Decentralized stablecoins and diversified collateral (we explain)

TL;DR

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

• A few months ago DAI was supported at 50% USDC, but that has been reduced to 23.6% now.

• So if a single crypto or RWA crashes, DAI won’t shut down with it.

Full story

Let’s talk about decentralized stablecoins.

Centralized stablecoins are backed by a fiat (i.e. US dollar) equivalent or real world assets (RWAs).

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

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

(Keep reading, we explain).

Operated by MakerDAO, DAI is the largest decentralized stablecoin with a current market cap of ~$4.6 billion.

A few months ago DAI was supported at 50% USDC, but that has been reduced to 23.6% now.

That’s great news!

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

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

Instead of the pie chart showing DAI’s collateral as 50% USDC, it now looks more like this: