You know $USDT, but do you know its original name was Realcoin?
Or that its first competitor, $NBT, an algorithmic stablecoin, suffered a crypto "bank run" and died?
Stablecoins from 2014 to 2016 were different.
🧵
II. "Wait, were there stablecoins in 2014?"
Absolutely.
From 2014 to 2016, the stablecoin concept was born. Projects launched during this time were foundational experiments, each testing a different approach to creating a price-stable digital asset.
III. BitUSD (2014)
BitUSD was introduced by @bytemaster7 on @bitshares. It was the first stablecoin to demonstrate that you could create a dollar-pegged asset using only other cryptocurrencies as backing.
"What was the mechanism?"
IV. To mint BitUSD, you had to lock up the native token, $BTS, into a smart contract with over-collateralization (at least 2:1).
This meant that to create $100 of BitUSD, you needed to lock up at least $200 worth of $BTS to absorb the price volatility of the $BTS collateral.
V. If BitUSD's price fell below $1, traders were incentivized to buy the cheap BitUSD and redeem it for $1 worth of BTS, pocketing the difference and driving the price back up.
If BitUSD rose above $1, users with collateral could mint new BitUSD for $1 and sell it on the market for a profit, increasing supply and driving the price back down.
VI. The issue with @bitshares was its complete reliance on the stability of its collateral, BTS.
During a "black swan" event, when BTS crashed, the collateral became insufficient to support the outstanding BitUSD, causing a catastrophic de-peg.
VII. NuBits (2014)
@OfficialNuBits took a much more complex and ambitious approach.
It aimed to maintain its peg not with collateral, but by algorithmically managing the token's supply, much like a central bank manages a fiat currency.
VII. @OfficialNuBits used a dual-token model:
- NuBits (NBT): The stablecoin, intended to be worth $1.
- NuShares (NSR): An equity-like token that granted voting rights and received rewards from the network.
VIII. To lower the price, the system would issue more $NBT.
To raise the price, it would incentivize users to take their $NBT out of circulation (a process called "parking") in exchange for interest payments funded by the system, effectively reducing supply.
Also, $NSR holders voted on the interest rates for parking.
IX. For a time, @OfficialNuBits held its peg.
However, in 2016, $BTC rally created a "crypto bank run." A.k.a. Users rushed to sell their $NBT to buy $BTC.
X. The algorithmic mechanism was overwhelmed and couldn't offer high enough interest rates to persuade people to hold $NBT instead of $BTC.
The peg broke decisively, and @OfficialNuBits never recovered.
XI. Tether (2014)
Initially launched as Realcoin and built on a protocol layer of Bitcoin called Omni, Realcoin introduced the simplest model of all: a centralized entity holds real-world assets and issues a token representing a claim on those assets.
XII. The promise was straightforward: for every $USDT in circulation, the company behind it, Tether Holdings Ltd., held one U.S. dollar in a bank account.
This 1:1 backing was meant to guarantee the peg.
XIII. This model was incredibly successful because it was easy to understand.
Though, its primary weakness is the need for trust in a central entity. That's it.
XIV. A stablecoin is only as good as its promise to be redeemed for $1 of value. When that mechanism fails under stress, as with NuBits, confidence is permanently lost.
Last but certainly not least, I recommend that you follow these chads:
@splinter0n @0xDefiLeo @the_smart_ape @0xCheeezzyyyy @DOLAK1NG @YashasEdu @0xAndrewMoh @eli5_defi @_SmokinTed @RubiksWeb3hub @kenodnb @lstmaximalist
I hope you've found this thread helpful.
Follow me @belizardd for more.
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