The best way to mitigate stablecoin risk

over 2 years ago (Edited)

Direct from the desk of Dane Williams.

The best way to mitigate stablecoin risk is by fostering the growth of algorithmic stablecoins.

It probably comes as no surprise that the top US banking regulator, Michael Hsu, is under the opinion that the best way to mitigate stablecoin risk is to regulate the providers.

But with a digital home here on the Hive blockchain, it also will come as no surprise that I completely disagree with this assessment.

Regulators say they work for the safety of the people they serve and not their powerful mates working for legacy banks, right?

So if this is truly the case, then the best way to mitigate stablecoin risk is not via regulation of these assets, but instead by allowing the market to naturally shift to algorithmic stablecoin alternatives, backed by decentralised blockchains.

The obvious example being Hive Backed Dollars (HBD).

Regulators are concerned about stablecoin risk

Here are the key MIchael Hsu quotes from the speech:

“The growth and mainstreaming of crypto means that a stablecoin run would not just impact those directly invested in it, there would be collateral damage."

“Fortunately, we have an effective tool to mitigate run risk."

"Bank regulation.”

The business model of collateralised stablecoins like Tether, is to guarantee that for every USDT issued, there is an equal amount of US dollars (or US dollar equivalent assets lol), backing them.

Without regulations, who is to say that what is essentially one giant retail bank actually has the collateral that it says it has and is not simply running an elaborate ponzi?

The risk being that if the market got a whiff of Tether being unable to actually cash USDT to USD at a 1:1 ratio, it could trigger a digital bank run that would see the price of the supposedly pegged asset plummet.

Nobody is arguing that there is not only a personal risk to those invested in unregulated, collateralised stablecoins, but actually a risk to the entire economy.

Instead of regulating collatorialised stablecoins, wouldn’t it simply be more efficient to allow the market to naturally move to trustless, algorithmic stablecoins backed by decentralised blockchains such as HBD?

Algorithmic stablecoins like Hive Backed Dollars (HBD) are the solution

Yes, the risk of using collateralised stablecoins like $USDT is high.

But the tech behind algorithmic stablecoins like Hive Backed Dollars or TerraUSD, actually makes collateralised stablecoins redundant.

So shouldn’t regulators simply be letting the market do its thing by fostering the conditions that decentralised tech needs to flourish?.

Investors will naturally shift to algorithmic stablecoins and regulators no longer have to worry about the risk that stablecoins like Tether pose to the greater economy.

You see, Hive Backed Dollars (HBD) offer a unique variation on trustless, algorithmic stablecoins.

While their price looks pegged to the USD, they are actually backed by the value of HIVE crypto and the Hive network itself.

This backing is provided by an on-chain conversion operation that allows holders to at any time convert 1 HBD to an equivalent of $1 USD worth of HIVE and vice versa.

Through this conversion mechanism, the price of HBD is able to peg to the price of the USD, without ever actually holding any USD in collateral or transacting in the currency.

As long as the Hive network exists and HIVE has value, then HBD will always function.

Move your stablecoins into HBD today

If you’re concerned about the risk that a potentially undercollateralised Tether proposes to your stablecoin stack, then move your balance into HBD.

All you need to move into HBD is access to Hive’s internal market via your Hive account.

To onboard into the Web3 Hive ecosystem, simply use your current Twitter account to generate the keys to your account.

Head to leofinance.io, click the get started button at the top and create your Hive account using your Twitter login.

Best of probabilities to you.