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LINKS FOR ADDITIONAL READING FOR THIS VIDEO & ALL INFO IN TEXT DOWN BELOW:
Stable coins explained: https://futurism.com/sponsored-stable-coins-future-crypto-economy/
Tether and its Auditors: https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved/
Examining Tethers Audits: https://medium.com/@bitfinexed/the-so-called-tether-audit-that-isnt-an-audit-at-all-5a40cfcc2a75
Tether & Bitfinex relationship: https://bitcoinmagazine.com/articles/warning-signs-timeline-tether-and-bitfinex-events/
BitUSD pegging mechanism explained: https://steemit.com/bitshares/@xeroc/what-makes-the-bitusd-than-nubits
Before I get into this video, I want to reiterate Andreas Antonopoulos’ thoughts on pegged cryptocurrencies. Think of them as rubber bands. If the market wants to move and the stablecoin is resisting it, it will snap. We will take a look at one stable coin at the end of this video that demonstrates just this.
What’s interesting to see with these stable coins is the fact that they are fundamentally different from other cryptocurrencies who’s goal isn’t necessarily to be the most stable coin, but instead to be a coin that increases in value over time.
Mostly, these stable coins work to maintain a constant price by analyzing the market and adjusting their supply. When demand for their coin increases, they create more so their price doesn’t skyrocket, and as demand wanes, they destroy coins to ensure scarcity works to support the value.
Speaking of stable coins that use methods resembling practices of fiat currencies, first we’ve got Tether, I know this one is well known but I’ve still gotta mention it for those who are looking for options. Tether has been providing people with a stable cryptocurrency option for over 3 years now. Here’s the deal: The supply of Tether coins is supposedly backed one to one with USD. Which sounds great, if only this could be proven. They’ve had audits conducted but they are always conducted by slightly inappropriate entities which end up publishing press releases that end up dancing around any kind of definitive proof that the actual USD reserves exist. All that sounds a but opaque, and I haven’t even mentioned the suspicious relationship between this one and the exchange Bitfinex. If you’re interested in learning more about that one, it’s something worth looking into, I’ll post some links down below.
MakerDAO “price stabilized against the value of the U.S. dollar” is accomplished by using a basket of assets as collateral, risky and “capital-inefficient” So instead of having to trust that each DAI coin is in fact backed by an asset owned by the company, you participate by offering up your own collateral in the form of other cryptocurrencies, like Ether. The issue here is the utter volatility of other cryptocurrencies can very well weaken this faith in the DAI’s stability.
BitUSD is pegged by using other BitAssets as collateral. As of today, BitUSD is maintaining a somewhat steady price. This year it’s bounced around from $0.96 to the $1.17 range, but in it’s 4 year lifetime BitUSD has seen a low of $0.75 and a high of $1.36. This doesn’t exactly qualify as a solidly pegged crypto in my mind, but the fact that it has maintained this range for so long and has not crashed to zero, especially after that all time low of $0.75 is a bit impressive. If nothing else, this could be a pretty lucrative arbitrage situation.
Much like I mentioned about MakerDAO, this begs the question, what happens when the collateral falls in value? What makes BitUSD different is that it is completely reliant on Bitshares assets.
Lastly, let’s take a look at a stable coin that perfectly emulates the reference to Andreas Antonopoulos I made at the beginning of this video: NuBits. This one held a pretty stable $1.00 peg for a year and then in just over one week in June of 2016, tumbled from $0.95 to $0.16. After that capitulation it’s price was far less stable and since March of this year, it’s been in a pretty steady decline. Consider this, investors who are interested in stable coins, not specifically for making purchases, but for hedging against negative market volatility, are very likely to sell their stable coins when the market begins to move heavily into the positive. This leaves stable coins like NuBits to scramble with this excess dumping and ultimately leads to a decrease in price, with that is the inevitable decrease in faith. The latter being a much more difficult thing to regain.