Stablecoins are all the rage. Even congress is getting involved. The rise of these tokens as notional stores of corresponding value that fight the inherent volatility in the crypto markets has led to a meteoric rise in their total captured market cap, and every indication is this will continue at great pace as retail investors and institutions move more of their assets on-chain.
It’s not all rosy however. There have been many criticisms of some of the top stablecoin providers, including USDT, BUSD and USDC, with allegations of sharp practice, a fear that they don’t have the collateral to support their circulation, or simpler fears that centralization of their inherent peg leaves them rife to manipulation at worst or poor management at best.
Moreover, some algorithmic stablecoins have failed to keep their peg entirely, while big players like USDT have historically seen the value of their token drop to 90c: a 10% drop, and hardly stable at all.
Yet the crypto market is ever-innovating. New stablecoins are rising to try and offer an alternative to these common tokens. Their tech, decentralized governance and community-driven approaches offer compelling options to those wishing to store their assets safely on-chain.
Here are 5 top innovative stablecoin protocols to look into this year!
Onomy Protocol (Denoms)
There are plenty of stablecoins for the US dollar, but only a few for other national currencies, once again causing lack of accessibility to holders of non-USD fiat currencies. Moreover, most stable assets are siloed to specific chains, and thus can’t access opportunities on other blockchain economies.
Onomy Protocol promises a more inclusive money experience by plugging the world’s $6.6T per day Forex market into DeFi. Attempting to build a cross-chain stablecoin economy that simplifies user access through friendly user interfaces and transactional efficiency, users will be able to mint virtual denominations of any and all currencies, be that the US Dollar, Euro, Chinese Yuan, Japanese Yen, or the Swiss Franc.
Onomy Protocol’s Denoms are collateralized and stabilized by the native NOM token via trustless implementations. NOM derives its value from multiple sources, including securing the Cosmos-based blockchain network or governing the protocol.
Upon minting Denoms, users can deploy these stablecoins inter-chain, but also engage in swaps and high frequency Forex trading via the protocol’s hybrid AMM & order book DEX. This ability to mint various fiat currencies as stablecoins and then onramp cash reserves into the blockchain economy at speed and scale is what’s on offer here, with the expected uptake coming from institutions seeking to deploy cash reserves into the crypto marketplace at a pace they have hitherto been unable to do. This leads to opportunities not available in traditional markets, including frictionless access to credit markets and or yield generation.
UST, or Terra, is an algorithmic stablecoin that pegs itself to the US dollar. UST is an interchain stablecoin that attempts to solve the issues of scalability that other single-blockchain stablecoins like DAI struggle with. Its reserve asset is LUNA, which is burned at a 1:1 ratio to mint new Terra coins.
As demand for UST rises, so does the price of Luna, and new UST is minted in response by holders of LUNA looking to claim a reward for collateralizing the protocol. Similarly, when UST contracts, it can be swapped for back for LUNA by those looking to make future gains. Holders of LUNA also gain a small yield from UST transaction fees to incentivise re-bolstering the peg.
It also promises a predictable, stable yield in contrast to the somewhat erratic yield provided by stablecoin alternatives. Fully-embracing its sci-fi inspired heritage, its upcoming protocol Dropship (of StarCraft fame) will allow Terra to be easily migrated to new blockchains and fully deployable so UST can go pew-pew on whatever blockchain ecosystem it needs to. UST has so far proven stable, with only one peg-break very early in its lifecycle, building trust in algorithmic stablecoins.
Synthetix is a crypto-collateralized stablecoin protocol which promises not just to offer a stable peg for the US Dollar, but for any other assets. Although initially focusing on just currency, such as EUR, GBP or WON, there is every intent that Synthetix will also be able to represent other notional pegs like gold (sXAU), indexes and stocks.
By creating synthetic versions of deployed capital, the hope is that synthetic USD (sUSD) or synthetic silver will be more easily deployed and traded in blockchain economies.
Through an Ethereum-based protocol, users can generate a synthetic asset by buying and locking up the governance and collateral token SNX. Once staked through Mintr (a dApp created by Synthetix), you can then generate synthetic tokens of your choice, which are issued as debt that must be repaid to reclaim your staked SNX.
The collateralization ratio is steep, however, at an eye-watering 600%. This is the protocol’s attempt at quickly accumulating the collateral pool required to ensure stability in the face of market forces. There is also some concern about scalability. However, the opportunity to gain the stable token of your choice – and the fact you can then trade your token for other synthetic tokens like sBTC without having to have a counterparty buyer supplying the asset, means Synthetix has an exciting 2021 ahead, as shown by its stats page.
Frax is a hybridised stablecoin that uses a double-system of collateral to ensure its peg, with reserves of USDC underpinning a seigniorage-esque which is a fractional reserve, algorithmic model. It has the eventual aim of moving entirely away from using USDC to collateralize it and for its own system to take over once trust and uptake solidifies its peg.
It works as follows: for every one hundred DAI, or other stablecoin, that you put in, you receive 100 FRX. The collateral placed into the smart contract is then lent out and interest is accrued within the contract itself. Eventually, as more interest is accrued, the reserve ratio goes down by a set number, say 1, and 99 DAI will yield 100 FRX.
The excess is then paid out to holders of the share token, FXS, so that money is kept within the system and holders of FXS are incentivised to collateralize the protocol. If the price of FRX drops, then the interest accrued is used to reclaim FRX off the market and get the price of it back to one dollar. This fractional-reserve model promises to keep money flowing into the network and keep holders of FXS incentivised to keep collateralizing it, whilst ensuring that the stablecoin’s peg is maintained.
Its early success and stable peg in 2020 is perhaps predicated on the large amount of USDC collateral backing the protocol, but the fractional reserve model has the potential to create a perpetually rewarding stablecoin for its holders.
PAX Gold (PAXG)
Not all stablecoins are backed by dollars, pounds or other fiat currency. Some are pegged to other assets. Gold has always been the archetypal store of value through human history. Humans, bless them, love shiny things. Bitcoin maximalists slobber joyfully over the comparisons to bitcoin as “digital gold”, and your grandad will opine dolefully that you should always have some gold tucked away at the back of the wardrobe or buried in the garden.
It’s no surprise, then, that crypto-tokens that act as blockchains representations of humankind’s most venerable store of value have emerged. PAX gold (PAXG) is one such initiative. Its approach is simple. For every 1 PAXG token a user holds, there is 1 fine troy ounce of gold with your name on it kept in Brink’s vaults and managed by Paxos.
Unlike other gold-backed cryptos, there are no holding fees, fractional ownership is possible, and settlement is instant. The token is burned when the gold is redeemed, and Paxos have the physical gold bars in possession. It’s not the most technologically fascinating crypto, but it’s intriguing to see that Midas’s touch still has a hold over us in our modern digital economy, and that even as we move on-chain, the lust for gold never goes away.