Stablecoins: Your gateway to crypto
Stablecoins allow you to dip your feet in crypto without the price risk
Happy post-halving day!
In our previous two posts we got introduced to traditional economics, why Bitcoin and crypto are a fundamental new layer for the web as well as a comprehensive look into valuation models for Bitcoin.
Today we’re going to start getting our hands dirty and learn about a new primitive that has exploded in volume over the last year - Stablecoins.
What are stablecoins?
Stablecoins are simply a representation of a fiat currency - typically USD - on the Ethereum, Bitcoin, EOS or other open network. Cumulatively, they are now approaching a $10 billion market-cap and are a significant form of value transfer in the crypto eco-system.
Total stable coin transaction volume over the last two years
There are a couple of reasons people are piling into stablecoins:
Escaping local currency risk: From Venezuela to Lebanon, we are seeing EM currencies failing or entering hyperinflation. To escape, people are hoarding Bitcoin (which traded at $15,000 USD in Lebanon recently) or the USD through stablecoins.
Escaping crypto market volatility: A large portion of the market are speculators and they are trading in and out of Bitcoin et al. to realize gains and take profit. Instead of cashing out, they use stablecoins.
Cross-border remittance: A few months ago there were reports that Chinese in Russia were sending large transactions back home with Tether. The remittance market is being disrupted as USD can now be sent globally near instantaneously with close to zero fees.
Digital sovereignty: Finally, there are a portion of people that simply want to escape the banking world and hold their money in their hand. They also have access to a whole eco-system of products simply unavailable in the traditional brick and mortar banking system.
What’s even better is they are now tying these into the traditional credit card networks allowing you to transact anywhere Visa and MasterCard are accepted.
While this isn’t the original vision of Bitcoin, I believe this is an intermediary step in the process of transitioning people to open public cryptocurrencies.
Different flavours of stablecoins
There are several different flavours of cryptocurrencies depending on how much regulatory oversight you are comfortable with:
Issued By Regulated Exchange: USDC is issued by Coinbase which is a regulated exchange in Silicon Valley. They are well capitalized having raised at an $8 billion valuation in 2018 and will exchange 1:1 USDC to USD in your bank.
Issued By an Un-regulated Exchange: The largest token by market cap is easily USDT which is supported by Bitfinex exchange. There’s an on-going debate in the community whether this institution is fraudulent and it is best to steer clear of this stablecoin.
Collateralized Debt: MakerDao is a smart contract platform that issues DAI which are pegged to the USD and backed by a collection of assets they hold in a smart contract. More on this in another post.
Stablecoin Baskets: A new primitive will be released shortly by PieDao called USD++. Essentially this is a token representation of a basket of stablecoins say DAI, USDC and USDT. The thinking is you can reduce your risk of holding any one token by diversifying.
Everything Else: People around the world are experimenting with new ideas the latest of which is Lien Finance. This project aims to rip out the volatility of Ethereum selling it off as options while leaving a stablecoin.
Whew - that’s a lot to absorb.
For the most part, I stick to USDC as it’s backed by Coinbase and would also consider USD++ when it is released as it helps diversify risk.
In the next section, we’re going to setup you first crypto wallet and purchase USDC through Wyre or a traditional exchange in your country.
I want to make sure all the readers here are on the same page so when I start guiding you through interactions with decentralized applications (dApps) you’re ready.
Let’s go!
Getting your first wallet
Generally, there are three types of wallets:
Hot Wallets: These are exchanges like Coinbase, Binance, Gemini, etc. where they custody or store your cryptocurrency safely for you. They typically have insurance but they’re also subject to being hacked. Most of the top exchanges are insured but why deal with the hassle.
Cold Wallets: These devices store your cryptocurrency offline in a USB-type device. They are not connected to the internet and each transaction must be signed directly on the device before completing.
Smart Wallets: These are the latest iteration and most dangerous iteration where your tokens are stored in a smart contract. They also offer the most functionality since you can delegate execution of transactions to the contracts.
I personally would store the bulk of my funds in a cold wallet and would keep a portion to transaction with on a smart or non-exchange hot wallet.
In the exercise below we’ll be using a smart wallet.
Let’s get started
Time: 5 mins
Download the Argent wallet
I like Argent because you don’t have to write down a recovery phrase and can delegate recovery to friends and family in the event you lose access. It also has a built-in exchange and allows you to connect to dApps through Wallet Connect.
Configure wallet
Follow the instructions on screen. It will guide you through configuration of the recovery process. This will include adding guardians who are friends or family that can recover the wallet for you.
Add funds
Click the “Add Funds” button at the top of the “Assets” screen and follow the prompts to purchase USDC. You should be able to use Apple or Google pay through Wyre.
After going through this process, I realized this is only for Americans. If you’re in another country you can try Binance, Paytrie, CoinSquare, or Coinberry.
I can vouch for the process being very quick anyway you go about it.
Either way, setup Argent and transfer funds to that wallet as we’re going to need it in upcoming tutorials to interact with web 3.0.
Make sure to subscribe for upcoming tutorials including how to dollar cost average on autopilot, how to buy your first bit of real estate, and much more…
Around the space
Paul Tudor Jones is long Bitcoin
Probably the biggest news of the week was Paul Tudor Jones, one of the leading hedge fund managers in the world, announcing that his $40B fund had invested “just over 1%” of their assets in Bitcoin cash-settled futures. He views it as an inflation hedge saying “Bitcoin reminds me of gold when I first got into the business in 1976”.
Baseline Protocol will bring enterprises 💼 to Ethereum
Enterprises are moving away from private blockchains and instead converging on Ethereum as a base layer of coordination. EY has a proof of concept showing an ERP system coordinating and finalizing transactions between vendors.
This is how EY put it:
The whole idea of the transition from private to public networks is to eliminate the vendor-consortia lock-in, to potentially lower your total cost of ownership, and to be able to scale in-network effects without needing a new R&D department to manage the new blockchain stack
Personal tokens 🧔 are blowing up 🚀
Grammy award winning artist RAC launched the $TAPE token on Zora allowing anyone to purchase tapes of his latest album. Prices started at $20 and are now $109.25 with a limited release of 100 units. This follows NBA player Spencer Dinwiddie efforts to tokenize his $34.5M contract. Expect more artists / creators to catch on!
Synthetix demonstrates ~200ms & 100x throughput on L2
The lingering concern with crypto was how it would scale to be a global network akin to Visa or MasterCard processing 2000 tps. Synthetix launched an exchange demonstrating ~200ms transactions all while retaining the Ethereum base layer security guarantee. Huge!
Try it out with their on-going trading competition - here.
Biconomy launches gas-less transactions with no wallet
Another challenge is user onboarding as new users need funds and a wallet to make any transaction in web 3. With Biconomy, app developers can subsidize small transactions and manage users wallets so people can quickly try out applications without having to go through a cumbersome onboarding process.
This space is heating up and with the Bitcoin halving just complete expect all eyes to refocus on the fundamentals over the next 2-3 years.
As always, please share so we can bring more people into the ecosystem!