Sunday, June 16, 2024

UnStablecoins: Some Alternatives to Get You Through a Crypto Winter

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UnStablecoins: Nobody can guarantee 100% stability of their assets. But there are some alternative investments that can keep you going through a crypto winter, says Dyma Budorin, CEO at Hacken.

In May 2022, the number of Google searches containing the word “stablecoin” jumped by 4 times. Such a sudden spike in the popularity of this term is impressive since the first part of this word, namely, “stable”, hints that this coin is not subject to fluctuations. So, what is the reason behind the tremendous hype around stablecoins? Let’s try to analyze.

As you know, among the myriad of cryptocurrencies there are tokens named “stablecoin.” Their key feature is fixed value. Investors can use them as an alternative for fiat or a link between various cryptocurrencies. According to CoinGecko, there are>80 stablecoins. The most popular ones are Tether, USD Coin, Binance USD, DAI, Magic Internet Money, Frax, etc.

UnStablecoins or stablecoins?
All these stablecoins have different mechanisms behind them and, generally, may be divided into three main groups:

Backed by fiat. The projects behind these stablecoins declare having fiat reserves equal to their market capitalization. The most popular fiat-backed stablecoins are Tether and USD Coin (USDC);Backed by crypto. These stablecoins are backed by other cryptocurrencies and are issued to launch the underlying asset on other blockchains. Cryptocurrency-backed stablecoins are a more decentralized version of fiat-backed virtual assets. The most popular stablecoins backed by crypto are WBTC, DAI, EOSDT, etc.;Backed by no real assets but rather “a special algorithm” (algorithmic stablecoins). These stablecoins rely on complex algorithms to ensure their price stability. The algorithm system lowers the number of tokens when the price goes down and issues new tokens when the price exceeds the value of the asset it is pegged to. The most popular algorithmic stablecoins are FEI, Magic Internet Money, Frax, etc.
The main purpose of stablecoins is to mitigate industry uncertainty. However, in May 2022, the words “stable” and “stablecoin” ceased to be synonyms.

UnStablecoins: TerraUSD crash case
Since its peak in November 2021, the crypto market has lost almost $1.8T in market capitalization. In May 2022, the industry has experienced serious panic due to the depeg (value dropped much below $1) of TerraUSD (UST) stablecoin and the associated crash of Terra Luna.

TerraUSD relied on a complex mathematical algorithm to maintain its dollar value and was backed by its sister-token Luna. When the market entered the panic phase, investors started selling UST and the project Terra did not have enough reserves to maintain the value of this stablecoin. When UST dropped, investors lost any confidence in TerraLuna.

Within 4 days (9-13 May), the market capitalization of TerraUSD dropped from $18B to $1B while the market capitalization of Terra Luna decreased even more sharply, from $23B to $0.5B. Following this crash, there were many posts made by crypto investors in which they admitted to losing a fortune. For example, $1.9M held by @TheMoonCarl in Luna are now worth $40,000 per month. Why does it matter to you?
An alternative to stablecoins
The company Hacken has introduced an alternative for stablecoins called ETD (Engineer Team Day) that is backed by the time of the company’s smart contract auditors. It is the solution for projects interested in keeping their assets in Web 3.0 even during the crypto winter. 1 ETD can be used to pay for 1 workday of Hacken’s smart contract auditors team. Even if the cost of labour jumps or any other circumstances arise, holders will get the same scope of services for their ETDs. Buying ETD allows crypto and blockchain projects to fix the cost of a smart contract audit at the time of purchase thereby making ETD a long-term investment.

Generally, the crash of one of the biggest stablecoins is a warning sign for every reputable crypto player and investor. The main concerns around stablecoins are lack of accountability and insufficient transparency and until these concerns are addressed, the question “Next stablecoin crash: is it possible?” will remain open.

Even if a next stablecoin crash does not take place, it is recommended to diversify your portfolio by adding some alternatives. Crypto projects with long-term plans may consider getting ETD by Hacken. Cybersecurity solutions will always remain in demand in Web 3.0 and the greater the users’ awareness of cybersecurity, the higher the demand for security testing.

About the author

Dyma Budorin is the CEO at Hacken, a Web 3.0 cybersecurity company. Dyma is a blockchain economy influencer who is actively promoting the development of the virtual assets market in Ukraine in cooperation with the Ministry of Digital Transformation of Ukraine. In 2021, Dyma became one of the top-55 Ukrainian IT entrepreneurs according to the reputable Eastern European media outlet.

Got something to say about the cash prediction mentioned here, or anything else? Write to us or join the discussion in our Telegram channel. You can also catch us on Tik Tok, Facebook, or Twitter.

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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