The following will be a three-part article series covering the following topics in the emerging Cardano Stablecoin Ecosystem.
- Part 1: The Stablecoin Cambrian Explosion And The Case For A Diverse & Strong Ecosystem
- Part 2: A Handbook of Cardano Stablecoins Coming To Market
- Part 3: The Advantages Of Cardano Stablecoins Over Ethereum & Risks
The Stablecoin Cambrian Explosion
The Cardano ecosystem is on the brink of a Cambrian Explosion of new “Stablecoin Species”.
The Cambrian explosion was an unparalleled emergence of organisms about 541 million years ago that saw rapid evolution and a diversification of life, evolution of complex structures, and increased competition (Ref 1, 2).
This is akin to the advent of Cardano native stablecoins coming to market in 2023!
This is great news because any global, financial operating system will need a safe-haven token pegged to their local currency – i.e., a stablecoin, most predominantly to the US Dollar (USD).
So, what can nature and the evolution of species teach us about what to expect when Cardano stablecoins are released into the DeFi wild free market?
On the Origin of (Stablecoin) Species
In 1859, Charles Darwin published The Origin of Species which presented the scientific Theory of Evolution thru Natural Selection.
In short, it argues that in nature there is a struggle for existence, thru predators, the environment, and resources, such that in a given environment, a species will be forced to adapt or die. Those that live, pass down their more favorable characteristics and genetics, and less favorable ones do not.
This in short is called Natural Selection (Ref 3, 4, 5).
If you think about it, the Free Market is the financial equivalent of Nature. Therefore, we can expect the new Cardano stablecoins to be in an intense struggle for existence.
The Cardano Stablecoin Species will evolve and fight it out in the harsh, open free market environmental conditions of implosions from extreme leverage, fraud, and recession. There will also be plenty of predators waiting to savagely exploit all weaknesses, such as the great Bearwhale.
Ultimately, dominant stablecoins species will emerge, battle tested and hardened for each niche environment.
But, should we expect one stablecoin to rule them all? What types of stablecoins can we expect? Let’s look at the current stablecoin landscape.
Types of Stablecoins
The Biology analogy of “Stablecoin Species” can be further extended to a higher-level hierarchy of “Classifications”, or simply “Types”. For example, the Species Lion is of Class Mammals, the Species Shark is of Class Cartilaginous Fishes, however they are both part of the Animal Kingdom (Stablecoins).
Below is a quick refresher on the current dominant Stablecoin Classification “Types”.
- Fiat-backed – $1 stablecoin for $1 fiat (or equivalent) held by an audited Bank
- Collateralized – $1 stablecoin for $4-8x collateral token (Ada) debited to a smart contract
- Algorithmic – $1 stablecoin for $1 collateral, stablecoin supply minted and burned to keep peg
Each Class comes with trade-offs. Decisions of risk versus decentralization need to be considered by the user for their use case, as seen below.
Emerging Native Cardano Stablecoins
So, what specific Cardano native stablecoins species (*) are coming to market. Will it be diverse?
This is a non-exhaustive, high-level overview of the expected Predominant Species and some lesser-known Emerging Species that should be on your radar (**).
Predominant Species
- $USDA by Emurgo (Fiat backed, KYC, regulated)
- $DJED by COTI (Ada backed, collateralized and algorithmic, IOG Designed)
Emerging Species
- $SigUSD by Emurgo/Ergo (Erg backed, collateralized algorithmic, bridged)
- $USDM by Mehen (Fiat backed, US state regulated, token issued)
- $qADA by Liqwid (DeFi collateralized algorithmic)
- $iUSD by Indego (Algorithmic)
- Shareslake (Fiat backed, KYC, Cardano sidechain)
- EVM bridge or wrapped assets (Milkomeda EVM, Algorand and Solana stables, others?)
(*) Note, species is a play on words for different types of animals, and financially to define different types of money or currency.
(**) A more detailed handbook overview review of the stablecoins will be in Part 2.
Strength Thru Diversity
As you can tell, there are numerous permutations of stablecoin species coming, of different Types or Classifications, and from different projects, implementations, and use cases.
Should we want one dominant stablecoin?
In Darwinian evolution, a diverse ecosystem is considered to be strong because it increases the chances of survival for the species within it. Each different species has their own unique characteristics and adaptations. If one species becomes killed off, there will be another to take its place.
In other words, a diverse ecosystem is a strong, balanced, and healthy ecosystem.
Therefore, the sheer quantity and variety of different stablecoin types should make for a diverse and thus strong financial ecosystem. Not all our eggs will be in one basket of stablecoin species, giving the ecosystem reliability and safety thru redundancy, which is essential for our thriving financial ecosystem.
Stablecoin diversity should be encouraged and supported, especially for different users and use cases, and free market competition will ensure the strongest survive.
Market Conditions and Timing
The market timing and conditions for new Cardano stablecoins couldn’t be better. January 2023 is in the middle of a “crypto winter bear market”. Mainstream interests are at an all time low, and head’s down development building is at an all time high.
This is the perfect timing for the Cambrian explosion of Cardano stablecoin ecosystem for a few reasons.
- The Cardano Blockchain is perfectly primed for the high demands of stablecoins. Cardano as a blockchain has smart contract capability from the Goguen Era’s Alonzo upgrade in Fall of 2021, and now sufficient scaling from the Basho Era’s Vasil Upgrade (6). At time of writing, the blockchain network usage is at ~40% block saturation capacity on average, plenty of upward headroom.
- Low visibility stress test, risk reduction, and building in the 2023 bear market. It’s a quiet time in the middle of a bear market, perfect for new stablecoin testing and risk reduction in the market. There should be relatively low volume and low interest from the mainstream, which is the perfect time for a ramped-up stress test, chaotic battles, and ultimately risk reduction before the next prime-time bull run. There should be plenty of volatility and whale games in 2023 with the greater macro landscape of recession. If there’s a catastrophic failure, or even minor issues, now is the time to get them out of the way, and build improvements and integrations all around.
- Strong, battle tested Cardano stablecoins ready for the next mainstream bull run. After a year or more of stablecoin struggling for existence in the 2023 bear market, the stablecoin ecosystem should be diverse, hardened, and strong just in time for the next mass adoption cycle, if it should follow precedent for the next Bitcoin halving in May 2024. The Cardano DeFi and the Crypto Financial Ecosystem at large should be robustly positioned with a new and improved class of Cardano stablecoins for different users and use cases.
Closing Thoughts
With the Advent of the Cardano Cambrian Explosion of Stablecoins, the financial ecosystem should expect some chaos until dominant stablecoins emerge thru Free Market struggle for existence and natural selection.
There will be many species and types of stablecoins for a strong and diverse ecosystem, per Darwinian evolution. This will bring a huge net positive to the entire crypto landscape.
This is the perfect time to introduce a new class of Cardano native stablecoins for stress testing in the 2023 bear market, leaving Cardano and Crypto at large better positioned for the next wave of mass adoption.
Who will survive the bear market winter? …Only the strongest of Cardano stablecoins.
Upcoming
- Part 2: A Handbook of Cardano Stablecoins Coming To Market
- Part 3: The Advantages Of Cardano Stablecoins Over Ethereum & Risks
References
- https://en.wikipedia.org/wiki/Cambrian_explosion
- https://www.britannica.com/science/runaway-selection-hypothesis
- https://en.wikipedia.org/wiki/On_the_Origin_of_Species#Struggle_for_existence,_natural_selection,_and_divergence
- https://en.wikipedia.org/wiki/Struggle_for_existence
- https://en.wikipedia.org/wiki/Natural_selection
- https://cardanofoundation.org/en/news/the-vasil-hard-fork-a-new-update-to-scale-and-optimize-the-cardano-blockchain/
https://adapulse.tempurl.host/the-stablecoin-ecosystem-being-built-on-cardano/
https://adapulse.tempurl.host/stablecoins-a-necessity-for-the-crypto-industry/
