Stablecoins I
Finding Stability
Stablecoins (‘stables’) are cryptocurrencies that aim to peg their prices to another cryptocurrency, fiat money, or commodities. For the stables primer below, we specifically refer to stablecoins pegged to currencies, the most widely adopted of which is the U.S. Dollar.
Many stablecoin projects try to maintain the peg to their respective currencies, but few prevail. Learning from previous projects, stablecoins are easy to design (copypasta[1] and iterate) and launch. But relative to those who have gained and retained market share, it becomes apparent that utility is key to the longevity of stablecoin projects.
In the early days of a stablecoin, however, utility is non-existent. In a hasty attempt to create utility for their stablecoin, projects mistake liquidity for utility and start along that route. As we will see below, incentivizing (and bolstering) liquidity for stablecoins is superficially beneficial - it only enables more efficient selling of the stablecoin once those incentives end.
Alternatively, stablecoin projects can use the demand for leverage to bootstrap utility. The Terra ecosystem elected this route to ...