Decentralizing the Stablecoin Market: Equilibrium
People generally used to trust only traditional centralized institutions like banks and government to operate with their money. But the financial crisis of 2008 broke this confidence, and the financial world has entered a new stage as a result, with appearance of blockchain and cryptocurrencies.
We can see something similar in today’s stablecoins market: the majority of stablecoins are centralized (or backed by fiat currency and real-world assets), but now decentralized stablecoins (backed by cryptocurrencies) rapidly seize a market with new names coming to the industry nearly every month.
One of these compelling projects is Equilibrium, the decentralized stablecoin framework on the EOS blockchain.
The majority of decentralized collateral-backed stablecoin solutions (almost all of them, actually) choose to build on top of Ethereum, but Equilibrium’s team chose the EOS blockchain. EOS works with highly scalable projects, it’s the second-largest blockchain platform to support smart contracts, and it also enables cross-chain solutions and multiple forms of collateral. Furthermore, EOS offers a community a voting mechanism that is at the heart of Equilibrium’s decentralized governance.
The community is in charge
Equilibrium’s vision is to give its community the rights to manage and vote on how the framework operates, and to involve them in shaping and designing new pegging algorithms through its newly launched R&D division, Equilibrium Labs.
Real crypto users know what they need for successful operation, fair fees, and reliable parity mechanisms. That’s why it’s up to the community to determine and modify key parameters of the framework that directly affect risk management and business logic processes. In order to implement these management functions, users need Native Utility Tokens (NUT). This internal currency lets its holders generate a general proposal on how to change platform parameters like the liquidation penalty or other fees.
The Equilibrium framework allows for generating EOSDT stablecoins. A user locks up his or her digital assets, and receives USD-pegged EOSDT stablecoin that are always equal to $1 USD in return. Stablecoins pegged to assets like the US dollar feature low price fluctuation and therefore allow for forecasting. This all makes them ideal for trading, hedging risks, and entering short positions. Traders get more interested in using stablecoins because it helps them cut their losses and trade without the usual volatility associated with crypto assets.
But the benefits of EOSDT and the Equilibrium platform are not only limited to traders. The market’s DApps can acquire stablecoins in different use cases, not only for trading and online payment, but also offering more stable financial tools to their users. That last one is crucial for the emerging class of decentralized finance applications growing among these numerous exchanges, wallets, games, and gambling services.
The emerging market
The existence of successful stablecoins like Tether, Gemini, TrueUSD, DAI, and EOSDT proves that this market is maturing and promising. Global stablecoin trading volume grew from $12.5 billion in 2017 to $82 billion in 2018, according to Chainalysis. According to Binance’s report, “The Evolution of Stablecoins,” stablecoins steadily alleviate the dominance of Bitcoin and Ethereum pairs. Net inflows for most stablecoins took place at the end of the first four months of 2019. For instance, USDT got the largest net inflow, with a total increase just under $1 billion USD. It’s up to almost 3% today from 1% in 2018.
In a world where traditional cryptocurrencies like Bitcoin are notoriously volatile, stablecoin projects seem to be the best solution to achieve the price stability, scalability, privacy, and decentralization necessary to push the crypto market to prosperity.