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Web3 Encyclopedia
  • Welcome aboard!
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  • 😀Evolution from Web 1.0 to Web 3.0
    • Web 1.0 Web 2.0 Web 3.0
    • Key Features
    • Current Limitations
    • Future of Web 3.0
    • Learn: What Is Web3?
    • Learn: Will Every Brand Have a Web3 Strategy?
    • Learn: Big Ideas in 2023
    • Learn: The Web3 Paradox: Why Scaling Usage Alone Won't Lead to Mass Adoption?
    • Learn: Is Web3 A Marketing Buzz or Tech Revolution?
    • Learn: What is the relationship between blockchain and Web3?
    • Learn:Empowering Women in Web 3.0: The Role and Contributions of Women in Blockchain, DeFi, and dApp
    • Learn: Web 3.0 and the Future of E-Commerce
    • Learn: 12 ways ecosystem projects can attract more developers
    • Learn: How Web3 is Impacting Education?
    • Learn: Web3 And The Future Of Digital Advertising
    • Learn: Web3’s impact on personalization, trust and engagement
    • Learn: Web3-Powered Identity Management -- Unlocking the Benefits of Decentralization
    • Learn: Why Web2 companies fail in Web3 while others made it?
    • Learn: To Identify or Not in a Web3 World?
    • đŸ€«[Insider Series] McKinsey x Web3
    • TL;DR 👀
  • đŸ’ČBlockchain Fundamentals
    • Why is Blockchain So Popular?
    • Introduction to Blockchain
    • Blockchain Misconceptions
    • Blockchain vs Bitcoin, Database, Cloud
    • Consensus Mechanism
    • Public and Private Keys
    • Hash Functions and Cryptography
    • Sharding
    • Types of Blockchains: PoW, PoS and Private
    • Understanding Cryptocurrency
    • Coins vs Tokens
    • Blockchain Trilemma
    • Legality
    • Learn : Google’s Cloud Based Blockchain Node Service
    • Learn: How Blockchain, Digital assets, and Web3 Unlock Financial Inclusion Globally
    • Learn: Will Chinese-Made Crypto Soar Higher?
    • Learn: What Does MiCA Mean for Crypto in Europe?
    • Learn: Unraveling the Intricacies of Blockchain Forensics and Asset Tracking
    • Learn: Promising blockchain use cases in healthcare industry
    • Learn: The Role of Blockchain in Authenticating and Provenance Art
    • Learn: Blockchain-Based Digital Identity: Benefits, Risks, and Implementation Challenges
    • Learn: The Future of Energy Supply Chains
    • Learn: Revolutionizing smart contracts and cryptocurrency
    • Learn: Nigeria goes blockchain
    • Learn: A Game Changer for Online Gaming?
    • Learn: Is blockchain technology ready for high-storage applications?
    • Learn: Will Blockchain Technology Mark a Turning Point in Fraud Prevention?
    • Learn: Why ZK-rollups need data availability?
    • Learn: How will generative AI disrupt blockchain?
    • Learn: A New Blockchain for Generative AI?
    • TL;DR 👀
  • đŸŸïžWeb3 Utilities
    • Decentralized Applications (dApps)
    • Cross-chain Bridges
    • DAO
    • Artificial Intelligence
    • Learn: Is Community-building Essential for Web3 Startups?
    • Learn: ‘Decentralization Theater’
    • Learn: Crypto and AI- A yay or nay combination?
    • Learn: Dissecting the DAO
    • Learn: What is motivating Lido DAO to rise?
    • Learn: How to Turn Your Community Into a DAO?
    • Learn: The Key to Decentralized Decision Making
    • Learn: How Web 3.0 can disrupt the supply chain industry?
    • TL;DR 👀
  • đŸȘ™Bitcoin
    • What is Bitcoin
    • Bitcoin's Blockchain Technology
    • UTXO Model and Transaction Fees
    • Bitcoin Mining and Mempool
    • Learn: What is bitcoin mining?
    • What are Hard Forks and Soft Forks
    • What is SegWit and the Lightning Network
    • Bitcoin Ecosystem
    • Can Bitcoin be Destroyed? Game Theory and Network Attacks
    • Learn: Crypto token supplies explained
    • Learn: What is crypto tax-loss harvesting, and how does it work?
    • Learn: Can Crypto Go Green? How to Invest in Eco-Friendly Cryptocurrencies
    • Learn: Why Did FTX Collapse? Here’s What to Know.
    • Learn: How Sam Bankman-Fried swindled $8 billion in customer money?
    • Learn: How much is Bitcoin worth today?
    • Learn: The Costs of Running a Bitcoin Node In Nigeria
    • Learn: Has 2022 Left Any Crypto Positives?
    • Learn: How Crypto Exchanges Can Be Free of Risk?
    • Learn: Greed, Lies and FTX: Is Crypto a Force for Good or Evil?
    • Learn: Is Crypto a Cultural Movement?
    • Learn: What are the consequences of crypto’s ongoing regulatory process?
    • Learn: Beyond the Crash and Embracing NFTs?
    • Learn: Understanding crypto bag holders and their mindset
    • Learn: Inscriptions: Just A Fad, Or A Real Threat To Bitcoin Becoming Decentralized Money?
    • Learn: How Bitcoin Ordinals Can Change the Future Of Mining?
    • Learn: What is a supernet?
    • Learn: Bitcoin Miners Celebrate 10 Years Since First ASIC, What Changed Since Then?
    • Learn: Bill Vs. CBDC – Why This US Congressman Wants To Block The Fed From Issuing A Digital Dollar?
    • Learn: Why Bitcoin Will Blow People’s Minds In 2025?
    • Learn: How the Howey Test Sheds Light on Cryptocurrency's Regulatory Gray Area
    • Learn: Cryptocurrency vs AI: A Complex Debate
    • Learn: Where the U.S. Government Went Wrong in Regulating Crypto?
    • Learn: The Nostr Privacy Paradox
    • Learn: Do algorithmic stablecoins have a future as centralized coins are under scrutiny?
    • Learn: Is Bitcoin Set To Revolutionize The Financial World With Its Superior Purchasing Power?
    • Learn: What is Shibarium, and what does it mean for Shiba Inu?
    • Learn: What is a crypto dusting attack?
    • Learn: Is the Adoption of Central Bank Digital Currencies (CBDCs) the Future?
    • Learn: How Artificial Intelligence Could Revolutionize Crypto?
    • Learn: What’s next for EU’s crypto industry as European Parliament passes MiCA?
    • Learn: Why the EU Has MiCA and the U.S. Has Securities Law Confusion?
    • Learn: Six New Projects Looking to Mitigate Bitcoin Mining’s Energy Footprint
    • Learn: Who on Crypto Twitter chose not to pay for a blue checkmark?
    • Learn: What is the wash-sale rule in Crypto?
    • Learn: What is Pepecoin and can it flip memecoins Dogecoin and Shiba Inu?
    • Learn: Can you recover stolen Bitcoin from crypto scams?
    • Learn: What the ‘anti-mining bill’ means for the crypto industry in Texas?
    • Learn: Does the US have a crypto ‘tax loophole’ problem?
    • Learn: How users can stay protected?
    • Learn: How Crypto Revolutionize Cheaper and Faster Transactions?
    • Learn: Can NFTs and CFDs be BFFs?
    • Learn: A PR expert’s tips for memecoin projects
    • Learn: Why politicians aren't convinced about the Digital Euro?
    • Learn: How A 90-Year Old TA Theory Predicted The Sudden Bitcoin Boom?
    • Learn: Social Trading Platforms and CFDs: A New Paradigm in Investment
    • Learn: How could the Chinese economic crisis impact Bitcoin and crypto?
    • Learn: How do they compare: Bitcoin IRA vs. traditional IRA?
    • Learn: Why Tokenized Assets Are Safer During a Banking Crisis?
    • TL;DR 👀
  • đŸ›ąïžEthereum
    • Bitcoin vs Ethereum
    • What can Ethereum do?
    • What is Ether (ETH)?
    • What's Unique About ETH?
    • What are Smart Contracts?
    • Energy Consumption?
    • Ethereum Virtual Machine (EVM)
    • Pros & Cons of Smart Contracts
    • Decentralized Applications (dApps)
    • Ethereum Token Standards (ERC-20, ERC-721 and ERC-1155)
    • Evolution of Ethereum
    • How to Get Your First Ethereum
    • Learn: Next Ethereum Upgrade — Shanghai Upgrade
    • Learn: Tipping Scale for Crypto Adoption: Usability vs. Accessibility
    • Learn: Major Publicly Traded U.S. Bitcoin Miner Files For Chapter 11 – Impact On The Market?
    • Learn: 5 altcoin projects that made a real difference in 2022
    • Learn: How Tether Can Be a More Stable Stablecoin?
    • Learn: Are the Ethereum Killers Still Deadly?
    • Learn: What Ethereum Tech Trends Are Weathering the Bear Market?
    • Learn: How Ethereum’s token burns are making it a deflationary cryptocurrency?
    • Learn: A few things to know about Ethereum's Shanghai Upgrade
    • Learn: The Role of Enterprise Ethereum
    • Learn: Understanding Layer 2 Scaling Solutions for the Ethereum Network
    • Learn: The Battle of Giants: Bitcoin vs Ethereum
    • Learn: Cryptography, Smart Contracts and Distributed Networks
    • Learn: The Memecoin Grift and How It Threatens Ethereum Culture
    • Learn: What Is Ethereum’s ‘Data Availability' Problem, and Why Does It Matter?
    • TL;DR 👀
  • 👛Wallet
    • What is a Blockchain Wallet?
    • Hardware / Software Wallet
    • How to Get Your First Cryptocurrency
    • Setting up Metamask Wallet
    • Learn: How to connect the Avalanche network to MetaMask?
    • Learn: How to pass on your crypto when you die?
    • Learn: What are hierarchical deterministic (HD) crypto wallets?
    • Learn: Pros and Cons of Digital Wallets
    • Learn : How Web 3.0 Wallets Are Redefining Digital Asset Security?
    • Learn: Open source: Buzzword or real security for crypto wallets?
    • TL;DR 👀
  • 🌕New & Rising Protocols
    • Binance
    • NEAR
    • Solana
    • Fantom
    • Polygon
    • Cardano
    • Polkadot
    • Cosmos
    • Harmony
    • Cronos
    • Optimism
    • Terra
    • Who Will Win the L1 Wars?
    • Learn: New Layer 1 Blockchains Are Expanding the DeFi Ecosystem But No Eth Killers Yet
    • Learn: Is an Increased Focus on Layer-2 Scaling and ZK Technology Justified?
    • Learn: What Are the Stakes in the SEC vs. Ripple Case?
    • Learn: What is The Graph, and how does it work?
    • TL;DR 👀
  • 📈Decentralized Finance (DeFi)
    • CEX vs DEX
    • CeFi vs DeFi
    • Algorithmic Stablecoins
    • Airdrop
    • Liquidity Pool
    • Impermanent Loss
    • Swapping
    • Wrapped Token
    • Arbitrage Opportunities
    • Staking
    • Yield Farming
    • Total Value Locked (TVL)
    • Gas Fees
    • Lending & Borrowing
    • Useful Tools
    • Activity: Uniswap & Pancake Swap
    • Learn: Automated Market Makers (AMMs) in DeFi
    • Learn: Crypto Moving towards ESG: What Is Regenerative Finance (ReFi)
    • Learn: What Is dYdX? Understanding the Decentralized Crypto Exchange
    • Learn: It's A Wrap - DeFi in 2022
    • Learn: Why DeFi should expect more hacks this year?
    • Learn: The Security Challenges of DeFi
    • Learn: The Promising Future of Decentralized Social Media on Web 3.0
    • Learn: Can CBDCs, Tokenized Deposits, Stablecoins and DeFi Coexist?
    • Learn: The Increasing Popularity of DeFi and Its Potential to Disrupt Traditional Finance
    • Learn: The future of DeFi is ReFi
    • Learn: DeFi aggregation
    • TL;DR 👀
  • 🙈Non-Fungible Token (NFT)
    • What are NFTs?
    • Case Study
    • Storage
    • Who are the Players?
    • NFT Marketplace
    • NFT Useful Resources
    • Activity: Mint Your Own NFT
    • Learn: How You Can Prevent Hackers From Stealing Your NFTs?
    • Learn: What Is an NFT Floor Price?
    • Learn: Should Bored Ape buyers be legally entitled to refunds?
    • Learn: China’s view of NFTs different from rest of the world’s
    • Learn: NFTs IRL: How Digital Collectibles Are Forging Offline Experiences
    • Learn: How NFT Brands Can Cut Through The Noise
    • Learn: How Web3 disrupts the music sector?
    • Learn: Unlockable content in NFTs
    • Learn: Why Meta Matters in NFTs?
    • Learn: Should NFT Marketplaces Become Centralized?
    • Learn: HermĂšs vs. MetaBirkins: The NFT Case That Could Have Major Trademark and Artistic Consequence
    • Learn: What are phygital NFTs, and how do they work?
    • Learn: What is NFT ticketing and how does it work?
    • Learn: Why Solana NFT marketplace is seeing less active users?
    • Learn: NFTs and Intellectual Property
    • Learn: How AI Is Changing Artistic Creation and Challenging IP Laws?
    • Learn: The Future of NFTs: Exploring Dynamic NFTs and Their Versatile Use Cases
    • Learn: NFTs in the event and ticketing industry
    • Learn: What is NFT rarity, and how to calculate it?
    • Learn: What happens to your NFTs when you die?
    • Learn: Dogecoin-Like Spike in Milady NFTs After Elon Musk’s Tweet, But Will It Last?
    • Learn: What are NFT royalties, and how do they work?
    • Learn: How developers aim to store crypto inside NFTs?
    • Learn: Generative Art NFTs: What Are They & Why Are They So Popular?
    • TL;DR 👀
  • 💗Metaverse
    • What is the Metaverse?
    • Metaverse Economy
    • Metaverse Companies
    • GameFi
    • Learn: Are We in the Metaverse Yet?
    • Learn: Can the Metaverse exist without blockchain?
    • Learn: Can the Metaverse Facilitate Sustainable Growth of Defi Systems?
    • Learn: What is the role of biometrics in the metaverse?
    • Learn: Can metaverse be the future court?
    • Learn: Metaverse Fashion Is on the Rise, but for Whom?
    • Learn: Sustainability in the Metaverse: Challenges and Opportunities
    • Learn: How To Build A Responsible Metaverse?
    • Learn: What is a VTuber, and how do you become one?
    • Learn: How proof-of-identity provides human experiences?
    • Learn: The “Metaverse” Next Frontier for Business: Impact And Challenges
    • Learn: The 5 Biggest Misconceptions About The Metaverse
    • Learn: Why culture and ownership are critical to the metaverse?
    • TL;DR 👀
  • đŸ‘ŸCareer in Web3 (coming soon)
    • Developers
    • Moderators
    • Community Managers
    • UI/ UX Designers
    • Digital Fashion Designers
  • đŸŒ±Sustainability (Coming Soon)
    • Industry Effort
    • Co-author
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On this page
  • Decentralized stablecoins have a tainted past
  • Crypto exchanges are integrated with fiat-backed stablecoins
  1. Bitcoin

Learn: Do algorithmic stablecoins have a future as centralized coins are under scrutiny?

Fiat stablecoins are too deeply rooted in exchanges for algorithmic stablecoins to rise, according to some experts.

PreviousLearn: The Nostr Privacy ParadoxNextLearn: Is Bitcoin Set To Revolutionize The Financial World With Its Superior Purchasing Power?

Last updated 2 years ago

Binance’s native stablecoin — Binance USD — was the third-largest stablecoin pegged to the United States dollar, minted by blockchain infrastructure platform, the Paxos Trust Company, through a transfer of technology agreement between the two firms.

However, on Feb. 13, the New York Department of Financial Services any new BUSD tokens.

The move came just days after the United States Securities and Exchange Commission issued a Wells notice alleging BUSD violates securities laws.

Binance CEO Changpeng Zhao even predicted that regulatory clampdowns would force several other crypto businesses to in the near future, and look for alternative tokens pegged to the euro or Japanese yen.

Zhao’s comments came during a Twitter AMA (ask me anything) session where he said that although gold is a good backing option, most people’s assets are in fiat currencies. He admitted that the U.S. dollar’s dominance in international markets makes it a go-to fiat currency, which is one of the main reasons behind the popularity of dollar-pegged stablecoins. However, regulatory action against such assets might make way for other stablecoins.

Zhao also talked about the role of algorithmic stablecoins, many of which are largely decentralized, and said that these types of stablecoins might play a more prominent role in the crypto ecosystem in the future but are inherently riskier than fiat-backed tokens.

Algorithmic stablecoins are not traditionally collateralized; instead, they use mathematical algorithms often linked to a tokenomics model rather than backed by a real-world asset like the U.S. dollar.

Most algorithmic stablecoin projects use a dual token system: a stablecoin and a volatile asset that maintains the stablecoin’s peg by maintaining the demand and supply system that keeps the stablecoin’s value unchanged. To mint a specific value of the stablecoin, an equal amount of the native token or volatile token is burned.

Following the regulatory action against BUSD, Binance turned to several alternative stablecoins, including a few decentralized ones, to fulfill its stablecoin-centered liquidity needs. From Feb. 16–24, Binance minted 180 million TrueUSD (TUSD) stablecoins.

Binance minted TrueUSD after BUSD’s ban. Source: Twitter

Decentralized stablecoins have a tainted past

While algorithmic stablecoins stay true to the crypto ecosystem’s decentralized values, their real-life implementation has had a troubled history, especially with the collapse of the Terra ecosystem and its algorithmic stablecoin TerraUSD (UST), now called TerraClassicUSD (USTC).

Terra’s algorithmic stablecoin was once seen as the prime example of how a decentralized stablecoin could make it to the mainstream. However, after its depeg and subsequent ecosystem collapse, it has cast doubt on the future of such stablecoins.

With centralized stablecoins under regulatory scrutiny and confidence in algorithmic stablecoins demolished, what does the future of a decentralized stablecoin look like? Is there a future at all?

Hassan Sheikh, the co-founder of the decentralized incubator platform DAO Maker, told Cointelegraph that a shift to decentralized stablecoins would not be in the form that people may expect. Centralized exchanges are highly vertically integrated, creating chains, wallets, staking solutions, mining ops and more.

“Any decentralized stablecoin to be adopted by exchanges is not yet on the market. It won’t be DAI or the like. The market caps aren’t significant enough to have the necessary network effect,” Sheikh said, adding, “Exchanges would be likely to fork off protocols like Maker and push for the traction of their controlled ‘decentralized’ stablecoin for that value capture. The decentralized stablecoin on exchanges wouldn’t be truly decentralized, and it most likely doesn’t exist yet, as the major ones would likely pursue their own.”

Talking about BUSD’s regulatory troubles, Sheikh said that it was merely the first test of people’s willingness to shift to a new exchange-issued stablecoin. If proven, the market will shift. Expecting a Binance version of DAI is reasonable, he added.

Sheikh also shed light on the major issues with decentralized stablecoins currently in the market. He said that the majority of these stablecoins are so deeply rooted in USDC that they’re hardly decentralized.

If anything, “the aura of their marketing as decentralized is now wiped out with the recent struggles of USDC, which quickly eroded the peg of DAI. The switch to a decentralized stablecoin is too distant as the to-be dominant stablecoin doesn’t exist yet. Exchanges are supporting these purely for volume profits. The few BTC/DAI and similar pairs that do exist are so weak in an activity that the foreseeable future doesn’t show any sign of a shift to decentralized stables across major liquidity partners,” Sheikh said.

Crypto exchanges are integrated with fiat-backed stablecoins

Fiat-backed stablecoins have become a lifeline in today’s crypto world. In the early days of crypto exchanges, these stablecoins acted as an onboarding tool for many traders, and in the last decade, they have also become a key liquidity provider.

“Fiat-backed stablecoins are so deeply rooted in exchanges that it’s highly unlikely to expect a mammoth shift despite the regulatory scrutiny.” Shiekh told Cointelgraph.

Abdul Rafay Gadit, the co-founder of crypto trading platform Zignaly, told Cointelegraph that despite the recent USDC depeg, crypto trading platforms still prefer U.S. dollar-pegged stablecoins.

“I personally believe that [Tether] USDT is the best stablecoin at this moment, carefully pegged 1:1 and kind of away from unfair regulations as well. USDC was unfortunate because of its ties to SVB [Silicon Valley Bank]; otherwise, they run a great business,” he said.

He told Cointelegraph that centralized stablecoins are lifelines to the crypto ecosystem, and despite the regulatory pressure, they will continue to be a dominant force.

Gadit said that exchanges might move away from the U.S., but fiat-backed stablecoin will continue to rule:

“BUSD action looks like victimization to me; I think it’s uncalled for and totally unfair. Going forward, stable issuers will try to stay away from the U.S., just like USDT issuer Tether operates out of Hong Kong.”

Tether continues to dominate the stablecoin market despite ongoing regulatory scrutiny against many other U.S. dollar-pegged stablecoins. Industry experts believe that even though decentralized stablecoins look promising, their real-world implementations have been questionable. Thus, centralized stablecoins will likely continue to dominate the crypto market.

Decentralized stablecoins were first popularized in the decentralized finance (DeFi) ecosystem with the creation of Dai by MakerDAO. DAI maintains its peg through a smart contracts system governed by a decentralized autonomous organization (DAO). Although DAI has remained true to its decentralized values, it was caught up in the recent along with the Circle-issued USD Coin.

Decentralized stablecoins suffered a heavy setback from the Terra saga, and the reputation of such stablecoins was tarnished further by the actions of Terraform Labs co-founder Do Kwon. Kwon evaded law enforcement agencies while maintaining that the debacle was not his fault, despite on-chain suggesting the depeg was caused by one entity dumping over $450 million of UST on the open market. Kwon himself allegedly controlled that entity. He was .

Many decentralized exchange pools and decentralized stablecoins, such as DAI and Frax (FRAX), have significant collateral exposure to USDC. This is why DAI issuer MakerDAO introduced an emergency to address risks from its $3.1 billion USDC collateral exposure during the recent depeg.

This article first appeared in Cointelegraph, written by Jha

đŸȘ™
banking contagion that led to its depeg
evidence
recently arrested by Montenegrin authorities
proposal
Prashant
ordered Paxos to stop minting
move away from dollar-pegged stablecoins