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13 May 2021

The way of the stablecoin: A journey toward stability, trust and decentralization

The way of the stablecoin: A journey toward stability, trust and decentralization

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Certain stablecoins have become extremely popular since they are pegged to the United States dollar and have attained a market capitalization of over $51 billion for USDT and around $14 billion for Coinbase-backed USDC.

The aforementioned issues have prompted developers and entrepreneurs in the space to create decentralized stablecoin systems, the most popular of which is MakerDAO and its USD pegged token, the Dai.

Kava has leveraged a similar system to create crypto-backed stablecoins that are pegged to the USD, allowing users to provide liquidity with multiple assets such as Bitcoin and XRP in order to issue USD-pegged stablecoins.

Decentralized stablecoins are an alternative to simple stablecoins like USDT, but the volatility of cryptocurrencies also makes them dangerous for liquidity providers, holders and users of the stablecoin.

At the same time, such a coin can be backed with a high collateralization rate that will allow it to balance volatility or a sudden change in market situations.

In this example, the company has chosen to issue the stablecoin on the Bitcoin Ultimatum blockchain — a decentralized ecosystem with smart contracts, leased-proof-of-stake mining algorithm in conjunction with proof-of-authority, private transactions, and leasing and staking solutions.

While other projects have also tried to tackle the issue of protecting users against the volatility of the underlying asset by using “baskets” of fiat currencies instead of one single currency, to issue a stablecoin that is pegged to various assets, most have so far failed to achieve this feat — most notably, the Libra project by Facebook, which has been stopped on its heels by regulators, much like Sogur.

Projects like DigixDAO and Paxos issue stablecoins pegged and backed by precious metals such as gold

In a bid to solve this issue and provide users with a semi-decentralized solution for precious-metal backed stablecoins, Aurus has issued precious-metal-based coins for gold, silver and platinum that are backed and pegged to these assets

However, instead of using centralized reserves, Aurus works with multiple metal producers and foundries to create precious-metal-backed tokens that have distributed reserves, ensuring that users are always protected against single points of failure

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