In this special newsletter we will evaluate current and upcoming stablecoins on the Cardano network. To evaluate stablecoins, first we need to understand what a stablecoin is and what types of stablecoins exist.
If you are reading this on Browser I have included sound bites from projects that I reached out to. Give them a listen to get more info.
What is a Stablecoin?
The crypto market is volatile and many find assets like Ethereum, Cardano, and Bitcoin to be less suitable for common transactions. By introducing a new cryptocurrency and pegging its value to another currency, commodity, or financial instrument you can remove some of that volatility.1
What Types of Stablecoins Exist?
Stablecoins are divided into three different types:
Overcollateralized
Algorithmic
Fiat Backed
Overcollateralized stablecoins are stablecoins that have crypto assets backing them up. To ensure that these stablecoins always have a reserve, crypto assets in the reserve are of a greater value than the issued stablecoins (overcollateralized). It still uses programing to ensure decentrlization but unlike Algorithmic Stablecoins it’s always overcollaterlized. One example is DAI from MakerDAO.
Algorithmic stablecoins are stablecoins that use Programming (algorithms) to ensure that the price stays at a certain value. Unlike Overcollateralized stablecoins, Algorithmic stablecoins are partially collateralized and relay on governance tokens to maintain value. One example is UST from Terra.
“The value of UST is backed by Luna instead and it uses a unique algorithm to always maintain the value of 1 UST = $1. If the price of UST goes up above $1, the algorithm mines more LUNA tokens in order to stabilise the value of UST at $1 and vice versa.”
Read more at: https://www.bqprime.com/crypto/pfx-why-did-terra-luna-crash-understand-how-ust-and-luna-lost-all-value
Copyright © BQ Prime
Fiat backed stablecoins are backed 1:1 with a reserve of fiat currency. These reserves are held by a custodian. One example is USDT from Tether.
COTI released a great chart to show the differences between the types of stablecoins that you can see below.
Current Stablecoins on Cardano
iUSD by Indigo is available on Cardano DEXs. It is an overcollateralized stablecoin that is minted using the Indigo protocol. Users put ADA into a Collateralized Debt Position (CDP) to mint iUSD. An oracle is used during minting to ensure accurate values are used to have more reserve of ADA than required for the minted amount of iUSD.
RUSD by Shareslake is available on Cardano DEXs. It is a fiat backed stablecoin that is minted using their protocol. Since it is a fiat backed stablecoin you will have to be careful when it comes to the regulations. Check their latest Legal Notice to see if minting and redeeming is available to you.
Message from Shareslake team:
CUSDT is a bridged stablecoin from Microchains. Due to the nature of bridged assets this one hasn’t maintained peg well and probably one to steer clear of for the time being.
madUSDT and madUSDC were bridged stablecoins from NOMAD. A hack occured with the NOMAD bridge and caused these assets to depeg.
Upcoming Cardano Stablecoins
DJED by COTI will be launching in January of 2023. It is an overcollateralized stablecoin. By providing ADA you can mint the DJED stablecoins. One intersting aspect about DJED is that is also has a reserve coin called SHEN that ensures that DJED is always overcollaterlized.
XPUSD by XplorerDAO doesn’t have a launch date yet. It is an overcollateralized stablecoin. XPUSD stablecoins can be minted by providing ADA at a minimum collateral ratio of 110%.
USDA by Emurgo/Anzens is scheduled to launch in early 2023. It is a fiat backed stablecoin.
Message from Anzens team:
Transcript:
USDA is the first fiat-backed, regulatory-compliant stablecoin in the Cardano ecosystem.
This stablecoin is initiated, supported, and managed by the Cardano network founding entities, adding another layer of trust & reliability to the asset.
The US Dollar-pegged asset is scheduled to be live in early 2023, with plans to add more currencies down the line (Euro, Yen, and more)
Join USDA's waitlist at anzens.comAUSD by ADADAO doesn’t have a launch date yet. It is a an overcollateralized stablecoin. Users provide ADA to mint AUSD.
USDM by Mehen doesn’t have a launch date yet. It is a fiat backed stablecoin.
Message from Mehen team:
Transcript:
Mehen is a collaboration of Cardano community members - SPOs, developers, and community leaders - that came together to build a reliable fiat-backed stablecoin called USDM
The USDM stablecoin is a Cardano native asset, and built like USDC. It will be backed one for one by dollars at a group of US banks. And Mehen will hold all the appropriate licenses to operate within the fiat system.
Mehen is a project built by the Cardano community, for the Cardano community, and we are quite open, responsive, and transparent. This approach has helped us solidify a lot of great relationships with major projects on Cardano.
The thing that makes USDM different from other stablecoins is we will take much of the interest generated by the reserve’s bank accounts, and reinvest it in the Cardano community.
This effort will be lead independently by the Mehen DAO, and will be an alternative funding path like Project Catalyst.
We can’t wait to make USDM the Cardano community’s favorite fiat-backed stablecoin. Find out more at Mehen.io, and join the Mehen family on our Discord.
USDC4 by Cardano Croc Club. Users will provide a collateral in BTC, ETH or ADA and they will purchase an equal amount of USDC. They then mint USDC4 on the Cardano blockchain to be used with the Cardano Croc Club swamplands. The treasurey is maintained by the Cardano Croc Club. It is closer to a fiat backed stablecoin but requires trust in Cardano Croc Club due to the bridging and purchasing of USDC stablecoins with your assets.
Trading Stablecoins
The main way stablecoins are traded on Cardano is on Automated Market Makers like Minswap, SundaeSwap, and Wingriders. They use a formula similar to Uniswap that uses liquidity pools to adjust the price of each swap depending on the ratio of the two assets being traded.
This method works fine but it does have issues with keeping prices at the fair value due to slippage.
A more efficient way to trade stablecoins is using a Stableswap. Similar to a AMM it has liquidity pools where two assets are traded but revamps the equations used in the AMM to allow for less slippage during trades. This is great for assets like stablecoins that should maintain a price relativity close to each other around $1.00.
Currently Cardano doesn’t have any Stableswaps but a few are on the way.
Wingriders has a Stableswap on the Pre Production testnet that you can try out right now. No release date has been scheduled.
Message from Wingriders team:
Teddyswap will be releasing a Uniswap style AMM in Q1 of 2023 and upgrade to a stableswap in Q3 of 2023.
Minswap has mentioned they might work on a stableswap but no information has been released.
Muesliswap will be releasing a stableswap after their concentrated liquidity pools are on mainnet.
What next?
Stablecoins are a large part of the DeFi and crypto space. The Stablecoins market cap is currently $ 145.29B. Adding stablecoins to the Cardano ecosystem allows for the use of new DeFi protocols. Once these protocols come online we will discuss strategies for using them.
I hope this guide was helpful as a starting point on learning about stablecoins. In upcoming issues we will discuss regulatory concerns.
https://www.investopedia.com/terms/s/stablecoin.asp