Algorithmic Stablecoins In DeFi

Bonded.Finance is a DeFi protocol aiming to unlock an estimated 100bn in dormant capital, residing in altcoins. Bonded’s suite of “smart instruments” can algorithmically determine interest rates as Bonded aspires to aggregate these assets and collectively pool their value to generate returns for users.

The Bonded network and ones like it must contend with a very volatile marketplace and offer alternatives to just speculative cryptocurrencies. This comes in the form of digital dollar or stable coins, which allows users the option of a “cash position.” Traditional stablecoins such as USDT are pegged to the dollar, collateralized by FIAT and are minted based on usage. Typically, these reserve digital currencies are regulated by centralized authorities. 

As crypto has evolved, the need for truly decentralized money has emerged. Algorithmic stablecoins have been gaining in popularity and are partially or entirely uncollateralized. They’re largely void of regulatory oversight and function through a democratic on-chain governance infrastructure that eliminates the need for control and input from third parties. To determine the value and supply, an algorithm is used which issues more coins when the price increases and buys them off the market when the price falls to maintain the asset valuation. This is referred to as an “elastic” asset, as the supply contracts and expands based on demand and usage to maintain its pegged price, typically 1 USD.  

As assets, they can function as a hedge against volatility, a trading pair and a medium of exchange. Previous iterations of algorithmic stablecoins have struggled to maintain their peg; suffering from volatility and liquidity issues. At its core, tradable digital assets with a pegged value are only as good as the velocity they can generate. A fundamental lack of demand coupled with the improper issuance and substandard governance has led to difficulties.

Algorithmic stablecoins also offer more sovereignty to a platform, meaning, that the asset itself can function as an inhouse currency; thus creating autonomy and a virtual money supply that can ensure stability. To date, self-regulating, decentralized platforms like DAOs and borrow/lending protocols are bringing DeFi forward and subscribing real, tangible value to users.

Ultimately, Bonded.Finance’s aim is to create a universal asset that can help fund the DeFi space. The asset itself, named USB, will be introduced and rolled out on  their platform very deliberately with the intention to resolve potential issues as they arise and harden the digital currency. At inception, Bonded plans to over-collateralize USB until demand is truly commensurate with supply. 

Initially, USB will be designed solely to users that wish to contribute to and utilize the network. As an “Island nation” ecosystem, Bonded is designed to function as a standalone platform and having a cash option is inherent to any such endeavor. 

It’s clear to see the value in stable coins. Today, through USB, Bonded is moving away from the more traditional decentralised lending platform and transitioning into an autonomous, self-functioning suite of financial instruments that brings true power to the user.

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