Decentralized Stablecoins and Diversified Collateral (We'll Explain)

Article source, here.

TL;DR

• Decentralized stablecoins are governed by a select group of people (i.e. a DAO), are backed by a variety of crypto and Real World Asset's, and are kept at $1 at all times by allowing computers to balance their value.

• A few months ago, DAI was backed with 50% USDC - but that's been reduced right down to 23.6% now.

• So if any single crypto or RWA crashes, it won't take down DAI with it.

Full Story

Let's talk about decentralized stablecoins.

Centralized stablecoins are backed with an equivalent in fiat (i.e. the US Dollar) or 'real world assets,' (RWA's).

$1USD = $1 for a centralized stablecoin like USDC.

Decentralized stablecoins on the other hand, are governed by a select group of people (i.e. a DAO), are backed by a variety of crypto and RWA's, and are kept at $1 at all times by allowing computers to balance their value.

(Keep reading, we'll explain).

DAI, which is governed by MakerDAO, is the largest decentralized stablecoin with a current market cap of ~$4.6 Billion.

A few months ago, DAI was backed with 50% USDC - but that's been reduced right down to 23.6% now.

Which is great news!

While USDC is also a stablecoin, it's ultimately run by a centralized organization, Circle.

Any time a decentralized asset is entirely dependent on a centralized entity (or asset), there are huge risks involved.

Instead of the pie chart representing DAI's collateral being 50% USDC, now it looks more like this:

So if any single crypto or RWA crashes, it won't take down DAI with it.

(DAI’s collateral is diversified, kind of like Ray Dalio's 'All Weather Portfolio').

While this isn't the sexiest of topics, it's a key one to understand for a decentralized future.

To the MakerDAO crew, we love to see it!