Stablecoin
Description
1. Philipp Sandner et al.:
"Stablecoins are based on blockchain protocols that have the principle of price stability inherently encoded and, thus, fulfill the function of a reserve currency. The introduction of stablecoins set the foundation of the functioning decentralized financial system, as they enable participants to engage with each other without the underlying risk of price volatility
2. Harry M. Claverty:
"The token market is volatile, which is a problem for utility tokens because their prices need to be stable to have utility, otherwise, we’d use them purely to speculate. If a token performed similarly to a mature currency, it would be useful enough to exchange within this ecosystem. Enter: The Stablecoin.
A ‘Stablecoin’ is a ‘cryptoasset that maintains a stable value against a target price (e.g. USD)’. These assets could offer the best of privacy, stability, scalability, and decentralisation (more here). Moreover, a stakeholder can exchange in their own currency, significantly reducing the barrier to entry."
(https://medium.com/@harrymclaverty/reverse-icos-part-3-db72547afd87)
Typology
Philipp Sandner et al.:
"There are three options how a cryptocurrency can reach price stability.
First, stablecoins can reach high degrees of price stability by pegging a currency to other assets. For example, for each issued unit of USD Coin a real US Dollar is held in reserve.
From a decentralized finance perspective, another interesting approach is the issuance of stablecoins by using other cryptocurrencies as collateral. A central protocol for the Defi ecosystem is Maker DAO, which issues the cryptocurrency DAI that is backed by other cryptocurrencies and ensures with its algorithm that the value of 1 DAI is hovering around the value of 1 US Dollar.
Thirdly, there are more experimental approaches that aim to reach price stability without the use of collaterals. For instance, the protocol Ampleforth automatically adjusts the supply of token in accordance with demand."
Discussion
Why stablecoins won't work
Yanis Varoufakis:
"The idea behind the Gold Standard was that national currencies gained credibility because their state/central bank gave up the right to print money at will. By fixing the exchange rate of a national currency to the price of gold (e.g. $35 for one ounce of gold), and freely allowing two-way convertibility, it was common knowledge that, if the authorities printed money in total value exceeding the value of the gold in the central bank’s vaults, at some point people holding paper money would demand gold that the central bank did not have.
A currency board (e.g. the system underpinning Bulgaria’s national currency today) is similar in that the central bank fixes the national currency’s exchange rate to equal the average price of a basket of hard currencies. Again, as long as there are no capital controls and the national currency is fully convertible to the hard currencies in the currency board, if the central bank prints more money than is equivalent (under the fixed exchange rate) to its foreign currency reserves, it risks a run on its reserves. As with the Gold Standard, currency boards have proven fragile – at the sign of economic crisis, war, or other types of stress, they are abandoned.
A stablecoin is a currency board with the difference that it applies to a stateless digital currency (like Tether), not a national currency. This means that there is no state to legislate that the system administrators honour the fixed exchange rate; that they not create stablecoins in excess of the value of their reserves, cash them in, and do a runner. In other words, in addition to the inherent instability of currency boards, stablecoins are ripe for fraud.
In conclusion, the fact that stablecoins or Bitcoin itself acquire the aura of saviours in countries hit by inflation, like Turkey, is nothing more than a measure of the desperation of the people: they will clutch at straws. Stablecoins offer Turks no respite from inflation that buying euros or dollars cannot offer. So, why buy Tether instead of dollars or euros? Why rely on the shadowy characters running a private currency board? Only because the latter deploy good marketing to exploit desperate people."
(https://metacpc.org/en/crypto-blockchain/)