Skip to main content

USDC, DAI, USDT, UST - What are they? (Stablecoins)

 USDC, DAI, USDT and UST are Stablecoins. 

What is a Stablecoin?

Stablecoins are cryptocurrencies like bitcoin, but with the objective to keep a stable price to be used as a medium of exchange or to maintain value in times of uncertainty.  These digital assets can also take advantage of infrastructure built out for cryptocurrencies (e.g. peer to peer quick transfers without the need of intermediaries).  All you need is an internet connection and now people can buy, store and transfer these digital assets pegged to the US dollar; opening up possibilities for developers to create new financial innovations anybody can access. 

Different Types of Stablecoins:

  • Token Backed with cash and cash equivalent

    • USDT (Tether) was the first and currently the largest stablecoin.  It is not issued and not regulated in the US.  There was a lot of controversy surrounding its treasury being fully backed by cash and cash equivalent assets.  Further, it is unclear if people can easily redeem their tokens for US dollars.

    • USDC (US Dollar Coin) is the second largest stablecoin issued by Circle, a US company, requiring the fund be regular audited by US approved accounting firms.  With this transparency, people can redeem their tokens easily for US dollars
     
    Both assets are run by companies that can and have historically frozen tokens of bad actors. 

  • Token Backed by non-dollar asset

    • DAI is a stablecoin collateral-backed cryptocurrency soft-egged to the US Dollar.  To create DAI, crypto assets are locked in a smart contract where the amount locked is larger than the amount available to be created by locking up digital assets.

    This token is decentralized and unbiased, meaning no individual can easily freeze assets

  • Token Backed by algorithmic incentives

    • UST (TerraUSD).  is stablecoin built on the Terra blockchain  The token has no explicit assets supporting the soft peg; but instead has a protocol to burn and create Luna (Terra) tokens to help support the peg.
        This token is decentralized and unbiased, meaning no individual can easily freeze assets

Stablecoin Comparison:


typical interest / yieldMarket Cap / Circulationpegged byOwnershipCan BlacklistUS regulated & audited
USDT8% - 15%$80 Billioncash and equivalentTetherYN
USDC8% - 15%$52 Billioncash and equivalentCircleYY
UST19% - 20%$15 Billionalgorithmic incentivedecentralizedNY
DAI8% - 15%$10 Billioncollateralized by cryptodecentralizedNY

Takeaway:

Stablecoins are interesting because of 2 main things: First, they offer very high attractive interest / yields compared to holding US dollars.  And Second, with cryptocurrencies becoming more adopted, they make a very accessible means of accessing, exchanging and storing savings where anybody with an internet connection can access and contribute to the growing digital economy.


Labels:

Comments

Post a Comment

Popular posts from this blog

using options to recover from a big move against me when buy a stock for shareholder benefits - RCL attempt to repair position

Shareholder Benefits Owning shares of a company can entitle you to special benefits when consuming products or services.  For example, Royal Caribbean Cruises (RCL) provides $100 onboard credit per Stateroom on Sailings of 6-13 nights.  With an upcoming cruise booked and most of my portfolio in cash, I decided to take advantage of this offer.  I've done a few cruises in the past and definitely enjoyed Royal Caribbean, especially having young children; and can imagine I will take more cruises with them in the future. The Purchase of Shares I didn't do any deep Fundamental or Technical Analysis, but looked at a 5 year chart seeing the stock priced at $135 before the COVID-19 pandemic, and during the pandemic reached a low of around $24.  When I purchased the shares it was $40 and dropped in price for the 2 preceding days.  Since I bought at the end of the day, I figured I would sell a call option (overwrite) the next day as the volatility was high around 85%....
Post a Comment
Read more

How does theta change through time when selling strangles? SPY, META, IEF

What is Theta? Theta is amount of value that an option position changes each day due to the passage of time.   For example, SPY closing at 411.99 and Implied Volatility (IVOL) 22.58% SPY 9/16/22 (47 DTE) Strike delta price theta 376P -0.15 3.12 -0.09 440C 0.15 1.97 -0.07 The above table shows that the 376 Put has a theta of -0.09.  This means the option will lose $9 a day (each contract represents 100 shares so -0.09 x 100 = -$9. To standardize, the theta/price is a ratio that can be used.  In our example  -$9/411.99 => -0.02%. Table of Theta for 15 delta Strangles for SPY, META, and IEF Information was pulled from market data on 7/31/2022 taking the initial strikes and seeing how the data changes for different upcoming Days to Expiration (DTE).  (15 delta Strangles for SPY correspond to 376P and 440C). SPY is the most active ETF for S&P 500. IEF is an ETF of 10 year Bonds. META is the ticker for the company formerly known as Facebook. Analysis 1) T...
Post a Comment
Read more

Trading Ethereum (ETH) merge? Are the CME Ethereum Options on Micro Futures markets reasonable?

Ethereum Merge Brief Background Most people are aware of Proof-of-Work (consensus mechanism to validate blocks on the blockchain - this is done with miners solving math problems (work)).  Ethereum, the second largest Crypto Currency is moving from a Proof-of-Work to Proof-of-Stake (consensus mechanism that validates blocks through a validator (like voting) system).   The main reason for doing this is to get away from miners wasting electricity solving useless math problems to a system that doesn't waste energy on miners.   One argument against moving to Proof-of-Stake, is that it becomes more about controlling a large number of validator nodes (so in a sense, the larger validators have more say, whereas Proof-Of-Work rewards are more 'fair' as it is randomly distributed. Either way you look at it being positive or negative, it is an event that can be traded as the current estimated merge date (the date the blockchain switches from Proof-of-Work to Proof-of-Stake...
Post a Comment
Read more