In one of my previous articles I spoke about Argentina, the emerging countries and how Bitcoin backed stablecoins where helping people lift themselves out of poverty.
The need for a stablecoin in these places is hard to overstate and something that often escapes the minds of people living in developed countries.
It is however, important to note that all stablecoins are different, and that there are many out there. Nonetheless, to my eyes they all share similar faults, which can be devastating when exposed. Some of them have faulty designs, like Luna’s UST. Which causes them to fall into a spiral of death, losing its peg and 99% of their value at a breathtaking pace.
The problem there was the colateral, backed only by their own token, the UST was never going to work.
It is no wonder that other stablecoins, like USDC, decided to use dollars as collateral, to avoid ever losing the peg. As brilliant as this might look at first glance, there is one major problem with this. Holding dollars in a bank account creates risks, single points of failure and centralisation. Governments and other entities can exploit this for their own benefit and gain control over the protocol.
This was the case of USDC, who just blacklisted a number of accounts who all together had more than $437 million dollars worth of funds.
I think we can all agree that we need stablecoins for people to be able to save and protect themselves. We can also agree that a coin that we use for this cannot be like UST, which lost 99% of its value. Nor can it be like the USDC, whose centralisation led to the sudden monetary censor of millions of people without warning.
We are all coming to the conclusion of what a reliable stablecoin would actually look like, and what features it must possess to be useful for people in the developing world.
The attributes of the perfect stablecoin:
1- The colateral.
This is extremely important, if you use something that can cease to exist tomorrow or that its demand could decrease in the future the stablecoin will become worthless.
You also need an asset that cannot be seized by any entity, cannot be stopped nor censor and it is able to face the utmost adversity.
To my eyes, the only asset that fits this description is Bitcoin. As it leverages the most powerful computing network in the world for its security, and is the most decentralised asset ever created. The rules that govern the Bitcoin protocol are extremely difficult to change, which gives us the highest level of assurance that how it has worked so far, will continue to do so in the future.
Any Stablecoin not backed by Bitcoin will have problems that the ones that use it won’t share. Which means that when judging a Stablecoin, the one backed by Bitcoin will always trump the one that does not.
This leaves out almost all of the stablecoins out there.
2- The underlying chain
The stablecoin we are looking for has to be decentralised, secure, resilient, unstoppable and censorship proof.
These elements must be shared by the underlying blockchain as well, otherwise even if the coin itself was perfectly built, it could still be manipulated at the blockchain level.
There is no other Blockchain that can beat Bitcoin in these capacities, yet unfortunately, we cannot have stablecoins running on bitcoin directly.
The closer we can get to it, is by using a second layer, another blockchain that sits on top of Bitcoin and allows for a more elaborated programmability.
There are many protocols out there that claim to do this (like stacks and liquid for example).
Yet, after much studying the Bitcoin layered ecosystem, there is only one that stands out from the rest. I’ve written about it before, it is called Rootstock (also known as RSK).
Because it is merged mined by the Bitcoin miners (around 60% of them) it shares in all its capabilities. This makes it the most secure blockchain out there, second only to Bitcoin itself, while also allowing for smart contracts and stablecoin creation (as well as other reasons discussed in my previous article).
The best stablecoin for those in emerging markets, who cannot afford the volatility of Bitcoin but need a way out of their local currency would be:
One backed only by Bitcoin and secured by the Bitcoin miners (on the RSK sidechain).
I am happy to inform you that these coins already exist, and many people in Latin America and Africa are using them for these very reasons.
There are currently two of them, each with a different design and more suited for different audiences. The DOC (Dollar on Chain) from the protocol Money on Chain and the ZUSD (Zero Dollar) from Sovryn.
In my next articles I’ll describe each one and what the underlying mechanics are. I believe both of them to be nothing short of pure computational engineering genius.
I hope to bring more attention towards them. Hopefully by doing so, less people will hold other Stablecoins and avoid sharing the fate of UST and USDC holders.
RSK, Money on Chain and Sovryn are working hard to make financial structures to those in the most dire of places. Ones that can be accessed with no KYC by anyone, anywhere, requiring only an internet connection.
The future is being built on Bitcoin. Truly a wonder to behold.
Check out www.WeAreBitcoin.World for more information.
Thank you for your time and your attention.
To learn more about these Protocols:
Money on Chain: https://moneyonchain.com/