Stablecoins have been subject to news a lot lately for various unfortunate reasons. Rumors of USDC being behind the inquiry into Paxos’ BUSD are still fresh. Tether has the lowest confidence standard among Defi users. And the echoes of USTC’s fall can still be heard.
Stablecoins account for approximately 1/3 of the entire crypto market cap, so their importance cannot be underestimated. So, having a stablecoin that can be “trusted” would go a long way for crypto adoption.
But at the moment, users do not seem to trust stablecoins as much as the industry would want them to. And it is no wonder why, as many stablecoins have lost their peg and, inevitably, their trustworthiness.
But is there a possibility that a coin would fix DeFi for good?
Why Can’t Stablecoins Maintain Their Accuracy?
It is not news that most of the popular stablecoins, such as USDT, USDC, or BUSD, require off-chain intervention to maintain their peg. If those systems fail, or if there is an accounting mistake, it could cause significant problems.
The fact is, we cannot verify that all stablecoins are always backed 1:1. And collateralized stablecoins like USTC and DAI have proven not to be able to stand up in bear markets.
So, some upstart projects seek to fix these issues. And DXO (Deflationary Xchange Output) is a company that has come up with a solution called un-stablecoins.
How Do Un-Stablecoin Projects work?
One way in which un-stablecoins can work is by relying on another cryptocurrency. For instance, let’s say there is a new un-stablecoin on the market called XYZT. To mint XYZT, users must burn Bitcoin. Thus, for $100 worth of BTC burned, the user will receive 100 XYZT.
Considering the fact that XYZT is not tied to the value of the Dollar, it cannot lose its peg. Furthermore, it is essential to note that in order to create new XYZT coins, users must burn BTC. Thus, project developers are trying not to contribute to the market’s increase in inflation. Such action can have a positive outcome not only for the project itself but for the crypto market and its investors, too.
This would position BTC as a future bedrock of Defi. Up until this point, DeFi has been seen as an ETH stronghold. But with the SEC recently labeling ETH as a security (albeit indirectly) and some users calling ETH centralized, it sets the stage for BTC to emerge.
Some would argue that stablecoins are too big and users should keep their money mostly in BTC. On the other hand, investors seem to fear one of the most unfortunate crypto market characteristics: volatility.
But what crypto enthusiasts should not forget is that stablecoins come with a great advantage. Basically, those who keep their investment in stablecoins are less likely to see their assets fluctuate in price dramatically.
Such projects build a brand new opportunity for Bitcoin and its users to create a system they can confidently build upon.
Furthermore, if we consider the relationship between un-stablecoins and Bitcoin, the former would harness the power of BTC. And it is not just about Bitcoin, however.
Un-stablecoins can unleash the power of many other cryptocurrencies that are widely used and appreciated but have never had their utilities fully discovered.
Considering that crypto is still a new industry and is yet to be discovered, such innovative startups can come with numerous updates regarding crypto and blockchain technology. Moreover, taking into account the current situation regarding stablecoins, un-stablecoin projects might refresh the crypto market at a moment when this is much needed.
Stablecoins were created as a means of keeping money in crypto but not letting them be affected by market fluctuations. However, considering the unfortunate events that happened in the past months, users seem to question stablecoins. With the USTC’s crash and the intense scrutiny of Paxos’ BUSD, stablecoins seem to have lost some of their investors lately.
Still, some startups are trying to devise a solution for the current stablecoins-related issues. Project developers have named their solution un-stablecoins and have built a method through which users can create new coins by burning a specific amount of Bitcoin.
This new solution can reduce the inflation in the crypto market and assure users that the un-stablecoin will most surely maintain its peg.
Not only does such a project try to resolve the issue of stablecoins, but it also creates new opportunities for other cryptocurrencies to widen their utilities and contributes to the well-functioning of DeFi.