'Crypto’s Stablecoin Throne is Vacant' cc: sora_xor defi stablecoin
Price/Peg Stability - ie. The ability to constantly be traded at 1 USD.Decentralization - Not relying on centralized custodians to manage collateral.This stablecoin implementation problem has been tackled by crypto’s best and brightest to widely varying degrees of success, however, a perfect solution has yet to be found. As such, there are multiple different implementation strategies, each with its own unique tradeoffs.
Collateralized backings are not limited to FIAT currencies alone. As it stands, there are stablecoins such as DAI and sUSD which are collateralized with other cryptocurrencies . These stablecoins can mitigate the centralized risk factors associated with FIAT-backed stables, however, due to the inherent volatility of most crypto assets, they require over-collateralized positions in order to maintain their pegs.
$FRAX operates under a fractionally collateralized system, where each $FRAX is partially collateralized by fiat-backed stablecoins and partially backed by its own token, $FXS. The Frax collateralization ratio determines the ratio between collateral and algorithm that makes up the $1 FRAX value. An important requirement for $FRAX to function smoothly is to have deep liquidity with other stablecoins . The FRAX+3Crv Pool on Curve Finance has nearly 1.
$UXD is a “delta-neutral” stablecoin that works by taking deposits, such as $ETH, and using those deposits as collateral to short an equivalent amount of perpetual swap contracts or dated futures. This balanced pair of the $ETH long and 1x ETH-USD short creates a delta neutral position with a value of $1 for each $UXD. If the price of $UXD $1, arbitrageurs can mint $UXD at a cost of $1 per $UXD to make a profit. This mechanism allows UXD to consistently maintain its peg.
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