Why stablecoin keeps failing

Stablecoins are a type of cryptocurrency that are designed to maintain a stable value relative to a particular asset or fiat currency. Stablecoins are used as a medium of exchange and store of value, and are used to minimize the price volatility that has limited the use of Bitcoin (BTC) and other digital currencies. Stablecoins can be collateralized by fiat currency, such as the U.S. dollar, or by cryptocurrency, such as Bitcoin or Ethereum. They can also be algorithmic, meaning their supply is adjusted according to pre-set rules in order to maintain their value. Popular stablecoins include Tether (USDT), USD Coin (USDC), True USD (USDT), Digix Gold, Havven's Nomin, Paxos Standard, and Binance USD (BUSD).

There are several different approaches to creating a stablecoin, but most stablecoins work by pegging their value to a stable asset, such as the US dollar, gold, or a basket of currencies. To maintain the peg, there needs to be an underlying mechanism in place to ensure that the value of the stablecoin remains stable.

One approach is to back each stablecoin with a corresponding asset held in reserve. For example, a stablecoin pegged to the US dollar might be backed by a bank account containing US dollars. This is known as a "fully collateralized" stablecoin.

Another approach is to use a "smart contract" to manage the supply of the stablecoin and ensure that it remains pegged to the target asset. This is known as a "semi-collateralized" stablecoin.

Regardless of the approach used, the goal of a stablecoin is to provide a stable store of value and a medium of exchange that can be used in place of traditional fiat currencies.

There is no single "code" or specific programming language that is used to create a stablecoin. The specific implementation of a stablecoin will depend on the approach being used to create the stablecoin and the underlying platform on which it is being built.

Here is a very high-level overview of some of the steps that might be involved in creating a stablecoin:

1. Determine the asset or assets that the stablecoin will be pegged to and how the value of the stablecoin will be maintained.

2. Choose a blockchain platform on which to build the stablecoin. This could be an existing blockchain, such as Ethereum, or it could be a new blockchain that is specifically designed for the stablecoin.

3. Design the smart contract that will be used to manage the supply of the stablecoin and maintain the peg to the target asset.

4. Write the code for the smart contract using the programming language supported by the chosen blockchain platform.

5. Test the smart contract to ensure that it is functioning correctly.

6. Deploy the smart contract to the blockchain.

7. Issue the stablecoin to users and facilitate its use as a medium of exchange.

This is a very high-level overview, and the specific implementation of a stablecoin will depend on a number of factors, including the chosen blockchain platform, the approach being used to create the stablecoin, and the specific requirements of the stablecoin.

Here is a very simple example of a smart contract that could be used to implement a stablecoin on the Ethereum blockchain:

pragma solidity ^0.6.0;

// ERC20 token interface

interface ERC20 {

    function totalSupply() external view returns (uint256);

    function balanceOf(address owner) external view returns (uint256);

    function transfer(address to, uint256 value) external returns (bool);

    function transferFrom(address from, address to, uint256 value) external returns (bool);

    function approve(address spender, uint256 value) external returns (bool);

    function allowance(address owner, address spender) external view returns (uint256);

    event Transfer(address indexed from, address indexed to, uint256 value);

    event Approval(address indexed owner, address indexed spender, uint256 value);

}

// Stablecoin contract

contract Stablecoin is ERC20 {

    // The address of the contract that holds the assets that back the stablecoin

    address public assetHolder;

    // The amount of assets held in the assetHolder contract

    uint256 public assetSupply;

    // The exchange rate between the stablecoin and the asset it is pegged to

    uint256 public exchangeRate;

    // Mapping from user addresses to their token balances

    mapping(address => uint256) public balances;

    // Mapping from user addresses to their approved spenders

    mapping(address => mapping(address => uint256)) public allowed;

    // The name of the stablecoin

    string public name;

    // The symbol of the stablecoin

    string public symbol;

    // The number of decimal places of the stablecoin

    uint8 public decimals;

    // Events for transferring and approving tokens

    event Transfer(address indexed from, address indexed to, uint256 value);

    event Approval(address indexed owner, address indexed spender, uint256 value);

    // Constructor function

    constructor(

        address _assetHolder,

        uint256 _assetSupply,

        uint256 _exchangeRate,

        string memory _name,

        string memory _symbol,

        uint8 _decimals

    ) public {

        assetHolder = _assetHolder;

        assetSupply = _assetSupply;

        exchangeRate = _exchangeRate;

        name = _name;

        symbol = _symbol;

        decimals = _decimals;

    }

    // Functions required by the ERC20 interface

    // Returns the total supply of tokens

    function totalSupply() public view returns (uint256) {

        return assetSupply / exchangeRate;

    }

    // Returns the balance of tokens for a given user

    function balanceOf(address owner) public view returns (uint256) {

        return balances[owner];

    }

    // Transfers tokens from one user to another

    function transfer(address to, uint256 value) public returns (bool) {

        require(balances[msg.sender] >= value, "Insufficient balance.");

        balances[msg.sender] -= value;

        balances[to] += value;

        emit Transfer(msg.sender, to, value);

        return true;

    }

    // Approves a spender to transfer tokens on behalf of the owner

    function approve

Stablecoins have the potential to last for the long term, however, there are some challenges that must be addressed for this to become a reality. Stablecoins must be properly collateralized and have sufficient liquidity to maintain their value. Additionally, they must have strong governance structures in place to ensure that they are compliant with all applicable regulations. Finally, they must be able to weather market volatility and reduce the risk of manipulation. If these challenges can be addressed, then stablecoins have the potential to last for the long term.

Photo by Christophe Hautier on Unsplash