Exploring the World of Algorithmic Stablecoins on TON: Insights from Aqua Protocol
Welcome to another week of exciting education cards! Today in our #OPTUSeducation series, we’re delving into stablecoins and their algorithmic version. No more distractions, let’s dive straight into some fresh knowledge.
Hey guys, can you explain what algorithmic stablecoins are and how they differ from the classics like USDT, USDC, and BUSD?
Custodial stablecoins (USDT, USDC, etc.) are backed by real-world dollars. These stablecoins maintain their peg to the dollar by having real dollars as a reserve that can always be exchanged.
On the other hand, algorithmic stablecoins are often backed by cryptocurrencies and utilize more complex algorithms to maintain their stability.
What makes Aqua Protocol unique, considering that there are already jUSDT, jUSDC, and jDAI on TON?
jUSDT, jUSDC, jDAI — all these stablecoins come to TON via cross-chain bridges from other blockchains. This means that if the bridge breaks or operates for too long in a volatile market, they will lose their peg to the dollar.
Additionally, all these stablecoins are centralized (even DAI) and backed by real-world bank-held dollars.
On the other hand, aquaUSD:
– Is native and minted directly on TON, secured by smart contracts
– Scalable: its supply will dynamically increase with the growth of TON ecosystem
– Uses only decentralized assets as collateral
– Decentralized in its governance.
What are the types of algorithmic stablecoins ?
Algorithmic stablecoins are often backed by cryptocurrencies and more tricky algorithms.
There are two main categories: over-collateralized and purely algorithmic. The former includes DAI, MIM, LUSD, and many others. The latter includes UST, USDD, TOMB, and more. Purely algorithmic stablecoins tend to be more prone to breaking, while over-collateralized ones rarely do.
How does the Aqua Protocol mechanism work?
Aqua takes TON as collateral, and in return, you get the ability to mint the aquaUSD stablecoin. To reclaim your TON, you need to repay your debt by burning aquaUSD.
Aqua stakes all TON in the liquid staking protocol, and all aquaUSD holders receive yield in stablecoins from this.
How is the reliability of algo stablecoins ensured? Is the Aqua Protocol secure?
Specifically, the Aqua Protocol utilizes an over-collateralization algorithm, which has been popularized by projects like Maker DAO (for the DAI stablecoin) and many others.
This algorithm is time-tested and safe, which is why it has been categorized separately within the stablecoin space. If, by any chance, the collateral’s value drops below a critical level, the risky position is liquidated, ensuring the stability of the aquaUSD price.
What are the advantages of algorithmic stablecoins?
Algorithmic stablecoins are valuable to those who don’t trust the centralization of custodial stablecoins and want to utilize the value of their cryptocurrency without selling it.
Additionally, due to the interfaces of smart contracts, such stablecoins are conveniently used by other projects within the ecosystem.
And lastly, what’s the superpower of Aqua Protocol?
Aqua Protocol is backed by staked TON. This allows protocol users to earn staking rewards from TON while holding stablecoins instead of TON directly.
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