The A-Z of Stablecoins
Originally Published on Hackernoon
Centralization runs deep in society in the form of corporations, businesses and governments. Not that they’re bad, but blockchain technology can offer a viable structural alternative by creating a more transparent and accountable system. The idea of open-source decentralization is to redistribute power and to create a fair and trustless system across all industries. This technological breakthrough, therefore, brings lots of promise and hope for the future.
The inception of Bitcoin in 2009 has resulted in a revolution in the trading and payments industries. People have started to accept cryptocurrencies as a form of payment and it’s being exchanged in large volumes. These can be used for global transactions, buying new assets, and at your nearby retail stores.
Even though many stores accept Bitcoin and other tokens as a method of payment, it’s rare to see token holders use it in their daily transactions. Another argument might be that there aren’t enough shops that accept it. An often cited reason behind this is that it’s not practical to use it as a unit of account. Stablecoins are tokens developed for this particular reason. They are termed “stable” because they are pegged to the value of something else, such as precious metals or fiat currency.
To better understand stablecoins, it is important to first learn about price volatility in cryptocurrency.
Volatility is a measure of how much the price of an asset has moved up or down over time. There are many factors attributing to the volatile nature of Cryptocurrency. Firstly, Cryptocurrency is still at a very nascent stage compared to other investment tools, traditional currencies and even gold. Secondly, the cryptocurrency market thrives on speculation, traders bet that the prices would go up or go down to make profits. These speculative bets can cause a sudden influx or a sudden efflux, leading to high volatility. Their highly speculative nature might be an attractive feature for investors, but it also makes them hard to use in payments and trade. Compared to other cryptocurrencies, stablecoins are stable in value while maintaining similar decentralized features as cryptocurrencies. This makes them an ideal medium for value storage or transaction.
What are Stablecoins?
A stablecoin is a token built on a blockchain network that is designed to minimize volatility by pegging to a more stable asset. Most commonly, they are backed by US dollars, but they can also be backed by other fiat currencies, like euros or yuan, and even assets like gold, or other cryptocurrencies. Benefits of this include being able to take advantage of blockchain technology and peer-to-peer value transfer while not being exposed to the high price volatility of Bitcoin, Ether, or other cryptocurrencies. Stablecoins are a relatively new kind of technology and each of them comes with different implementations, liquidity, risks, and acceptance.
Importance of Stablecoins
Without both short-term and long-term stability, it is considered extremely risky for the mainstream public to adopt cryptocurrencies as a direct replacement for fiat or traditional assets. Larger mass adoption will always require some form of stability. From a consumer perspective, it’s risky and impractical to use cryptocurrencies and tokens for daily use. A volatile medium of exchange can compromise users’ purchasing power.
That’s where stablecoins are the go-to. Stablecoins are the only form of tokens where you don’t have to worry about the instability and volatility of cryptocurrency prices. Stablecoins have an important role due to the following factors:
1. Protection from (hyper)inflationary fiat economies
Stablecoins have the potential to help people living in countries suffering from high inflation rates, which ultimately reduces their purchasing power. This is usually a result of economic and political uncertainty. There are many examples throughout history where fiat money has significantly suffered from devaluation.
In these countries, it is extremely hard to move their capital elsewhere since capital control laws are imposed by the government to prevent money from leaving the country. Converting their money in stablecoins will ensure that the value of their money is preserved, instead of keeping their money in their national fiat currency which will further reduce their purchasing power. Stablecoins have the ability to globally assist the masses from the fallout of economic and political uncertainty.
2. Hedging Mechanism For Traders
To hedge is to reduce the risk of adverse price movements in an investment or asset. Hedging is a strategy often used in the investment world to protect users’ positions by reducing risks. Stablecoins are commonly used in the cryptocurrency market as a hedge against Bitcoin and other digital assets. Converting their holdings into stablecoins protects their value.
Types of Stablecoins
There are several ways that the stability feature of stablecoins are designed. The two most common types are convertible and synthetic stablecoins. The key difference between these two is how they are collateralized.
- Convertible stablecoins
These are backed by assets that are held in a reserve, where the asset acts like an IOU that is held by a centralized entity. The most commonly used are fiat-backed stablecoins pegged to the US dollar like USDT or USDC.
For a more detailed explanation about Stablecoins, Read more in What are Stablecoins?
- Synthetic stablecoins
They aim to target a return to a reference sovereign currency like the USD, but they are not directly convertible for fiat currencies.
One way to achieve the target stability is by using crypto-collateralization (for example, DOC or RDOC), or using derivatives (eg XUSD). Another way is through a peg that is actively managed using an algorithmic monetary policy or smart contract (eg Terra or Ampleforth). This is often used in conjunction with oracles that provide on-chain access to price feeds for fiat and blockchain asset pairs.
Stablecoins play an important role in the RSK ecosystem:
- They allow users to send, receive, or save the value in a stable form
- Offer a stable trading pair for swaps
- Stablecoins function as less volatile collateral for borrowing reducing the risk of a margin call
- Create more stable yield generation and they’re part of the foundation for RSK’s DeFi on Bitcoin ecosystem.
DOC is short for Dollar on Chain. DOC is 100% collateralized with Bitcoin, with a 1:1 USD peg guaranteed by the smart contract. Dollar on Chain is the ideal stablecoin for daily transactions and users seeking to hold current value without leaving the benefits of bitcoin.
The DOC Token Smart Contract Address: 0xE700691Da7B9851F2F35f8b8182C69C53ccad9DB
- Self Contained in the Blockchain
What makes DoC unique is that the collateral is in a Smart Contract inside the blockchain, this means you don’t need to trust a third party controlling the collateral.
- Perfect for Daily Transactions
With third party non-custodial wallets you can instantly send and receive DoC with no protocol fees.
- Personalized Wallet Storage
Forget about giving up your private keys to a third party, DoC tokens are securely stored in your own wallet.
Users of the DOC tokens gain;
- Best Collateral
Dollar On Chain doesn’t rely on fiat. All the collateral is bitcoin. The DoC’s outstanding stability is guaranteed by the Smart Contract.
- Buy or Mint
You can buy DoCs on a secondary market, but the Smart Contract allows you to mint your own DoCs avoiding unnecessary extra costs such as the spread.
- Use for Daily Transactions
DoC is fast, secure and it doesn’t have any protocol fees. That’s why there is a growing ecosystem around it.
Where to Get DOC Tokens?
The RIF Dollar on Chain stablecoin, or RDOC for short, is one of the main assets on the RIF On Chain DeFi platform. RIF on Chain is powered by Money on chain, a stablecoin and leveraged token protocol, which runs on RSK smart contracts.
RDOC is a stablecoin in the RSK ecosystem that’s pegged 1:1 to the US Dollar and guaranteed by a smart contract.
RDOC is a crypto-collateralized stablecoin that uses the RIF token as collateral.
Unlike the majority of other DeFi protocol stablecoins where users are required to provide collateral or a collateralized debt position to borrow funds, like the competing Ether-backed decentralized stablecoin DAI, RDOC can be acquired by platform users directly by spending RIF, which is a unique feature that some users may prefer.
The RSK Infrastructure Framework is creating the building blocks to construct a fully decentralized internet that enables decentralized sharing economies.
An important distinction to keep in mind is that RBTC is the transactional token that facilitates operations on the RSK network, whereas the RIF Token allows any token holder to consume the services that are compatible with the RIF architecture.
Avoid crypto volatility using RDOC for payments, daily transactions, holding your savings, and acquiring RIF Services like identity, storage or communications.
RDOC smart contract token address: https://explorer.rsk.co/address/0x2d919f19d4892381d58edebeca66d5642cef1a1f
How to Get RDOC?
- Buy RDOC using a Decentralized Exchange
- Minting RDOC
You can mint the tokens yourself using RIF as collateral. To mint RDOC, you need to connect to the RIF On Chain Platform. You can access the RIF On Chain Platform at https://rif.moneyonchain.com.
Note, before you can interact with the ROC platform, you need to:
- Set up an RSK network-compatible wallet like Nifty Wallet, Wallet Connect, Metamask, or Liquality
- Fund your wallet with RIF for minting, and RBTC to pay for gas fees.
- Mint RDOC through the MINT/REDEEM button on the Exchange section of the RIF On Chain Platform, and you’ll need to set the ALLOWANCE regarding the amount of funds in the wallet that you authorize to spend on minting. Note, the platform charges a fee of 0.1% of the value in RIF.
- After you confirm the mint, your RDOC balance will be reflected within a few seconds and you have access to a USD pegged stablecoin on the RSK network
BabelFish is the cross-chain protocol that aggregates stablecoin liquidity from multiple issuers and chains into one single token: XUSD.
XUSD is a USD-pegged stablecoin that acts as a decentralized aggregator and distributor of different stablecoins. XUSD can be exchanged and redeemed 1:1 with any of the underlying stablecoin tokens backing it using smart contracts.
BabelFish acts as a decentralized bank that has branches on different chains, accepting and distributing USD-pegged stablecoins. In this way, it acts as a “trustless stablecoin translation device” for supported stablecoins on different networks.
Why Use XUSD?
XUSD is a unique stablecoin: by acting as a decentralized aggregator and distributor of different stablecoins, it offers three advantages:
1. Reduces risk: Pooling liquidity from multiple networks reduces potential systemic risk across platforms and marketplaces if one stablecoin is compromised. Users of XUSD are also subject to less systemic risk because the Babelfish insurance fund is intended to provide a level of security beyond the assurances offered by its underlying stablecoins.
2. Provides deeper liquidity: The advantage of this type of architecture is that it allows the fragmented liquidity pools formed by various stablecoins to join together as one larger and thus more liquid stablecoin pool. Deeper liquidity leads to lower slippage or failures in closing margin and lending positions. Deploying XUSD on top of the RSK network also attracts liquidity to the RSK ecosystem.
3. Provides flexibility: XUSD facilitates a 1:1 exchange between different stablecoins and networks. It allows users to easily bridge multiple stablecoins from RSK, Ethereum, & Binance Smart Chain networks to XUSD, and in reverse.
XUSD currently serves the following use cases:
- International remittances and payments
- Stable collateral in RSKs DeFi on Bitcoin ecosystem
- Open margin trades using XUSD or swap between XUSD and other tokens
- Lending to earn interest on XUSD, including the option to earn interest in RBTC and FISH tokens
- Use it to save as a non-volatile store of value
Need help storing Stablecoins? Read How to Store Stablecoins on RSK.
How to Get XUSD?
On an Exchange
- A Decentralized exchange like RSKSwap, TEX, or Sovryn Swap
- Use a swap app to exchange your crypto for XUSD, like Liquality Swap.
- Peer to peer through Defiant or another user like you.
Use a Bridge
You can use a cross-chain bridge. The BabelFish Bridge allows easy and permissionless transfers of tokens from one chain to another through audited smart contracts.
There are 3 networks included in the Cross-Chain Bridge: RSK, Ethereum, and Binance Smart Chain. You can use the BabelFish Bridge to cross funds in and out of RSK with the Ethereum and Binance Smart chains.
The bridge allows users to transfer multiple stablecoins from Ethereum and BSC to RSK XUSD. The $XUSD tokens on RSK can be bridged into any of the supported stablecoins at a 1:1 ratio.
XUSD smart contract token address: https://explorer.rsk.co/address/0xb5999795be0ebb5bab23144aa5fd6a02d080299f?__ctab=general
Find out more about the Stablecoins on Bitcoin.
RBRZ is the first Brazilian stablecoin in circulation. 1:1 pegged to the Brazilian Real. It will allow Brazilians to directly ramp up investments in foreign exchanges and to trade a Brazilian Real (BRL) pegged stablecoin on a global scale. It will permit sending and receiving BRL backed tokens safely and instantly, for a fraction of the cost of any other alternative.
Price stability will be pursued by market agents based on the reserves held by the Reserve Managers.
The Reserve Managers keep full reserves. BRZ Tokens are always fully backed.
The BRZ is built-up on top of Ethereum, Solana and Algorand blockchains.
The BRZ Smart Contract is the public instrument used for issuing and burning tokens according to convertibility demands. Our crypto transactions are verified by Parsiq.
The issuance of new tokens and the underlying reserves will be audited by a reputable third-party firm.
The BRZ Token can be traded on multiple platforms.
Why Use BRZ?
Access to International Platforms
Brazilian users now can enter international crypto markets without immediate exposure to Bitcoin or any other volatile cryptocurrency.
Enter the Brazillian Market
International exchanges and platforms will be able to enter the Brazilian market seamlessly. Acquire Brazilian customers with a frictionless solution.
Users will be able to trade 24h / 7 days.
International investors with business in Brazil will have an easy alternative to hedge their holdings in Brazilian Reais.
How to Get RBRZ?
To get BRZ, use the [RSKSwap](https://app.rskswap.com/swap)
The RSK ecosystem allows users an alternative way to transact with Ethereum-based stablecoins like USDT or DAI with much lower fees by converting them to stablecoins that move on the RSK network, including rUSDT, rDAI, and others.
RBRZ Smart Contract Address: https://explorer.rsk.co/address/0xe355c280131dfaf18bf1c3648aee3c396db6b5fd
rUSDT is the RSK token bridge “crossed token” counterpart to USDT, which is natively from ethereum.
Tether USDT converts cash into digital currency, to anchor or tether the value to the price of national currencies like the US dollar, and the Euro.
Tether token is also 1-to-1 pegged to the dollar, so 1 USDT Token is always valued by Tether at 1 USD.
Read the Tether Whitepaper
Ethereum/RSK Bridge that allows moving ERC20 tokens between one chain and the other. The bridge contracts are upgradeable, this enables a smoother move to a more decentralized bridge in the future.
How to Get rUSDT?
Using a Swap app
To get rUSDT, use the RSKSwap
Using the TokenBridge
You can use the ‘Token Bridge DApp’ together with Nifty Wallet or Metamask to move tokens between networks.
Follow the Dapp guide for more details on how to use the token bridge.
Find out How to Get Stablecoins on RSK
rDAI is an alternative to convert Dai and pay much cheaper transaction costs, around 0.15c per transaction which is approximately 80 times cheaper than transacting DAI compared to doing it over the Ethereum network.
Why use rDAI?
Boycott High Fees on Ethereum
Ethereum is experiencing extraordinarily high fees which make it impractical & expensive for most use cases.
How to Get rDAI?
Want to convert your DAI to rDAI?
Cross DAI to rDAI using the Defiant or Token Bridge
rDAI smart contract token address: https://explorer.rsk.co/address/0x6b1a73d547f4009a26b8485b63d7015d248ad406
See more explanation in Understanding Cross-Chains: How to use the RSK TokenBridge
> For a more detailed explanation about Stablecoins, the differences between stablecoins and other types of digital assets, stablecoins on Bitcoin, where to store them, how to cross stablecoins using the RSK Token Bridge, and how blockchains achieve interoperability via cross-chain bridges, check out The Complete Guide to Stablecoins on the RSK Developers Portal!
Thanks for reading!