Why So Many Stablecoins? Native Tezos Stablecoins and Wrap Protocol Tokens Analysed

Why So Many Stablecoins? Native Tezos Stablecoins and Wrap Protocol Tokens Analysed

Most crypto investors use USDT or USDC. But there are around 70 more stablecoins listed on CMC. What’s their difference and is there any real need in this number of crypto-dollars? Let’s find out.

Tezos stablecoins: native and wrapped via Wrap Protocol, mechanisms, and differences,

Take a Look at Tezos Stablecoins

There are four native stablecoins on Tezos:

  • USDtez (USDtz) — a regular stablecoin backed by fiat dollars. Users can buy them at an exchange or go to a mintery to exchange USD for USDtz or vice versa.
  • Stably USD (USDS) — a stablecoin by Stably. It is backed by fiat dollars stored on insured accounts of Prime Trust. Users can deposit funds on Prime Stably and issue USDS themselves.
  • Kolibri USD (kUSD) — an algorithmic stablecoin backed with tez. Users issue kUSD with tez as collateral themselves while Kolibri delegates the collateral to bakers.
  • Youves USD (uUSD) — an algorithmic stablecoin backed by tez. When issuing uUSD, users regularly get the governance token YOU that they can stake.

Using Wrap Protocol, one can bring six more Ethereum-based stablecoins onto Tezos.

  • Tether (USDT, wUSDT) — USDT the biggest centralised stablecoin backed by USD and other assets. Users can issue USDT themselves.
  • USD Coin (USDC, wUSDC) — a USD-backed stablecoin, and the second most capitalised stablecoin out there. It can be issued only by companies with financial services licenses.
  • Binance USD (BUSD, wBUSD) — Binance’s stablecoin backed by USD. Users issue and redeem BUSD with zero fees.
  • Paxos Standard (PAX, wPAX) — a stablecoin by Paxos Trust Company. Aside from PAX, Paxos develops branded stablecoins for other cryptocompanies, such as Binance USD.
  • Huobi USD (HUSD, wHUSD) — Huobi’s stablecoin issued by Stable Universal. To issue or redeem HUSD yourself you will need an account at Stable Universal and Huobi Global Wallet.
  • Dai (DAI, wDAI) — one of the oldest algorithmic stablecoins out there. Users issue it with ETH or some other assets as collateral on the Ethereum blockchain.

Why Are There So Many Stablecoins?

You can describe any stablecoin by answering three questions:

  • Who issued it?
  • How exactly is it pegged to an outside value?
  • What is its collateral?

The issuer is the matter of trust. Users fear centralised issuers may hide the state of their reserves and print tokens out of thin air. Aside from that, reserves are not always in the safe. Tether, for instance, uses its client money to extend loans. It looks more reasonable for major exchanges, fintech companies, and blockchain devs to release their own stablecoins instead of relying upon someone else’s words. Thus they protect their customers and themselves against third party negligence and force-majeures.

The mechanism of pegging is the issue of stability. Fiat-backed stablecoins usually fluctuate within the 0.1% range, and may drop or grow by 10% during volatility storms. Algorithmic stablecoins usually diverge from $1 by 0.2-0.5%.

Finally, collateralisation is the matter of risks and profits. Owners of centralised stablecoins believe they can exchange them for fiat. It’s a bit harder with algorithmic stablecoins: the mechanism of collateral liquidation in case of rate plummeting, stability fees, and token burning are all too complex for regular users who don’t want to risk. On the other hand, issuing algorithmic stablecoins ensures higher profits for the investor. Thus, while minting uUSD or kUSD they can delegate the tez collateral to a baker, then deposit tokens to a DEX liquidity pool, and stake the pool’s LP tokens. Thus they will profit from tez growth, pool trading, and staking instead of just profiting from price increase.

Eventually, the diversity of stablecoins comes down to enabling everyone to find the token that meets all their demands. And if there is no such thing, a user can split the funds between several tokens and thus diversify the risks.

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