With the recently proposed fork, TerraUSD (UST) and its sister token, Luna, might have just been given a lifeline. Still, we cannot easily forget lessons from the surprise collapse of these once leading stable cryptocurrencies. The crash sent a colossal shockwave reverberating across all of crypto with massive volatility spillovers that saw juggernauts like Bitcoin and Ethereum dump up to 13% and 20% of their values. Even the world’s biggest stablecoin, Tether (USDT), broke its $1 peg during the chaos. It’s a grim reminder of crypto’s eternal volatility and the many failed attempts to invent a truly stablecoin, one that holds a steady value amidst the vicissitude of the market.
Is this the end for stablecoins?
Stablecoin remains a great invention and plays a prominent role in bridging cryptocurrencies and traditional finance. It is also the cornerstone of a thriving DeFi ecosystem that will shape the industry’s future. However, what needs to change are the design models that underpin stable coins. Leading stablecoin company Aurus Defi has since embarked on an applaudable journey of envisioning and creating a stablecoin that rises to the occasion.
But why do stablecoins fail?
Understanding why stablecoins fail will require a cursory look at how they function. Stablecoins, once (and maybe still) touted as the silver bullet to volatility, are cryptocurrencies designed to enforce price stability by pegging their value to real-world assets, namely: Fiat (Fiat-backed stablecoins), Crypto (crypto-backed stablecoins), Commodity (commodity-backed stablecoins) and Algorithms (Algorithmic stable coin). This means a stablecoin is only as effective as its underlying peg, and with most of the aforementioned stablecoins categories failing so far, safe to conclude a review of current stablecoin designs is crucial.
The criticism of TerraUSD’s algorithmic stablecoin design is its inherent fragility and unsustainability. It erroneously assumes that UST will have sustained demand based on its various use cases. And even though UST’s creators devised a workaround by adding mainstream cryptos like BTC (another volatile currency) to their reserves, it wasn’t enough to shield them from the impending death spiral. Other stablecoins have their faults too. It is disconcerting that arguably the most flawed stablecoin model (fiat-backed) also has the most adopted stablecoin, Tether (USDT), with an all-time high market capitalization of $84 billion despite ongoing criminal investigations and critics arguing that the coins are not fully collateralized. The domination of fiat-pegged tokens beggars belief considering it goes against the grain of the core beliefs of crypto investors that fiat currencies are doomed. The reserve currency (crypto) in the case of crypto-backed stablecoins is prone to high fluctuations, making it decidedly unsuitable.
The solution – but is it?
Crypto investors demand access to real-world stability. Of all the current models, stablecoins pegged to intrinsically valuable commodities like Gold by all metrics might provide the best stablecoin solution and will definitely have a place in the future financial system. But the centralized design employed by most companies in this fast-rising niche has a significant flaw baked-in – a single point of failure. Furthermore, stability and trust, which are core requirements for the existence of stablecoins, are impossible to achieve if gold-backed token issuers also hold and manage the reserves. Aurus has identified these flaws and introduced the closest to perfect implementation of precious-metal-pegged stablecoins.
Why Aurus stablecoin model is the future
Decentralization is at the core of Aurus blockchain infrastructure, facilitating the tokenization of Gold, Silver and Platinum precious metals and birthing a new generation of stablecoins (AurusGOLD, AurusSILVER and AurusPLATINUM) that stays true to its name and purpose as a reliable store of value. Aurus will partner with several precious-metal manufacturers and refining plants as part of a bullion dealer network that guarantees anyone can physically redeem their precious metals from distributed and independently audited vaults. The model’s inclusivity ensures precious metal investors and crypto investors can meet halfway. Aurus’ brand of stablecoins also presents holders with several opportunities to earn passive income.
In light of the UST meltdown, there have been repeated calls for regulators to put the stablecoin niche on a tighter leash. Aurus is committed to staying compliant with regulatory bodies to achieve a stablecoin industry free of manipulation. Tokenization of real-world assets has come to stay, and Aurus is the de-facto torchbearer.
Join the conversation on my telegram group here.