The total market cap for all cryptocurrencies tripled in 2020 alone, expanding the crypto market dramatically as more people become acquainted with crypto and its possibilities. Today in 2021, stablecoins surpass the $100 Billion Market Cap, and the market is only expected to increase, despite mounting pressure from regulators worldwide. This article will briefly explain stablecoins, their key features, introduce ARYZE´s Digital Cash, and why it is a better alternative than Tether.
What are Stablecoins?
The central idea behind stablecoins is to reduce the risk of crypto value fluctuations and preserve the anonymous, fast, and secure transfer of financial assets. As stated by Investopedia, stablecoins attempt to bridge the existing gap between fiat currencies and cryptocurrencies. For example, cryptocurrencies like Bitcoin are difficult to use as a day-to-day payment currency because of their high volatility. On the other hand, stablecoins propose the agility existing in the blockchain world and blend it with the traditional finance system, creating a bridge between both, as is the case with ARYZE.
- No central intervention or middlemen challenges.
- Make remittances borderless and quick, thus making global financial inclusion possible.
- Smart contracts programmability.
- May be backed by FIAT, assets, gold, etc.
- Not bound to any regulatory authority so far.
- Do not have any taxation aspects connected to it.
- No exchange value.
Types of Stablecoins
- Fiat-collateralized stablecoins: hold a fiat reserve, like the U.S. dollar. For example, ARYZE´s Digital Cash is a Fiat-collateralized stablecoin. Fiat currencies are one of the most common collateral for stablecoins, USD being the most popular. Stablecoins may also be backed by precious metals or other investments.
- Crypto-collateralized stablecoins: are backed by other cryptocurrencies as collateral.
- Non-collateralized stablecoins: don’t use any reserve but include an algorithm, to maintain a stable price.
Better than Tether
The recent disclosure of Tether not being 100% backed as it used to claim has caught the attention of regulators on the financial risks posed by stablecoins. During a meeting led by Treasury Secretary Janet Yellen, participants equated the situation to an unregulated money-market mutual fund that could be vulnerable to a disastrous investor exodus.
ARYZE will be significantly better than Tether with our full-reserve “Digital Cash Stablecoins,” representing almost entirely credit risk-free backing with central bank deposits and short-term central bank-issued assets. Digital Cash will have all the flexibility, accessibility, and utility of today’s popular stablecoins without the risk, uncertainty, and legal challenges they face. We are bridging the world of regulated money with open-source platforms to secure liquidity that businesses and financial services providers can use to make their systems more efficient, integrate with, and build upon. Additionally, Digital Cash is secure, recognizable, interoperable, and programmable.
According to Morten Christorp Nielsen, ARYZE´s CFO & Co-founder, there are three important elements to take into account when assessing the integrity of a stablecoin:
1. Market value risk: the value of a dollar is exactly 1 dollar if held in cash (coin or notes) with a call-on-demand deposit in the fed. If a Fed-issued short-term bill is used for backing up a USD stablecoin in terms of the backing, the issuer must compensate for the potential changing market value of the asset. VAR (Value At Risk) models are used for analyzing and determining the extra collateralization required when the asset has a maturity longer than on-demand
2. Zero credit risk: only assets issued by a central bank or guaranteed by a central bank (government) or deposit in a central bank carry zero credit risk in the currency in question. Everything else has a value of less than 1. Even if the asset matures tomorrow.
3. Audits by trusted and fully independent third party: a statement of solvency and backing must be made by a trusted and fully independent third party, just like a company annual report is being audited by a certified accountant, and they must make their findings publicly available without any involvement of the stablecoin issuer company.
Full-reserve banking is a system where banks do not lend demand deposits and instead only lend from time deposits. Existing fiat-backed stablecoins available on open-source networks like Ethereum are mostly still backed by traditional banks and carry the same risks as traditional bank deposits. On the other hand, Digital Cash will be a full-reserve reliable stablecoin with the agility and programmability of cryptocurrencies and fiat money’s familiarity and trust.
The RYZE Token
As a regulated security instrument, RYZE will initially list on securities exchanges. Further down the road, we will build broker-dealer feeders that can offer two-way prices for retail, and by adopting this strategy, we will ensure that our token is available on all types of crypto exchanges, including the most accessible ones for retail consumers. Additionally, in tune with the exponential growth in decentralized finance, tokenized assets, and other blockchain-based solutions, we will provide access to secondary market trading directly in the MAMA app.
Stablecoins can significantly transform the payments industry by offering a next-generation blockchain-based platform without the volatility of cryptocurrencies. It is reasonable that Tether’s failure to provide an audit showing adequate reserves backing the Tether token concerns regulators, as Tether is the third-biggest cryptocurrency in the world by market value, indicating a likely financial stability risk.
Ideally, if a claim is made directly or indirectly that a stablecoin represents something, it must be exactly that and nothing else (unless explicitly and detailed made public), and that fact must be verified by independent, trustworthy third parties. There are three fundamental elements to consider when assessing stablecoins: market value risk, zero credit risk, and finally, a statement of solvency from a trusted and fully independent third party.
ARYZE´s Digital Cash can comply with all of the above elements while bridging the world of regulated money with open-source platforms to secure liquidity for businesses and financial services providers. All are set in a fully regulated frame that is secure, recognizable, interoperable, and programmable.