Stablecoins are popular. In fact, they are so widely used, major regulators are coming down hard on the stablecoin industry. There is every reason for both regulators and investors to be suspicious of stablecoins, given the problems that emerged in 2022.
While most stablecoins are a stand-in for fiat currency, it doesn’t have to be this way. The Terra / Luna debacle made the crypto community run for algorithmic stablecoins, but this technology is still valuable to the global crypto industry.
As the recent BUSD crackdown demonstrates, even well-collateralized assets like Binance USD (issued by Paxos) can be impacted by regulatory action. There are no simple solutions to any of these complex situations, as the decentralized digital asset space is still very young in financial terms.
What Happened to BUSD?
Binance USD, or BUSD, is one of the most trusted USD-based stablecoins in the markets today. The reason for this is that the issuer, Paxos, is fully regulated in the US markets.
Unfortunately, the New York Department of Financial Services (NYDFS) told Paxos to stop issuing the token due to uncertainty surrounding the SEC’s position on stablecoins, which makes the entire industry look a little shaky.
Regulatory uncertainty isn’t the only problem that stablecoins face. Any stablecoin that isn’t a total scam has to be collateralized, which opens up a whole new set of challenges. To ensure that a stablecoin can both defend its value, and satisfy redemptions, it has to hold more value than it issues. In short, the best stablecoins have to be overcollateralized.
There are new idea emerging in the decentralized digital asset space that seek to deal with both regulatory uncertainty and the over collateralization conundrum, and Helio Protocol (HLOS) is one project that could make sense in a volatile world.
Leaving Fiat Currency Behind
The crypto community, as well as the wider financial world, looks at the value of cryptos in terms of fiat currency. When Bitcoin prices were above $60,000, the crypto sphere was euphoric and people were calling for prices to shoot higher. Now, with Bitcoin prices gyrating around the $20,000 mark, the energy in the community is apocalyptic.
Of course, if we look back a little further, a decade ago, to 2013, we see that Bitcoin prices traded under $200 for most of the year, before taking a shot at the $1,000 handle. At $20,000 Bitcoin prices look like an incredible investment over the course of a decade, even if someone bought at the highest price logged in 2013.
The problem many have is using fiat currency, like the US dollar, or Euro, to measure the value of crypto. Helio recognizes this issue, and has created a token that is stable, although it does not use fiat currency as its value anchor.
Utility as Value
Why does central bank currency have value at all?
As most people in crypto know, fiat currency has no backing. It is created by central banks, and used as money. Besides legal tender laws that force people to use fiat currency, the utility of the banking system is a big reason why fiat currency has value.
Now, decentralized cryptocurrencies offer a similar value proposition, and one of the biggest entities in the space is Binance.
Helio opted to use Binance Chain’s native token, BNB, among other decentralized assets, as the collateral that backs up the value of HAY, which it calls a destablecoin. The ‘de’ stands for ‘decentralized’, as HAY is s totally decentralized solution to the volatility problem that crypto face.
Binance was chosen as it is the biggest exchange in the marketplace, and has an extensive international presence. Much like central banks, Binance facilitates global wealth transfer, and also operates with merchant banks across the planet.
While any token, or currency, that isn’t backed with physical assets can be thought of as ‘fiat’, BNB is no more or less fiat than a USD, especially outside of the USA, where legal tender laws for the USD simply don’t exist. The utility of BNB is actually deeper than the USD, as it can be used across markets that the US government won’t permit – said differently, BNB isn’t political!
What Helio Does
The Helio Protocol is a multi-faceted platform that offers the utility of a destablecoin to its users, as well as liquid staking services that allow community members to earn a passive income. As a liquid staking platform Helio lets users earn when they want, and not get caught up in unstaking fees, or lock-up periods.
Like any sustainable earning platform, the APY that Helio offers is in the single digits, and uses a LTV of around 66%, so that it can withstand rough market conditions. Many early DeFi platforms enticed users with double-digit APYs, but as we can all see today, these systems were a flash in the pan, and didn’t add up to much in the long run.
Helio is overcollateralized, which does impact its ability to create higher APRs, but with this comes greater stability, and resilience. As anyone who lost money in the Terra collapse will tell you, when it comes right down to it – return of capital means more than return on capital!
Helio also has an open-source base, and anyone that wants to can look at how the platform works. In addition, the smart contracts that make it work have been vetted by top-tier industry groups, like PeckSheild and CertiK, among others.
Unlike existing stablecoins, the HAY destablecoin is made to minimize volatility compared to tokens like Bitcoin or BNB, not match the value of a central bank issued fiat currency, like the USD. With this design philosophy, the team at Helio introduces some unique advantages to its platform.
A New Kind of Stability
The value proposition that destablecoins like HAY offer is clear. Looking back at the history of cryptocurrencies shows that while volatile, over longer time lines, major tokens create value in a way that fiat currencies simply can’t match. Using fiat currencies as the measurement of cryptos’ value demonstrates that cryptos are the asset to own, even if they lose large amounts of value at times.
Destablecoins also limit the ability of government and regulators to influence the market. With fiat linked assets, like BUSD, regulators have an outsized amount of control. In fact, central banks and regulators have every reason to limit the use of fiat linked stable coins, as they challenge the dominance of a valuable product, namely, fiat currency.
One look at an inflation chart over the last ten years will demonstrate how weak fiat currency has become, and why it is likely to keep depreciating against physical goods in the coming years. Hard goods like food and energy are more expensive in fiat currency terms than ever, which is at the core of the global destabilization we see play out on a daily basis.
Helio has Solutions
Helio combines algorithmic stablecoin technology with the idea of destablecoins, taking decentralized tokens to a new level. While this idea is new, it does address some of the biggest challenges that stablecoins face as cryptocurrencies become more popular.
Regulators want to control the market, which is antithetical to the goals of decentralized systems. To learn more about Helio, or how to get in on the platform, just click here.