In this video, we are going to talk about the algorithmic stablecoins, what they are, what potential they have and some examples of the algorithmic stablecoins.

What is algorithmic stablecoins, the algorithmic stablecoins do not have any underlying assets backing it. It is essentially a smart contract deployed on a blockchain to increase or decrease the supply of tokens based on a written algorithm. The smart contract then self-executes the terms of the agreement between the market participants like for example, buyers, sellers, lenders and borrowers. Once you deploy the code on a blockchain, it is immutable, meaning, no one can modify the code later, it becomes a decentralized app or DAPP.

Algorithmic stablecoins have huge potential. To understand why, all you have to do is look at the U.S. dollar. The dollar was once basically a stablecoin tied to gold, then slowly the dollar established itself as an asset during the second world war and eventually left the gold standard completely. Because the American economy got so much bigger so fast during and after the war that it required more gold backing, but the supply of gold material wasn’t able to keep up. The American economy needed to scale up fast and more flexibly than the gold standard could afford. Similarly, the stablecoin economy can eventually outgrow the dollar economy in the long run, while a dollar backing stablecoin is a good start and works for now, the end goal is to leave the dollar standard and to aim for the maximum capital efficiency. So to have an algorithmic stablecoin that could scale to whatever size in whatever speed an economy needs would be fascinating.

Now the interesting part of algorithmic stablecoin is of course the algorithm itself, it’s a mechanism that helps stabilize the price of the token. It's similar to how our central banks use monetary policy in which they leverage interest rates, buying and selling governments’ bonds to maintain a stable valuation of the fiat currency.

Some of the interesting mechanisms that algorithmic stablecoins use include rebase algorithm and seigniorage algorithm.
A rebase stablecoin is a supply elastic token that works in a way the circulating supply expands or contracts due to changes in token price. This increase or decrease in supply works with a mechanism called periodic rebasing. The rebasing can occur for example once in every 24 hours and when a rebase occurs, the supply of the token is increased or decreased algorithmically, based on the current price of the token. That results in the amount of tokens in user wallets changing every time a rebase occurs.
The seigniorage stablecoins commonly have a multi-token design, that is, one token acts as a stablecoin and other tokens act as shares or ownership of seigniorage. The word seigniorage in traditional finance means the difference between the face value of coins and their production costs. And usually the difference is a profit for our governments that issue or mint the coins. But in the case of seigniorage stablecoins, the profit is made for the people who hold the shares, the token that acts as ownership of seigniorage. In principle, shares are used to increase the supply of coins when the price of a coin is above its target price. In addition to these two tokens, seigniorage stablecoins often issue a redeemable bond as an incentive for buyers when the price goes down below the target price.

I would recommend you to watch boxmining video on Algorithmic stablecoins if you are interested to learn more projects that are currently experimenting with rebase and seigniorage stablecoins. [ Ссылка ]

#Stablecoins #AlgorithmicStablecoins

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