stable-coins

There are three types of stable coins:
* Coins that are backed up with cash in a bank account
  - example: Tether, TrueUSD, GUSD, PAX, USDC (Circle & Coinbase)
  - pros: pegged to dollar, stable
  - cons: user of these coins has to trust third party, credit risk
  - audit, custody, and insurance
* Coins that are backed up by deposit of other cryptocurrencies (BTC, ETH)
  - example: Dai (MakerDao) [5], Havven
  - pros: elimigated the needs to trust third party, since the collateral is also on blockchain
  - cons: volatility of the backup cryptocurrency, in order to achieve stability one would require more deposit that the value of stablecoins issued, and even that still face the risk of the collateral's price crash.
* Coins that are issued by an algorithmeic central bank
  - use algorithm and software to increase and decrease the supply of the stable coin to maintain its peg.
  - Example: basis [4], Saga [6]
  - buying and selling additional tokens besides the stablecoin (which, for now at least, is also called a “basis”). If its price drops below $1, the blockchain will sell “bond tokens” to users for stablecoins worth less than a dollar and remove them from the system. The bond tokens are guaranteed to yield payouts of a full dollar once the stablecoin’s price returns to its peg.
  
* Mixture of the above (we should consider).

https://www.businessinsider.sg/crypto-stablecoins-explained-bitcoin-ethereum-fintech-2018-9/?r=US&IR=T

https://makerdao.com/whitepaper/

https://medium.com/makerdao/introducing-the-new-whitepaper-for-the-dai-stablecoin-system-e7c6caabcfc4


Addressable Market
As mentioned in the introduction, a cryptocurrency with price stability is a basic requirement for the majority of decentralized applications. As such, the potential market for Dai is at least as large as that of the entire blockchain industry. The following is a short, non-exhaustive list of some of the immediate markets (in both the blockchain and the wider industry) for the Dai Stablecoin System in its capacity as a cryptocurrency with price stability and its use case as a decentralized margin trading platform:

* Prediction​ ​Markets​ ​&​ ​Gambling​ ​Applications:​ 
When making an unrelated prediction, it is obvious not to want to increase one’s risk by placing the bet using a volatile cryptocurrency. Long term bets become especially infeasible if the user has to also gamble on the future price of the volatile asset used to place the bet. Instead, a cryptocurrency with price stability like Dai will be the natural choice for prediction market and gambling users.

* Financial​ ​Markets;​ ​Hedging,​ ​Derivatives,​ ​Leverage:​ CDPs will allow for permissionless leveraged trading. Dai will also be useful as stable and reliable collateral in custom derivative smart contracts, such as options or CFD’s.

* Merchant​ ​receipts,​ ​Cross-border​ ​transactions​ ​and​ ​remittances:​ F​ oreign exchange volatility mitigation and a lack of intermediaries means the transaction costs of international trade can be significantly reduced by using Dai.

* Transparent​ ​accounting​ ​systems:​ Charities, NGO’s and Governments will all see increases in efficiency and lower levels of corruption by utilizing Dai.

[1] Tether: Fiat currencies on the Bitcoin blockchain. https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf
[2] Paxos Standard Stable coin
https://standard.paxos.com/whitepaper.pdf
[3] The Gemini Dollar: A Regulated Stable Value Coin
https://gemini.com/wp-content/themes/gemini/assets/img/dollar/gemini-dollar-whitepaper.pdf
[4] Basis: https://www.basis.io/basis_whitepaper_en.pdf
[5] Dai, MakerDao, https://makerdao.com/whitepaper/
[6] Saga: https://www.saga.org/static/files/saga-whitepaper.pdf