In today's video, we'll talk about algorithmic stablecoins.
We'll explain whether Stablecoins are secure or not, and we'll tell you why some protocols like UST and others have failed.
So, as usual, watch this video all the way through, as we will also cover the 4 best Stablecoins to consider for your transactions, and keeping your money safe during the bear market.
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Now without further ado, let's get straight to the point.
First, what is an algorithmic stablecoin?
Well, according to CoinMarketCap, it is designed to achieve price stability as well as balance the outstanding supply of an asset by being pegged to a reserve asset such as the U.S. dollar, for example, gold or any other foreign currency." The concept is that the coin does not need to be backed or guaranteed, but can be balanced by issuing more coins when the price is above $1 or buying them in the market when it is below $1 to maintain the peg.
Now, the question on everyone's mind is how safe are Stablecoins?
Well, in our opinion, not really. But some protocols are more secure and guarantee optimal stability regardless of the state of the market.
Each Stablecoin protocol is different from the other. Now, to talk about each protocol individually would make this video extremely long. So, to make things easier, we'll take a few examples of Stablecoins that have failed and explain why they failed.
Then we'll introduce some Stablecoins that we think are pretty solid for your investment.
Now let's talk about what happened with Terra Labs, Luna, and UST.
What essentially happened is that after the UST de-anchored, people tried to balance the anchor by hitting either coin at an arbitrage between the two, but few people were willing to hold the price.
Terra's $LUNA is now called LUNC or Terra Classic while Do Kwon went on to create another version that also failed from the start, going from just under $20 to now $3. Many people have complained about how the airdrop was handled and this shows what we already know. Scammers and people running what appears to be a deliberately failed project have no problem moving on immediately to the next scam. This has been clearly illustrated by the many celebrities who have run multiple scams, projects like Basis Protocol that led to Bitclout and then $DESO, and many other countless examples. The most interesting thing about all of this is that Do Kwon actually worked on Basis Protocol to create Basis Cash, which was a failed algorithmic stablecoin, meaning that it was Do Kwon's second failed project.
So, for these projects, the failure is basically the anchoring of UST, and also the fact that it could be a scheme between several individuals.
DEI is another example of a failed Stablecoin.
This algorithmic coin recently broke away and failed shortly after UST. This coin is a perfect example of why you can't rely on stable coins holding other stable coins as a backup. The massive hit the stable coin market took after UST failed caused DEI to disintegrate and then fail.
It's also worth mentioning that they had a $13.4 million hack on their Deus protocol chain in April 2022 right before this crash. One of the concerns about "decentralized" stablecoins is that a hack, error, or some sort of problem that could occur would completely destroy the stablecoin. The stability of an algorithmic stablecoin usually relies heavily on trust in it. At least for centralized stablecoins, they can prevent these things from happening or cancel them retroactively.
Many other such protocols have failed, such as Iron Finance Steel, Tron DAO Reserve USDD, and many others.
With all these failures, you may be wondering if Stablecoin is worth it, well, the answer is yes!
Crypto-currency investors who are looking for a hedge against volatility should consider this list of stablecoins that we are going to cover.
#1: Tether (USDT)
The first one is Tether (USDT).
Tether is the world's first stablecoin and is the most transacted and liquid stablecoin in the crypto market. Tether is the largest stablecoin by market cap, at around $80 billion, making it the No. 3 cryptocurrency overall, behind Bitcoin (BTC) and Ethereum's Ether (ETH). Tether was founded in 2014 by Brock Pierce, Craig Sellars, and Reeve Collins and was originally called Real coin. The goal of this stablecoin is to keep its value pegged, 1-to-1, to the U.S. dollar.
However, like TerraUSD, Tether broke its peg to the U.S. dollar in May, although it traded as low as 96 cents, not 30 cents. Tether's liquidity and wide usage – many crypto exchanges offer USDT as an alternative to using fiat currencies so investors can make quick trades – make it one of the top stablecoins, but investors should be aware of this newly realized risk of de-pegging. Tether claims to be 100% backed by reserves like cash, cash equivalents, and commercial paper, but has been criticized for a lack of transparency. But it is still the best stablecoin to consider for your transactions.
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#2: Dai (DAI)
The second best stablecoin in our opinion is Dai.
Dai is a stablecoin powered by the Ethereum-based protocol MakerDAO. Like many stablecoins, Dai is pegged to the U.S. dollar, but unlike many stablecoins, Dai can also be collateralized, or backed up, by other cryptocurrencies, such as Ether, USD Coin (USDC), and others that can be used as collateral. The multi-collateral option – and the transparency via smart contracts that Dai uses to secure sufficient collateral – arguably increases Dai's price stability as a stablecoin. Users can vote for more collateral options in the MakerDao community. Dai's market cap is more than $6 billion, making it one of the top stablecoins available for users.
#3: Binance USD (BUSD)
Then we have BUSD.
BUSD is another U.S. dollar-backed stablecoin, and it is approved by the New York State Department of Financial Services. Users can purchase BUSD 1-to-1 with the U.S. dollar. BUSD was developed via a partnership between Binance, one of the most popular cryptocurrency exchanges, and Paxos, a regulated blockchain infrastructure platform. The goal of Binance USD is to increase the speed at which digital assets flow through the global financial network. BUSD is the native stablecoin of the Binance exchange, where users can easily move in and out of crypto transactions rather than having to wire fiat currency from their online wallet to make crypto trades.
BUSD is the third-best Stablecoin you should use for your transactions.
#4: USD Coin (USDC)
And the last one on our list is USDC.
Founded in conjunction with cryptocurrency exchange Coinbase Global Inc. and Bitcoin mining company Bitmain Technologies Inc., USDC – like many of the coins included on this stablecoins list – is tied to the U.S. dollar. Released in September 2018, USDC now has a market cap of nearly $50 billion, making it the second-largest stablecoin by that measure. Since its launch, USDC has been used by applications and businesses and runs on many blockchain networks. Many crypto exchanges, online wallets, protocols, and other services are integrating USDC into their platforms to facilitate easy payments globally.
This makes it one of the most stablecoin to consider during volatile market conditions.
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