The Blog: Backed By Bitcoin
January 15, 2022
After Bitcoin, the most important coins in the space are
stable coins. Some stables are risky because many are unregulated by the SEC
and the dollars that back them have not been audited by any third parties. This
makes it possible for money to be stolen from users using stable coins.
However, in this article we will be going over many of the attributes of stable
coins including the following list.
1.
What are stable coins?
2.
How can stable coins be used?
3.
How to evaluate a stable coin
4.
What are the top stable coins in today’s
cryptocurrency market?
5.
What is the SEC’s plans for regulation?
6.
Where do I find information about each stable
coin and the issuer
In essence, stable coins are cryptocurrencies that are
pegged to the United States Dollar. These coins allow you to be within crypto
and still have the price stability of the dollar. This allows citizens in
developing countries to save dollars and have access to dollars. These stable
coins can be used to save and spend United States dollars where the native
currency is highly inflationary. All stable coins are not created equal and its
important to understand the difference between algorithmic stable coins and
cash backed stable coins. Professionally audited, compliant, cash backed stable
coins are considered the safest stable coins in the industry. Algorithmic
stable coins use complicated math to maintain price and often lose peg. They
have proven to be unreliable during my years in crypto.
Stable coins can be
used to save on exchanges, personal hot wallets, in cold storage or can be
loaded on a crypto convertible debit card and used to purchase goods and
services anywhere a debit card is accepted. You can normally earn anywhere from
1% - 8% yield by yield farming or using some of the yield generating services
on some of the major centralized exchanges. Stable coins can also be sent to
individual wallets similarly to how dollars can be transferred.
The best way to evaluate a stable coin is to check to see
how it has been audited and how the coin has performed in the past. Older
stable coins are less risky and have seen more downturns and experienced more
pressure to de-peg. My personal preference is stable coins that are backed by
physical cash inside of a bank account that is audited by a third party. There
are many options on which stable coin to choose. USDC is the leader regarding
this type of stable coin. They are a fully audited and physically backed crypto.
Another leader regarding stable coins is DAI. DAI is minted based on the amount
of funds locked in the Compound Protocol, which is a decentralized lending and
borrowing protocol. It is the most stable and reputable crypto backed stable
coin. I’ll include references to more information on both stable coins below.
MakerDAO | An Unbiased
Global Financial System
USD Coin (USDC) |
Crypto that’s held to a higher standard | Circle
The situation that we currently have with regulation is one
of uncertainty. The thing that we can be certain of though is that regulation
is coming within the industry this year. We can expect that after the FTX
fiasco and the Terra Luna collapse that the SEC (Securities Exchange Commission)
will introduce laws regulating stable coins. Contrary to popular belief regulation
is an extremely good thing for crypto. This regulation will allow more of the
world’s sovereign wealth to enter the cryptocurrency space. Regulation is a
major steppingstone to giving us a $100,000 Bitcoin. Also, as a side note,
Bitcoin has already been officially labeled as a commodity by the SEC. This
also adds to the credibility of this financial asset similarly to oil, wheat,
corn, or coffee beans. The only information that the SEC has given on their
plans for regulation in the crypto space is that they have plans for stable
coins in 2023. Anything other than that is purely speculation. What you do know
for sure is that representatives from the leading stable coins in the industry
will be looking for the opportunity to influence that regulation to make it
favorable for users and stable coin issuers.
The best place to find information on each stable coin is
the official websites of each coin. Since each of these coins is a cryptocurrency,
they all have whitepapers outlining how they are designed and how each coin
will react in the event of a bank run. I think it’s important to understand
what youre investing in before you place your capital. One of the biggest
lessons that we learned from Terra Luna is to look at where the yield is coming
from. A hard, set amount of yield it hard to sustain. Terra Luna was promising
20% paid out in a stable coin and the coin de-pegged. I also want to mention a
few other decent stable coins that may not be industry leaders but have done
well to make it through this bear market so far. A quiet stable coin is the
best type of stable coin. Some crypto users have experienced personal issues
with using a stable coin that issued by a company in comparison to one that is issued
by a smart contract. I like to diversify my stable coin holdings as well.
Hopefully I’ve given you enough information to make an educated decision on
holding a cash equivalent.
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