The central role of the currency is to bring the value of the dollar to the block chain. It serves both encrypted transactions and is increasingly being used for DeFi, cross-border transfers and chain settlements, making its mooring mechanisms and the quality of reserves a market focus.
Three mainstream anchors.
The most common is the French reserve-type stable currency. The issuer holds high-liquid assets such as cash or short-term national debt and issues tokens accordingly. As long as the user can redeem at face value, the currency price usually fluctuates around a dollar. USDT, USDC and RLUSD all fall into this category.
The second category is the encoded asset-based stability currency. Such products lock encrypted assets such as ETH into smart contracts and issue stable currency in excess of collateral. Because of the volatility of collateral prices, the system needs to retain a security buffer and automatically liquidate when the mortgage rate is insufficient. DAI represents the case.
The third category is the algorithm stabilization currency. Such tokens rely mainly on procedural adjustments of supply to maintain prices rather than on full reserves. According to the article, the market's acceptance of this model declined significantly in 2022 after TerrausD broke down and collapsed.
What's the difference between USDT, USDC, RLSD?
USDT and USDC are currently the most representative dollar stabilizers, and RLUSD uses a similar model of reserve support. What they all have in common is an attempt to match the chain with real dollar assets to support circulation and foreclosure.
The differences in such stable currencies are mainly reflected in the quality of reserve assets, transparency in information disclosure, foreclosure arrangements and the credit of issuers. For users, the key to the long-term sustainability of a stable currency is not just design thinking, but whether the reserve is real, sufficient and liquid.
Demolition and issuer risk still require attention
According to the article, a stable currency does not amount to risk-free assets. The most immediate risk is to break the anchor, that is, to deviate from the price by $1. If markets suspect that reserves are insufficient, foreclosures are blocked, or the price of collateral assets falls rapidly, there may be significant currency fluctuations.
In addition, stock audits, hosting arrangements and regulatory requirements are important because of the reliance on centralized institutions for the custody of assets and foreclosure. Encrypted securitized currencies rely more on smart contracts and clearing mechanisms, which in extreme cases can also be pressurized.
With the increase in the size of stable currencies, such tokens are becoming more than mere instruments of trade, but are also being used to pay more, remit and settle across borders. The reliability of a stable currency depends first on what it relies on to maintain a dollar, and secondly on the size and extent of the market.