Editor’s note: This article from the blue fox notes (ID:lanhubiji), the author: Mathan Sexer (VariabL CCO), this article from the medium.com, the blue fox notes the number of public community “Chanteur”, the daily planet Odaily authorized reprint.
About 10 years ago, a paper Nakamoto released birth we know today’s block chain. Since then, the block chain to attract a lot of attention. Digital currency and block chain technology was originally seen as an evil only for anti cultural elements, but now has been widely regarded as potential enterprises and government support of the new economy.
In 2017, people rise to the center of interest in technology. The global money market valuation of encryption has never been so high.
Even now, many people see clearly the blockchain technology will enter the mass market, and block chain assets and encryption currency may bring impact on all walks of life, but in some respects will continue to discourage the mainstream crowd:
Highly speculative market, price volatility is great.
Uncertain regulatory attitude leads to many gray areas, no clear regulatory stance to enable enterprises to establish legitimate and credible solutions.
The efficiency of block chain technology can meet the application of global solutions, so as to compete with the center? Not sure (Visa = 2000tps VS bitcoin = 3tps).
The L user experience
Safety of possession and use of encryption currency is a challenge for most people, but also block chain service usability is not good.
These four aspects are the key to restrict the development process of digital assets in ecosystem factors. In this paper, we focus on the volatility of digital assets, which may be the four aspects in one of the most challenging.
In traditional markets, hedge is a financial strategy, aimed at reducing the risk through the balance of market position, to prevent fluctuations. For example: with the stock investors can put option to buy the securities in the industry or other related businesses to hedge the risk of falling stock.
In the hedge to the center of the proposal, we will discuss the stability of currency, it is considered that the encryption of hedging solutions. At the same time, the next step in the exploration of financial alternatives before, we need to first understand the relevant knowledge of currency stability.
The currency has three main purposes: a medium of exchange, store of value and unit of account. But the volatility of digestion all these three aspects, the encryption and encryption of monetary assets cannot be used for money.
Although be the only goal of a currency is not the blockchain technology, but to ensure the stability of the block chain is the key to the development of ecological system. Volatility poses a challenge to the economics of encryption mechanism, cost and incentive measures have become difficult to predict.
After determining the characteristics of stable currency explain briefly, we will introduce the existing project, the limitations of these models and to study the.
I. brief introduction of currency stability
Because of the volatility of currency as a store of value, encryption cannot be widely used. They are due to the great fluctuation, so it is not suitable as a medium of exchange or unit of account. In fact, if the value of digital currency fell sharply in second days, so it is impossible for any enterprise to accept digital currency. It also allows anyone to accept it as a unit of account, because people for it may be worth much money or how much the value of no consensus. According to the definition, measure unit should remain stable. Therefore, the volatility of monetary assets will become speculative encryption encryption. If less volatility, encryption assets may have a wider audience.
Fluctuate for many reasons, including:
Changing public opinion
The emergence of new markets
Static monetary policy
The definition of stable currency
Stable currency is encrypted assets, it can maintain its target price for the stable value (e.g. $). Stable currency for any (Center) application design, need to achieve low threshold fluctuation.
Use case scenarios
In the following scene case, the volatility of the digital currency must be reduced:
1. for the payment of the transfer fee;
2. for all commercial payment, payment, or to accept the daily currency low volatility crypto currency business;
3. paid the rent, or any other regular payment;
4. loans and market forecast (long-term issue);
5. trade and wealth management. This situation requires a stable currency, because they:
– to us dollar clearing transactions on the par value, but not bitcoin or etheric fang;
The currency exchange rate – (instead of Ethernet square or bitcoin calculation);
– through a simple display currency fluctuations, make it more convenient visual, more convenient for application;
– there is an arbitrage opportunity.
6. value for long-term storage, such as miners Hedge: can be used to pay for the recurrent expenditure to ensure a stable income.
In other words, any want from the block chain technology advantage (transparent, safe, can not be tampered with) benefit, and does not want to lose money (stable and credible) characteristics of the people, all need a stable currency.
There are three main types of currency stability, many articles have been discussed in detail, we will analyze in the following profile.
“Stablecoins: designing a price-stable cryptocurrency via:Haseeb Qureshi
Legal tender Mortgage: “IOU stable currency center”, provided by the legal tender and collateral;
Encryption Mortgage: “IOU stable currency to the center of the” collateral by encryption currency;
No mortgage: seigniorage / bank / shares to the center of the mechanism to realize stable algorithm.
Overview of currency stability
This “stable currency review” has not covered all kinds of currency stability, also did not assess the validity and feasibility of these projects of the team. We try to make a more detailed overview, but will not keep it updated. The reader should keep the spirit of doubt, before investing in any of the following tokens in use or due diligence projects. Note that the hybrid project may belong to multiple categories of currency stability. (Translation: the author emphasizes some of the items mentioned below may not be entirely reliable, the reader must do in the investigation before any purchase or investment decision. In addition, because the article published in the year, part of the project development there has been a change).
1) the center, collateral IOU stable currency (FabI or guaranteed by traditional assets as reserves)
Encryption currency (AAA) as cash, gilts and AAA credit investment guarantee, in order to maintain the stability of the currency. The project mainly for large transactions (> $25000). [2018 on-line in January.
Digix Gold Tokens
DGX is with the gold linked token. 1DGX equivalent to 1 grams of gold, gold reserves in a vault in singapore. [2016 started to raise the public square in the etheric, raised more than 465000 Ethernet fang. Launched in January 1, 2018.
EURS (Stasis operation)
EURS is a stable currency with EIP-20 protocol, security, with the euro as verification, supported by STASIS. [2018 on-line in July.
Tether (formerly Realcoin)
USDT is a stable currency supported by USD, based on the Omni issue, is currently the most widely used currency stable. [2015 on-line in February.
TrueUSD (run by the TrustToken team)
Based on the Ethernet square on currency TUSD stable focus on solving the issue of transparency, to guarantee the dollar. [2018 on-line in March.
In the R & D project
GLX will be kept stable currency and the currency basket peg.  will be released at the end of the year
Jibrel (run by Jibrel Network)
Stable currency jUSD and jEUR in a variety of assets as collateral, based on Ethernet square chain block. [Alpha – pending release]
PHI (dfinity-network operation)
IOU PHI with stable currency loan collateral, to maintain stable value through the algorithm. [time] to be released
SGA by assets as collateral, the regulated banking institutions in the reserve of SDR (a basket) the value of stability. [time] to be released
StableUSD is a stable currency reserves as a guarantee, on the basis of open market operation to adjust supply. [in the Beta stage – pending release time]
Stronghold USD (run by Stronghold and IBM)
USD Token is composed of a variety of legal tender currency stability guarantee, issued by the United States based on the Stellar network, the Federal Deposit Insurance Company (Federal Deposit Insurance Corporation) support. [time] to be released
USD Coin (by CircleCENTRE operation)
The legal Token (USDC) is used to encrypt the payment and transaction (which uses the CENTER framework, this framework relates to the real world reserve currency stable project, it is published by the members of the CENTRE network and the CENTER audit). [time] to be released
X8X is a package of legal tender and physical gold reserves as a stable currency guarantee. [time] to be released
2) half to the center, collateral IOU stable currency (by encryption asset-backed)
Including BitUSD and BitCNY smart tokens, a variety of the value of the assets by using derivatives (including encryption assets) to provide security. [2014 on the line, the first stable currency project has a long history.
Stable currency nUSD by cost, distributed collateral pool and issuing mechanism together to provide security (similar to the seigniorage shares model). [2018 on-line in June.
DAI is a stable currency to the center of the ETH system, to keep prices stable, and with a variety of assets as collateral (currently only in ETH, but the next goal is the creation of more collateral version). DAI by the MKR holder to maintain price stability, and similar derivatives. [2017 on-line in December.
StatiCoin is using ETH as a stable currency guarantee, the system by matching buy token to buy StatiCoin stable currency speculators and hedgers to keep prices stable. [2017 on-line in October.
In the R & D project:
SDUSD coin based on NEO block chain, composed of legal tender and encryption currency to pool of assets as collateral. [plans to release in the 3 quarter of 2018.
Stable currency A-EUR the euro as the price stability target, stability mechanism aims to use stable reserves and smart contracts to copy the yuan. During the release period [planned for the 3 quarter of 2018 to the 2 quarter of 2019.
Boreal (aurora-dao operation)
Stable encryption assets Boreals by Ethernet Fang reserves, debt and guarantees common DAPP endorsement. 3 plans to launch  quarter
The stability of currency and currency pegs, provided by the asset reserve diversification, encryption and security audit of excess mortgage. [time] to be released
Reserve (Reserve Research run by Team)
The stability of currency by locking in intelligent contract encryption assets to maintain price stability, is “complete” to the center of the. [time] to be released
Bridgecoins is a chain of stable currency by collateral. [time] to be released
The stability of currency by a variety of encryption and simple monetary reserve mechanism as a guarantee. [in the Beta] release time to be determined
3) seigniorage shares stable currency
(similar to the part to the center of the bank), and the use of flexible supply mechanism. They usually involve some mortgage positions, and the stable mechanism of complex algorithm.
Crypto currency BAY is designed by dynamic hook to achieve stable, dynamic linked to its use of “flow” and “frozen” tokens and to the governance center.  launched in 2015
USNBT encryption currency to maintain the price stability by issuing mechanism and regulatory subsidies.  launched in 2014
SteemDollar (Steemit operation)
SBD is a stable currency token Steem block chain. It is based on a convertible note system, can keep the dollar exchange rate is 1:1.  on the line
In the research and development project
Basis (formerly Basecoin)
Similar to a central bank issued currency stability based on Intelligent contract, through the issuance of bonds to control the price rise and fall. [release date: TBD, has announced the shutting down]
Carbon is a flexible supply supervision mechanism based on the Hedera, Hashgraph provides support for encryption currency. [time] to be released
The encryption currency through the automatic inflation / deflation control mechanism to maintain price stability. [in the Beta stage – pending release time]
USD Fragments is a stable with token reserves and money supply strategy audit (low volatility). [time] to be released
Kowala (run by Kowala Tech)
KCoin encryption algorithm and Oracle through currency based on the market to maintain the price stability of the currency, assets and other assets of the type of encryption. [in the Beta stage – pending release time]
Stable currency Polys by a basket of assets as collateral, through the Topl foundation distribution and exchange of tokens to maintain price stability. [time] to be released
STB token by flexible supply and demand mechanism to curb inflation is to maintain price stability. [time] to be released
The token price through a variety of mechanisms to maintain stable stability, including encryption currency reserves in a distributed autonomous organization and application of a variety of monetary system. [plans to release in the 1 quarter of 2019.
The encrypted currency to a basket of currencies (such as SDR) and assets linked to the algorithm and the elastic center of the supply mechanism to keep its value. [time] to be released
The limitations of currency stability
Of course, due to the intrinsic mechanism of stable currency, it also has many limitations inherent. They know these limitations will contribute to a better, and put forward a better solution. We can solve these problems, may even put forward a comprehensive new solution to achieve this goal.
There have been many defects and limitations of the stable currency. For example, Preston Byrne is the famous negative, it had strong negative attitude on the stability of currency.
Let’s study of these restrictions:
1. stable currency pegged to the dollar (such as Tether) Limited
A single point of failure is possible, which is a growing source of risk. That led to the center of the weakness in the solution to me in the field: “they don’t block the chain like is exposed to hackers honeypot, because they are responsible for the daily transactions and billions of times, most of the transactions stored in the server.”
There is no transparency
Trust is very difficult, or even impossible. In addition, the actual cost and the process is opaque, and may be because of mismanagement and extreme demand leads to higher cost and delay.
To ensure that there is sufficient to meet the user’s cash deposit or.
There is no contract rights or legal statement requires us redemption or exchange your Tether. We can’t guarantee that we have any right of redemption or exchange Tether. When you purchase, exchange, sale or redemption of Tether, we can’t guarantee that you will not be lost.”
The cost of mortgage
Storage, transportation, auditing and law etc..
2. and the stability of currency asset based encryption (e.g. DAI) limited:
The volatility of collateral
For mortgage (such as ETH) encryption of the assets are not stable, making it difficult to maintain a hook.
Unable to resist the black swan event
If used to support stable currency currency is facing a huge decline of encryption, collateral itself could not escape the crash.
A need to go to the center of the “price supply” Oracle, but has not yet appeared.
Before the Oracle, the “center” solution will bring security vulnerabilities, also make the existence of huge could be controlled.
Need excess mortgage
For example, stable currency $1 worth more than $1 to ETH as collateral, usually $2 or $3.
3. kinds of stable currency seigniorage shares limited
Go to the center of the (price) Oracle is only without trust
Just like any other dApp (except for the price stability is the center of the coin completely).
Monetary policy is still complex and uncertain, it was unconfirmed
The description of the incentive measures may not be sufficient.
The price stability is usually maintained by a central mechanism
For example, similar before Basis such centralized reserve mechanism.
Only a small number of projects launched
But one of the most experienced in the decline of high volatility and value, only from the white paper is difficult to understand the situation of other projects (stable currency is also applicable to other categories).
Stable currency in encrypted currency of the “Holy Grail” is known, and may significantly reduce the threshold to enter the market, resulting in widely used block chain technology. As this paper shows, there are many different ways of stable currency projects have been launched or are in the pipeline, but so far has not done a particularly good.
Among them, Tether is in the leading position in the market, but MakerDAO is by far the most eye-catching to the center of the challenger. However, the latter credibility on a large scale and effectiveness remains to be shown, because it still has mainly limited the founding team admit (such as in the black swan event can keep much of the robustness).
The volatility for block chain technology and encryption using the currency is still a huge obstacle. To solve the problem of the number of items to prove the fact. Stability is the key to the problem, and once achieved, will lead the new encryption “gold rush”.
In fact, once a stable currency began to play the basic role of money, we can imagine a go to the center of the world economy, it has encryption mechanism effectively, provide support for all kinds of applications conforming to the trend of the. To some extent, it will make up by Web 2 and promote the currency driven by encryption assets web the gap between the 3.
That is to say, considering the existing limitations, the final solution may not be stable currency digital currency price fluctuations. Create a new crypto currency is to improve the correct encryption scheme currency’s current situation? We really need a token? These problems are not immutable and frozen, we should also ask questions.
Other solutions from the traditional world, such as insurance or financial products, may also be a good idea. More specifically, in the encryption currency hedging solutions, various derivatives will become the biggest rival stable currency.
In the center of the solution, the most famous is the CME and CBOE provide solutions. Some other projects use block chain technology to provide such services. For example: SchellingCoins and VariabL, they can provide derivatives for hedging, through CFD issued stable positions managed. This method shows the prospect of concern. Of course, no model is perfect, only time will tell which method can have the last laugh.