Crypto Market Commentary – ETHUSD Golden Cross – Can Stablecoins Really Work? – 02/20/17
One of the more interesting projects coming online is Stabl, a platform for derivatives contracts and potentially stable tokens built on the Ethereum network. This follows a long list of attempts to engineer technology that will allow for coins that track the value of physical world assets, such as gold, USD, oil, etc.
I have long thought that derivatives contracts were the low-hanging fruit in the crypto space, but most projects have failed to gain traction and widespread adoption for several reasons, the main one being that they have mostly tried to reinvent the wheel. Of course, Satoshi reinvented the wheel with bitcoin, so these projects are just following suit, but perhaps that is not the best course of action initially. The global derivatives market is roughly a $1.2 quadrillion notional market, so the potential for massive growth for anyone getting this right is huge.
Per this blog post, Stabl plans to start with traditional derivatives contracts and, as liquidity comes into the system, begin to engineer more advanced derivatives products such as tokens that track the value of off-chain assets. I think the best approach is to mimic as closely as possible traditional futures, options, contract-for-difference, and any other derivatives products that are highly popular in the traditional financial system. Then branch out from there. This will give a good foundation for which to grow and gain liquidity and volume as the learning curve will not be as steep for users migrating from the legacy financial system.
Bitshares is one of the earliest versions of this technology. However, a lack of funding and a low price of bts, which prevents the project from being sufficiently funded by the on-chain funding mechanism, has kept this project from gaining traction IMO. Also, incentives are perhaps misaligned between liquidity providers and users. Stabl may solve this as the founder of Stabl notes:
Stabl users pay premiums for stability
Even our very own Steem Dollars are a form of these types of derivatives based on bitshares' BITUSD, but significant adoption has yet to take place based on liquidity and volume measures, although the peg seems to be holding nicely recently.
Maker is another Ethereum-based project that intends to create a stable token based on Special Drawing Rights (SDR) - an international currency basket maintained by the IMF that has low volatility against all major world currencies. Etheropt is/was an options platform based on the ethereum blockchain. I’m not sure what is happening with that one. It could be dead. Auger and Gnosis are future prediction markets that could also function as binary options markets. Veritaseum is/was a project launched by Reggie Middleton that functioned as a decentralized derivatives contract market based on the bitcoin blockchain. I’m not sure what ever happened to this one either as the website appears to be down.
Obviously many have tried and many have failed. Nevertheless, I am confident that someone will eventually get it right as this technology is still in the very young, experimental stages and many core functions of the ethereum blockchain are still just a thought. As I have alluded to before, most projects in this space will fail, so investor beware.
Disclaimer: This is not advice of any kind.