Stablecoins act as instruments that always try to maintain a steady value by either arbitrage or explicit backing, where a private or a public ledger represents it. Stablecoins are thought to be a new phenomenon in the crypto sphere. However, they are not new, except for the bit on a blockchain. The main aim of stablecoins is to overcome the shortcomings of unbacked crypto assets.
However, in the past few days, there has been a crackdown on stablecoins. We look at this war with ongoing SEC cases on such assets.
The Lawsuits Against Stablecoins
Within the past few months, the Securities and Exchange Commission (SEC) has become increasingly aggressive in its approach toward the crypto industry. And the latest one on centralized stablecoins indicates that they are yet to stop. One of the lawsuits on such entities is the Paxos (BUSD) crackdown, where Paxos is charged with violating investor protection laws.
A few days ago, the SEC charged Singapore-based Terraform Labs and Do Kwon with orchestrating a multi-billion-dollar crypto asset securities fraud.
With the crackdown mainly focusing on centralized stablecoins, it is time to look for decentralized alternatives. Even if the SEC created the lawsuits, the allegations would affect everyone, regardless of location.
Even if decentralized platforms cannot fully protect you from regulations, they appear to be the better alternative to the current regulations.
Five Algorithmic Stablecoins Safe from the SEC Crackdown
It is one of the largest decentralized stablecoins. The outstanding aspect of stablecoins is that one can mint them against many blue-chip crypto assets, including ETH, BTC, and yield-bearing assets. Additionally, DAI is issued by MakerDAO, an Ethereum-Based protocol. It seeks to maintain an exact ratio of one-to-one with the US dollar.
Besides, it is a means of lending and borrowing crypto assets without an intermediary. As such, it created a permissionless system with transparency and minimal restrictions.
$DAI acts as an ERC-720 token, which one can purchase from centralized and decentralized exchanges. The token is soft-pegged or correlated to the value of the US dollar. As such, the token’s increased price stability motivates investors to take $DAI as a viable day-to-day transactional option. This leads to the expansion of its utility.
The only concern raised against DAI is that USDC mainly backs it. As such, if USDC completely lost its peg, $DAI would be heavily affected.
$FRAX comes as the first fractional decentralized stablecoin. The coin is partially backed (mainly by USDC) and stabilized algorithmically, maintaining its peg to the US dollar. It comes into the mix as having a much better prospect for long-term viability.
The fractional algorithmic idea means that a fraction of the value deposited in USDC is held in reserve. As such, it is always ready for redemption. Additionally, the ratio can range from 1:1 to 0:1. An algorithm dynamically sets the ratio depending on market demand for FRAX.
Besides, Frax Finance uses Algorithmic Market Operations to maintain $FRAX peg stability and generate revenue. Through the bear market, the team has been building and launching many new products that increase the $FRAX utility and protocol revenue.
$LUSD- Liquity Protocol
It is the most resilient decentralized stablecoin. Liquity USD (LUSD) is a USD-pegged stablecoin that pays out loans on the Liquity Protocol. At any moment, one can redeem it against the underlying collateral at face value.
It has some features that;
- Liquity smart contract code is immutable
- Liquity smart contracts are accessible through many decentralized frontends
- One can mint LUSD only against $ETH.
- The handling of liquations is done through the stability pool.
No matter how intense the regulations are, $LUSD cannot be taken down. Additionally, due to its efficient liquidation mechanism, the minimum collateral ratio for $LUSD is 110%.
$agEUR- Angle Protocol
It is one of the most prominent decentralized stablecoins pegged to the EUR. The majority of options in the crypto market are pegged to the USD. The Euro is also a great choice. The rise of the US dollar recently led to a decrease in the interest of EUR-pegged stablecoins. However, the EUR started appreciating against the dollar, which means the trend may change.
The Angle protocol teams have been building an ecosystem of products around agEUR to increase its utility.
It is a decentralized stablecoin backed by yield-bearing assets. Built by Abracadabra.money, the MIM stablecoin is designed to be cross-chain compatible. As such, one can incorporate MIM tokens into platforms and products built on the Arbitrum, Avalanche, Ethereum, Fantom, and BSC blockchains.
Despite its shaking past, MIM has managed to keep its peg quite well, which makes it a viable option.
After the TerraUSD (UST) and the FTX exchange collapse, the SEC is moving to avoid such instances. Since those events, regulation has become stricter, and many traditional banks are no longer cooperating with cryptocurrencies or treating them cautiously.
As such, the crackdowns may not soon cease, but may escalate, which always has a devastating effect on users and investors at large.
Vincent Munene is a freelance writer and a great blockchain enthusiast. Blockchain has changed his life in terms of financial freedom and in return, he likes to educate people and keep them up to date on everything blockchain. He is a Biochemist by profession and also loves to play the piano.