Top Decentralized Stablecoin Projects to Watch in 2021
Stability has not always been a term associated with cryptocurrency, but stablecoins have brought the two terms into the same breath.
Stablecoins represent a middle ground between volatile cryptocurrencies and traditional assets like the U.S. dollar, oil, or gold—assets which generally undergo less price fluctuation than the likes of Bitcoin and Ethereum.
It appears that stability is attractive, as there is strong demand for stablecoins. Total on-chain stablecoin value surpassed $1 trillion in 2020. Investors may deal in stablecoins for several reasons.
Stablecoins are a more price-solid medium of exchange that non-stable cryptocurrencies. This makes them useful to those who engage in blockchain transactions. Stablecoins can even be a direct stand-in for the U.S. dollar.
Stablecoins can also provide substantial returns while ensuring greater protection against value crashes that non-stable cryptocurrencies might experience. For those in countries that endure economic uncertainty, stablecoins are a readily-accessible, comparatively stabler alternative to national currencies.
Stablecoins are a tangible response to those who would dismiss the entire crypto space as too volatile to be anything but a high-risk investment vehicle. Not every stablecoin is decentralized in nature, however. Stablecoins with a high degree of automation through smart contracts—including but not limited to the creation, issuance, and exchange of said coins—may be considered largely or completely decentralized.
Because they are relatively safe from extreme volatility, stablecoin projects may be a gateway for traditional investors and financial institutions to dip their toes into the waters of decentralized finance in 2021.
Dai is an Ethereum-based stablecoin branded as “the world’s first unbiased currency”. Dai is soft-pegged to the U.S. dollar, as one Dai is equal to one dollar.
The Maker Protocol generates Dai, which is available to anyone around the world. This availability is one of the selling points for Dai as a digital alternative to the dollar, or other national currencies. Dai stablecoins are not subject to hyperinflation, withdrawal limits, and various other shortcomings that may hamper traditional currencies. At the time of writing, Dai’s market cap is $1.13 billion, the third-most of all stablecoins.
Ampleforth (AMPL) is a stablecoin that automatically executes changes in supply based on changes in price through the Ampleforth protocol. The goal is to offset price volatility through supply volatility, creating a balancing effect that works to maintain price stability.
The adjustment of the supply of Ampleforth is known as a “rebase”. These rebases occur one time per day and the goal of each rebase is to keep the price of AMPL as close to one dollar as possible.
One of the stated benefits of Ampleforth versus other stablecoins is that, unlike a dollar-pegged stablecoin, AMPL is not tied to traditional financial markets in any way. Ampleforth’s market value has risen significantly in 2020.
Digix is a stablecoin tied to the value of gold. The price of one DGX token is roughly equivalent to the price of one gram of gold. Digix issues tokenized shares of 99.99% fine gold bars (those shares being DGX tokens), and in doing so makes gold a more liquid, easily-tradable asset.
The idea is to make owning and trading gold a more global, transparent, and accessible process. Digix states that all DGX tokens can be redeemed for their equivalent value in gold at any given moment.
USD Coin (USDC) is a dollar-backed cryptocurrency that went live in September 2018 as the brainchild of Circle and Coinbase. One of the benefits of USD Coin is a simple premise: USD Coin is a tokenized dollar. There is no confusion about cash reserves, or what type of collateral is backing a USD Coin.
Those who own a USD Coin can exchange it for a dollar at any time, just as one could exchange a dollar for its gold equivalent in the days of the Gold Standard. ERC-20 smart contracts handle all issuance and exchange of USDC. At the time of writing, USDC has a market cap of over $3.6 billion.
Augmint is a decentralized stablecoin that operates on the principle of adjusting a supply of currency in order to moderate the value of each unit of money. Augmint tokens are issued in conjunction with the issuance of a loan. When the loan is repaid, the corresponding Augmint tokens are “burnt”.
This ensures that the supply of Augmint tokens does not grow over time, and that inflation therefore does not occur. Smart contracts handle the issuance and execution of tokens and loans, which makes Augmint a fundamentally decentralized stablecoin. The value of one Augmint A-EUR token is soft-pegged to one Euro.
Paxos Standard (PAX) is “the new digital dollar”, a dollar-pegged stablecoin issued in a decentralized fashion. It is an ERC-20 token, and Ethereum contracts govern all transactions made using PAX.
At the time of writing, Paxos Standard has a market cap of more than $245 million, making it one of the most funded stablecoins, decentralized or centralized.
Wrapped Bitcoin (WBTC)
Wrapped Bitcoin (WBTC) is a stablecoin that is pegged at a 1:1 ratio to Bitcoin. It is, you could say, the ERC-20 equivalent of Bitcoin. The goal of WBTC is to bring the liquidity of Bitcoin to the Ethereum ecosystem by allowing Bitcoin holders to exchange their Bitcoin for WBTC, or to engage in the inverse transaction.
Smart contracts facilitate token trades and other Ethereum-based transactions involving WBTC. It is the “first token that makes Bitcoin compatible with the Ethereum chain”.
Gemini Dollar (GUSD) is a regulated stablecoin soft-pegged to the value of the U.S. dollar. Its creators claim that Gemini dollar is the first regulated stablecoin of its kind. In making this claim, Gemini leadership cite that every GUSD is backed by funds held at the State Street Bank and Trust Company in New York.
Each month, cash reserves behind the Gemini dollar are audited to ensure that the ratio of GUSD and dollars remains at 1:1. It also states that the code for Gemini dollars held in Ethereum smart contracts has been audited and verified, backing up the statement that “Trust is [Gemini dollar’s] product”.
EOSDT is a stablecoin that is pegged to the value of the U.S. dollar. Built using the EOS blockchain, EOSDT is collateralized by BTC, ETH, and EOS tokens. The collateral that underpins EOSDT is locked in smart contracts.
The Equilibrium Stability Fund insures the pool of EOSDT, and at the time of writing the fund contains more than $12 million in EOS tokens. Smart contracts containing these tokens are designed to maintain 1:1 price parity with the dollar, with this parity giving EOSDT its status as a stablecoin.
Money On Chain
Money On Chain is a suite of stable currencies that use Bitcoin as collateral and are secured by Bitcoin miners. Dollar On Chain (DoC) is the specific stablecoin created by the Money On Chain team.
The DoC is dollar-pegged, and can be used to trade or engage in a variety of DeFi-specific transactions like loans. Money On Chain is organized as a decentralized autonomous organization (DAO).
DeFiDollar is still in beta, but that could change in 2021. It has received over $1 million in funding towards its mission of being a stablecoin aggregator. The DUSD token will be an “insurance layer” for the risks that exist in other stablecoins. Such risks include the malfunctioning of smart contracts or a price dip for assets that a stablecoin is pegged to, like the dollar or another cryptocurrency.
As a stablecoin that is essentially pegged to an index of other stablecoins, DeFiDollar’s selling point lies in risk mitigation.
TrueUSD is the stablecoin from TrustToken. It is backed 1:1 by U.S. dollars, and boasts “the longest proven track record of liquidity and redeemability”. TrustToken offers live, on-chain attestations for its stablecoins, including TrueUSD, and explains that all of their stablecoins’ collateral is held in third-party escrow.
Empty Set Dollar
Empty Set Dollar is a stablecoin with price regulations that are algorithmic (read: decentralized). Its creators envision Empty Set Dollar becoming “the reserve currency of decentralized finance”.
The price target for each Empty Set Dollar is one USD Coin (USDC). Note that each USDC’s target price point is one U.S. Dollar. By adhering the Empty Set Dollar to the ERC-20 token standard, its creators aim to make the token useful across the landscape of decentralized finance.
HUSD is a dollar-pegged stablecoin with a market cap of more than $135 million at the time of writing. A U.S. trust company holds the cash reserves backing HUSD, and an independent accounting firm conducts monthly audits to ensure that HUSD is adequately capitalized.
HUSD is an ERC-20 token whose creators have the stated goal of attracting “a more mature audience” to the world of decentralized finance by providing greater price stability than non-stable tokens can offer.
Those who understand the long-term movement of the U.S. dollar understand that it loses value over time. However, the dollar’s value relative to prevailing prices generally remains stable enough that consumers know what their dollar will or won’t afford them at any given time.
The fact that cryptocurrencies fluctuate wildly in value has prevented many from accepting that crypto can be a currency at all. Stablecoins are a more palatable alternative, as they represent digital versions of assets that the old-school consumer knows well: the dollar, gold, etc.
If cryptocurrency and DeFi are going to see further adoption in 2021, then stablecoins could play a central role. Stablecoins are a logical bridge between the old (fiat currency, tangible assets) and the new (cryptocurrency). Beyond this “bridge” status, stablecoins also have a clear utilitarian purpose: they provide a relatively stable currency for digital transactions.
As more investors interact with the decentralized stablecoins listed here and the automated smart contracts that govern decentralized finance, they may reach some startling conclusions. They may find that banks, brokers, and other third parties are not as essential to the sustainability of the financial ecosystem as they once thought.
2021 could be the year that a large contingent of investors divest from legacy financial systems in favor of decentralized finance, and stablecoins (and the projects we’ve listed) could be the catalyst for this migration.