The Battle of the (un)Stablecoins

5 min readMay 20, 2022

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Tether recently reported a 17% decrease in commercial paper holdings and plans to dump 20% more the next quarter. Tether also increased investments in money market funds and U.S. Treasury bills by 13% over the same period, from roughly $34.5 billion to $39 billion, but tether’s market cap is ~$74billion. Whats is backing it?

All Stablecoins are not created equal and after the UST nightmare, there seems to be a sense of urgency from stablecoins issuers to revise their structures and make sure they are able to avoid black (or grey) swans. No one is safe in this crypto game and this years has made it more clear than ever.

Tether, which briefly traded at $0.95, claims to be backed by real-world financial assets, and this is may hurt them. One fix is for stablecoins to hold $1 in a bank account for every digital token of equivalent value in circulation. That would be a major improvement for Tether, which in December had less than half its reserves in bank deposits and U.S. Treasury bonds. The rest was in riskier assets like commercial paper, corporate bonds and digital tokens. Switching to 100% cash would make future wobbles less likely. (reuters)

Tether seems to be having some real issues, hence the need to swap their backings from commercial paper, corporate bonds and digital tokens to bank deposits and U.S. Treasury bonds. In only a month their market cap has seen an exodus of funds at the tune of $83 million per day. (See graph above)

Where is the Money Going?

On another note, USD market cap has seen an increase of $4 Billion in just the last 9 days. (See Below)

USD is fully backed by U.S. dollars or dollar-denominated assets like U.S. Treasury securities. USDC’s reserve assets are held in segregated accounts with regulated U.S. financial institutions. The accounting firm Grant Thornton oversees these segregated accounts and provides monthly attestation reports. (Source)

If you buy one USD Coin using fiat currency, then that fiat currency is deposited and stored as one U.S. dollar and the new USDC is minted. If you sell it, then the USDC is “burned” when the fiat money is transferred back to your bank account.

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On March 22nd, Do Kwon, co-founder of Terra Labs, tweeted this:

Do Kwon 🌕 @stablekwon

https://twitter.com/stablekwon/status/1506494471873081352

We all know Do Kwon’s stablecoin story by now. Meanwhile DAI, an over-collateralized stablecoin that attempts to maintain a stable 1:1 value with the U.S. dollar by locking other crypto assets in contracts, is having their issues as well.

Due to its design, the supply of DAI cannot be altered by any party in the network. Rather, it is maintained through a system of smart contracts designed to dynamically respond to changes in the market price of the assets in its contracts.

Two months ago, Maker, issuer of DAI, expanded its use to finance businesses operating with Real-World Assets (RWA) to hedge against a potential crypto bear trend. This was received with mix emotions by Maker and DAI investors. Some have expressed admiration by the MakerDAO’s move and others have shown disgust and are voting with their wallets leading to a market share loss (above).

There many other stablecoins issuers who have learnt from UST’s demise and making adjustments to avoid getting crushed. They may not be battling each other, but they are definitely battling to remain STABLE.

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👀 Under the Radar

Green Satoshi Token (GST) — The game token of STEPN — a Web 3.0 lifestyle app with in-built fun social elements and gamification design. First move-to-earn NFT game where players earn GST tokens by walking, jogging and running outdoors while wearing NFT Sneakers. GST tokens can also be used to level up and mint new Sneakers, and players can sell/rent their NFT sneakers on the app Marketplace.
KuCoin (KCS) — Native token of KuCoin, launched back in 2017 as a profit-sharing token that allows traders to draw value from the exchange. It was issued as an ERC-20 token running on the Ethereum network and was supported by most Ethereum wallets. The total supply of KCS was set at 200 million, and there is a planned buyback and burn until just 100 million KCS remain. Sooner or later, as the KuCoin decentralized trading solution goes live, KCS will be the native asset of KuCoin’s decentralized financial services as well as the governance token of the KuCoin community in the future.
NEM (NEM) — Blockchain platform launched in March of 2015. It was one of the pioneers of the cryptocurrency industry, and sought to improve on the imperfections found on other chains at the time. It was one of the first non-turing complete chains to feature user-defined tokens (called mosaics), namespaces, multisignature accounts, and a P2P reputation system based on EigenTrust++. Its most notable contribution to the space is the proof-of-importance consensus mechanism, which sought to reward on-chain activity and deter the concentration of wealth commonly associated with proof-of-stake.

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The Battle of the (un)Stablecoins

Contents:

Together with iCapital

👀 Under the Radar

🛠️ JOBS Section — Together with TheDefiant.io we bring you.

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Written by YAROCELIS.eth - Tech Trends