently, falling as low as $5.3. There may be some kind of connection there. After similar methods are imitated by more public chains, the stimulating effect of algorithmic stablecoins on currency prices may weaken.
Algorithmic stablecoins that have been launched so far, such as USN and USDD, lack information disclosure or are relatively centralized. USN claims that the mortgage rate in the bootstrap phase is 200%. In theory, the more funds the project side invests in the bootstrap phase and the larger the ratio, the greater the subsequent price drop of NEAR. However, it does not clearly state the funds that have been invested. The design of USDD is relatively centralized. Users cannot realize the swap between 1 USDD and 1 USD TRX through the project contract, and can only trade in the secondary market.
In the case of poor market performance, the stablecoin mechanisms of Terra, Waves, NEAR, and TRON all have the possibility of de-anchoring in theory, which may bring additional risks. The risk of UST has been exposed, USDN has been impacted, and the collaterals of USN and USDD are mainly the original tokens of the public chain. In the case of a sharp market decline, theoretically, the value of the collateral is not enough to allow stablecoins to redeem $1 assets The possibility of it can only be resolved by the official under the current small-scale situation.
Under these risks, especially in the case of the UST thunderstorm, the official public chain should be more cautious in the process of launching the algorithmic stable currency, and the design of the algorithm mechanism should be more robust, and it is not easy to go online blindly before it is fully prepared.
