RE: Its Happening: The Exponential Rise of Stablecoins
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And what happens when the backing drops in value. Or completely collapses.
US Treasuries took a bath in value, that is what helped to sink banks such as Silicon Valley Bank. We saw the same thing with MBS in the GFC.
So do not be lulled into thinking that asset backing is any more stable or secure. They can fluctuate greatly too.
Even HBD has its issues with price volatility due to Hive price fluctuations.
This is not true since no matter what the price of HIVE, it is still worth $1 on conversion.
Volatility comes from the size. This is similar to penny stocks. HBD is traded mostly on one exchange that is closed to most of the world.
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In a collateralized protocol like DAI or any of the lending platforms works is that if the backing drops, it takes the collateral needed to satisfy the loan, same as any margin call. So far these protocols are still working and there is plenty of liquidity in them.
The biggest issue with the conversion mechanism is that it takes 5% as a fee, so really, no you are not getting a dollar’s worth, you are getting .95 worth. I tried playing the conversion game as a trade until I realized that I was losing more than it was worth using it.
That is a lending platform, not a currency.
Yes if the value of the collateral drops 50%, then more collateral is required. This is true no matter what the currency.
But that is not reflective of the currency itself. If a currency is backed, then it only has 50% backing.
I believe that is going from Hive to HBD. I do not believe there is a fee going the other way. I will have to look into that.
Take a look at Maker DAI. It’s a stablecoin that is built on a lending platform. It’s been around for quite a while now… Loans against the supply in DAI is what creates the currency.
You have to get outside of Hive sometimes man… Where USDT and USDC are centralized as far as rheir backing, DAI is a decentralized stablecoin backed by the lending supply.