I believe that the USDT stable currency is a product of the conflict between the digital currency world and the legal currency world. When Nakamoto Satoshi unearthed the first bitcoin in 2009, it actually meant that the two world conflicts had already begun. Until now, this conflict has not been resolved.
A somewhat absurd phenomenon:
Today's digital currency market has a market value of hundreds of billions of dollars and nearly 2,000 digital currencies have been issued. However, compared with the stock market currency used to connect stocks, there is almost no mainstream currency in the digital currency market directly connected to digital currency. In the current market, everyone mainly uses BTC and ETH as the exchange medium.
This creates a very serious problem. The prices of BTC and ETH are very unstable, which brings certain uncertainties to the legal currency entering the digital currency market. In this case, USDT emerged as a hedging tool.
USDT (Teloda Coin) is a digital currency launched by Tether in 2015 based on the Omni layer protocol for Bitcoin blockchain transactions. Tether charges the user $1 and gives 1USDT to the user. When the user returns 1USDT to Tether, Tether returns $1 to the user. Tether claims that it has a 100% asset reserve and users can trade USDT back to the US dollar on their platform. However, USDT has been skeptical of the fact that the audit has been closed, allegedly over-issued, and manipulated the price of Bitcoin. Some people have even seen USDT as a Ponzi scheme.
USDT Challengers
Some other stable currencies have also appeared in the market, such as TrueUSD supported by Bittrex Exchange and Dai of MakerDAO. Some time ago, Bit Continental led a $110 million investment in Circle. The latter plans to release the stable currency USD Coin in an attempt to replace USDT.
Data representation, USDT, TUSD, DAI, bitCNY, bitUSD, nubits
As for the market value of major stable currencies, USDT almost occupies a monopoly position and stands at the top of the stable currency market.
MakerDAO's solution
The idea of the Makerdao Project is to allow the market to regulate its own liquidity by way of over-collateralization as it can be transparent and guarantee the currency liquidity in the market.
The origin of excess collateral originated from the pawnshops in ancient China. Pawnshops made liquidity demanders and providers free from the price discovery process and quickly gained liquidity. A participant is equivalent to betting his own ETH on the Maker platform, and then the platform gives the participant DAI. When the participant wants to redeem, in addition to repaying the DAI, he must also pay a certain stabilization fee to redeem the mortgage. Since the entire process was carried out on smart contracts, it eliminated the risk of artificially oversupply such as USDT as a centralized stable currency institution, and it also suppressed the fluctuation of DAI prices through market adjustment mechanisms. Once the market fluctuates, Maker quickly eliminates it through its own liquidity mechanism.
When the ETH value is lower than a value, the platform will provide an early warning to remind the user to redeem the ETH, otherwise it will automatically sell ETH to redeem the DAI to ensure the stability of the entire system.
Terminator: statutory central bank digital currency
The most fundamental way to solve the current digital currency connection to the legal currency is to issue a statutory digital currency.
However, the issuance of statutory digital currency will conflict with the existing social order (financial, legal and other fields). Moreover, using digital currency instead of legal currency will have an impact on the financial services system such as the banknote printing industry, banks, the China Banking Regulatory Commission, and securities companies. The number of unemployed people will greatly increase.
Conclusion
The stable currencies such as USDT, TUSD and DAI are actually the products of the transition. Although they are very popular nowadays, this situation will not last long and their role will disappear when digital currency and legal currency merge.