What is a Stablecoin?
A Stablecoin is a type of cryptocurrency that is linked to an asset like the U.S. dollar that doesn’t fluctuate much in value. Most of the stablecoins in circulation are pegged to other fiat currencies like the the dollar, the euro and yen.
There are 3 types of stablecoins:
- Algorithmic stablecoins
The collateralized stablecoins are backed by assets held in reserve, which can be in fiat or crypto.
Algorithmic stablecoins on the other hand employ algorithms that manipulate their price to remain at a particular peg.
Collateralized stablecoins maintain their peg more effectively, but there are questions about reserve transparency, coupled with increased regulation from authorities.
While algorithmic stablecoins offer transparency and are easily auditable, they lack price stability.
Standard Protocol has come up with a hybrid stablecoin that addresses the current weaknesses of stablecoins.
To learn more about the solution, we sat down for a chat with Standard Protocol Product Owner, Dixon Wong.
Q: Tells us your role at Standard Protocol
Dixon: I am the Product Owner or Product Manager at Standard Protocol.
Mainly what I do is to drive the direction of the product side of the protocol.
Q: Describe Standard Protocol
Dixon: Standard Protocol is an over-collateralized and rebasable stablecoin. We are building an ecosystem for a stablecoin with robust stability that is chain agnostic.
We operate on a 3 token ecosystem.
- Meter (MTR): The stablecoin pegged at 1:1 ratio to 1 USD
- Standard (STND):This is the network and governance token which can be used to pay fees, stake (validate transactions) for rewards, and participate in making key decisions such as changing the collateralization ratio
- Liter (LTR): This token represents a share of the AMM (automated market maker) module and rewards holders for providing liquidity
Standard Protocol has its own curated AMMs, which facilitate peer-to-peer (P2P) transactions such as trading liquidated collateral for arbitrage opportunities.
We will be publishing the first pilot of our stablecoin MTR in the next 2 months
Q: Describe an algorithmic stablecoin
Dixon: This is a stablecoin that runs based on the pre-defined conditions of a smart contract. The contract automatically handles how the stablecoin adjusts positively or negatively to its peg.
Standard Protocol is similar to this but with a few differences to other stablecoins in the market.
Q: And for that atter, describe stablecoins
Dixon: A stablecoin tries to peg itself towards a certain value so that people will always be able to retrieve that value whenever they hold that token.
Q: What kind of traction are you seeing in emerging markets for stablecoins?
Dixon: The market size of stablecoins has risen 10-fold in the last year globally. This is because of the development of the DeFi world, but also stablecoins help people to keep the profits they make.
Stablecoins also helps to unlock liquidity that users can use across other DeFi ecosystems.
Stablecoins also enable users to limit the volatility from different currencies such as cross-border differences.
People are still finding more use-cases for stablecoins though.
Developing countries can benefit from a currency that is always pegged to the dollar, such as gold, and can help countries in developing markets that are suffering from economic instability.
Q: What is the simplest way to describe DeFi, and what is the role of a DeFi stablecoin?
Dixon: DeFi offers services such as lending, borrowing, order books, mostly like regular finance, but utilizes smart contracts to execute the agreed-upon rules.
So there is no need for permission for authorities such as governments to manage the system, and users can transfer funds without centralized governance.
The role of DeFi stablecoins is to offer a common ground to facilitate activities such as trading on DeFi since each unit will always have the same price.
Citizens in emerging markets can always trust that each unit of their stablecoin will always be pegged to its value, such as 1 USD.
Use cases in emerging markets can also include e-commerce, for example.
Dixon: Stablecoins holding will not bring returns, but the usage or the ecosystem around it can help bring returns.
Holding the DAO token of a stablecoin is also helpful for governance. For example, holding STANDARD token can help you gain some amount of the stablecoin MTR, since users pay MTR whenever they redeem their collateral. A portion of the MTR that accrues is paid to STANDARD token holders.
By leveraging the mechanics of stablecoins, users can also make returns. For example, in a bullish market such as now, one can collateralize ETH, and use MTR or STND to buy back the ETH before purchasing a hot token in an IDO.
Q: Talk to us about Layer 2 protocols, and why you made the decision to be on Polygon
Dixon: So we got the grant #DeFiForAll Fund from Polygon to participate on Polygon.
We need to continue developing on Polygon, and we also did an IDO on Ethereum, and Polygon is good in terms of low fees, fast speed, and general scalability to a broad user-base.
We also received a Polkadot Web3 Foundation grant. We are one of the few Korean companies to get this grant.
One of the objectives we want to achieve is to go on Polkadot or Kusama, be it via a parachain or direct, as long as it ties into our multichain direction.
We want our stablecoin to be robust and available to users across chains (multichain).
Q: What problem are you solving?
So basically we see 3 problems:
- Interoperability of stablecoins – Algorithmic stablecoins like MAKERDAO are localized on their blockchain, so we are trying to introduce ourselves to be a multichain over-collaterized stablecoin
- Lack of Decentralized Oracles – STND uses a decentralized oracle ecosystem by using oracle clients from exchanges such as Binance and Coinbase. Since Standard Protocol gets an aggregated price info, it can’t be manipulated by a single entity
- Collateral Liquidations – Stablecoins like MAKERDAO make this process exclusive, whenever liquidation happens, one needs to own MAKER to join. for creating liquidity. Standard Protocol doesn’t host an auction. Instead, it deposits them in its AMM (Automated Market Maker) pair. This allows MTR holders to purchase the liquidated digital assets. STND also rewards stakeholders who are able to find expired loans as it gives them 10% or more of the collateral. The remaining amount goes into the protocol’s built-in DEX
Q: What about security?
Dixon: All protocols are vulnerable to attacks. Our people are skilled and talented in the technology, and we believe can protect ourselves from hacks and such things.
The article first appeared on BitcoinKE